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co Closingthe Gap Too maniyworkersin developingcountries are failing to reap the potential benefits of the itiforiiiationtechnology revolutionand globalization. ThailandAfterthe Crisis After the economiccrisisof 1997 revealedstark shortcomingsin social protection,the Thai governmenttook action.Today,socialprotection has becomea cornerstonein the broad set of reformsto rebuildThai society. Feeling Lucky Matclmaking in the Labor Market Time to Put on the Hard Hat

5

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Toil,SweatandTrade What can be done to improveworking conditionsin developingcountries? ImIprovisigConditions of Wor-k in the Global Economry

19

DecentWorkandPovertyReduction InternationalLabour Organizationand World Bank partner to meet the challengeof globalization.

231

SolidarityForever? TradeUnionsandthe WorldBank

23a

Workersin the InformalSector Protecting A closerlook at the inform-alsector- a pervasiveand persistent economicfeatore in most of the developingworclthat contributes significantlyto employmentcreation, production, and income generation.

2

Appreciating

the Informal

I7

Economy

in 10 SquareFeet Entrepreneurship workersits the Philippinesare strugglingto make ends TUnenmployed meet.Transplantinigpoliciesthat work elsewlhereis not the best option. to ActiveLaborMarketPrograms A RealisticApproach What policy-makcrsshouldknow beforeacting on behalf of disadvantagedworkers. A NewVisionof Policyafterthe Crisis EU supports World Bankand partners' researchon East Asianlabor markets. Employment Services Ca)Your Fingertips .

.

WorldBankLaborMarketsLending Cuttingto the Coreof the Issues

Successof newWorldBankLaborMarketlPolicies Course builds on knowledgesharing. Meetthe WorldBank'sLaborMarketsTