Globalization failing to reduce poverty, says ILO
Source: Third World Network Features

By Kanaga Raja (1)

December 2005.

Global economic growth is increasingly failing to translate into new and better jobs that lead to a reduction in poverty, the International Labour Office (ILO) said. In its fourth edition of Key Indicators of the Labour Market (KILM) (2), the ILO said that currently, half the world’s workers still do not earn enough to lift themselves and their families above the $2-a-day poverty line.

The ILO found that for every 1 percentage point of additional GDP growth, total global employment grew by only 0.30 percentage points between 1999 and 2003, a drop from 0.38 percentage points between 1995 and 1999.

Taking a global view, the ILO pointed out that different regions show mixed results in terms of job creation, productivity results, wage improvements and poverty reduction.

‘The key message is that up to now better jobs and income for the world’s workers has not been a priority in policy-making,’ said ILO Director-General Juan Somavia.

‘Globalisation has so far not led to the creation of sufficient and sustainable decent work opportunities around the world. That has to change, and as many leaders have already said, we must make decent work a central objective of all economic and social policies.’

The new KILM paints an in-depth picture of both the quantity and quality of jobs around the world by examining 20 key indicators of the labour market.

It covers quantitative topics including labour force participation, employment, inactivity, employment elasticities, sectoral employment, labour productivity and unemployment. Qualitative issues include amongst others hours worked, wages, employment status, and unemployment duration.

The study finds that while in some areas of Asia economic expansion is fostering solid growth in jobs and improvements in living conditions, other areas such as Africa and parts of Latin America are seeing increasing numbers of people working in less favourable conditions, especially in the agricultural sector.

For millions of workers, new jobs often provide barely enough income to lift them above the poverty line, or are far below any adequate measure of satisfying and productive work. The total number of working women and men living on less than $2 a day has not fallen over the past decade, although at 1.38 billion, it is a smaller share of global employment at just below 50%, a decline from 57% in 1994.

In many developing economies the problem is mainly a lack of decent and productive work opportunities rather than outright unemployment. Women and men are working long and hard for very little because their only alternative is to have no income at all.

The study said that economic growth is not leading to job creation. In recent years there has been a weakening relationship between economic growth and employment growth, meaning that growth is not automatically translating into new jobs.

The study’s ‘employment elasticities’ indicator looked at the relationship between economic growth – measured in GDP – and two of growth’s contributory variables, the positive or negative change in employment and productivity.

It found that for every 1 percentage point of additional GDP growth, total global employment grew by only 0.30 percentage points between 1999 and 2003, a drop from 0.38 percentage points between 1995 and 1999.

With employment growing between 0.5 and 0.9 percentage points for each additional percentage point of GDP growth, the most employment-intensive growth has taken place in the Middle East and in Northern and sub-Saharan Africa.

However, a review of other indicators shows that much of the employment growth in these regions is in the category of ‘self-employment’, which includes most women and men in the informal economy where working conditions are often poor.

While more jobs are being created in economies where agriculture dominates employment such as those in sub-Saharan Africa, many of the jobs are in the informal economy, at low-levels of productivity, and fail to provide workers with enough income to pull themselves or their families out of poverty. For instance, the number of workers living on less than $1 per day increased by 28 million in sub-Saharan Africa between 1994 and 2004.

By contrast, economic expansion in East Asia (includes China, Hong Kong-China, North Korea, South Korea, Mongolia, Macau-China, and Taiwan, China) was sufficient to generate employment growth, productivity growth and a reduction in the high incidence of poverty in the region. The Asian regions saw a substantial reduction in the number of working persons living on less than a $1 a day – the number of working poor decreasing by as many as 131 million between 1994 and 2004.

On the other hand, Latin America experienced a decline in the employment intensity of growth between 1999 and 2003. At the same time, the number of working poor in the region at the $1-a-day level increased by 4.4 million.

In both Western Europe and North America, the services sector has experienced the most robust growth – both in terms of value added and employment growth. Between 1991 and 2003, for every 1 percentage point of growth in the services sector, employment increased by 0.57% in North America and by 0.62% in Western Europe.

The study however found evidence of a divergence in employment performance between North America and Western Europe between 1991 and 2003, with the employment intensity of growth decreasing in the former and increasing in the latter between 1991 and 1999, with a further significant reduction in North America and a mild reduction in Western Europe between 1999 and 2003.

The study found that the agricultural sector accounted for 43% of total employment in the world, and the regions where agriculture continues to dominate include East Asia, South-East Asia, South Asia and sub-Saharan Africa. These regions contain more than 60% of the world’s working-age population.

All developed economies with data had the largest share of employment in the services sector, followed by industry, and a small proportion (less than 10%) in agriculture. The fastest growing sector over the last 10 years has been the services sector.

Another key finding has been that global wage inequality is on the rise.

Between 1990 and 2000, wages increased faster in high-skilled occupations than in low-skilled occupations globally. Although these findings do not show a general deterioration of the wage position for low-skilled workers, they do suggest widening wage inequality between high- and low-skilled workers during the 1990s.

The study attributes rising wage inequality in the developed economies mainly to greater demand for higher-skilled labour, which is in short supply, and to less demand for workers with lower-level education. Other explanatory factors, although of less impact, include increased trade with developing countries and increased immigration of low-skilled workers.

In developing countries, factors impacting on rising wage inequality include industry wage premiums resulting from changes in trade policy that favour workers in specific industries, the increasing size of the informal economy, which generally has lower wages and less favourable working conditions, and a shortage of high-skilled workers.

The study said that the competitiveness of a high-wage economy is not immediately threatened by lower labour costs elsewhere, as countries with low labour costs are usually also characterised by lower productivity levels.

It highlighted how competitiveness is determined by the combined outcomes of elements of the productive process – the cost of utilising labour (labour compensation) and labour productivity (output per person employed) – and by exchange rate fluctuations.

The study’s analysis of competitiveness in the ‘unit labour costs’ indicator shows that:

  • In the European Union-15, it is not so much high labour costs but lower productivity in the manufacturing sector and appreciation in the Euro that has threatened the competitive position of the region vis-a-vis the United States.

  • The manufacturing unit labour cost level in Japan has not only been high relative to the United States, but also in comparison with that of the EU-15. However, since the mid-1990s, the gap has decreased due to a moderation in wage growth in Japan, a weakening of the yen-$ exchange rate in 2005 and an improvement in the comparative productivity performance of Japanese manufacturing.

  • The Republic of Korea has shown rapid improvement in labour productivity relative to the United States, but unit labour costs in the country have increased due to rapid wage increases during the early 1990s.

  • Productivity has weakened in Mexico, but because labour compensation levels are lower, unit labour costs have also remained lower than in the United States.

  • The United States continued to show the highest labour productivity levels measured as value added per person employed. Despite faster productivity growth rates in some European Union countries, especially the new EU Member States, the productivity gap, measured in value-added per person employed, between the United States and most developed economies continued to widen. One exception is Ireland where this measure of the productivity gap with the US has been steadily narrowing since 1980.

    However, if productivity is measured by value-added per hour, some European countries are more productive than the US and for others the gap is less wide. However, most Europeans work shorter hours and have longer holidays than their US counterparts.

    Among other key findings in the ILO study are:

  • Women are continuing to catch up with men in terms of participation in labour markets throughout the world. Nevertheless, women continue to be disproportionately engaged in low-wage, low-productivity and part-time jobs, and in many regions such as the Middle East, North Africa and South Asia, women’s participation in the labour market still lags far behind.

  • While the most severe working poverty is growing in Africa, it is declining in Asia and Central and Eastern Europe.

  • Youth unemployment rates are typically at least twice as high as adult rates and are sometimes much higher. However, in most countries, the illiteracy rates of adults are higher than those of youth, suggesting that young people are increasingly better prepared for the labour market.

  • Developed economies and the European Union are faced with a growing number of ‘under-utilised’ labour resources, including the unemployed and involuntary part-time workers looking for a full-time job. In both France and Italy, the rate of ‘under-utilised’ labour reached 21% in 2004, up from 17% in 1994 in France and 12% in Italy.

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    (1) About the writer: Kanaga Raja is a researcher with Third World Network, based in Geneva.

    (2) Key Indicators of the Labour Markets, 4th Edition, ILO, Geneva, 2005, CD-ROM version; ISBN: 92-2-017568-1. The print version will be available in April 2006. For additional information visit

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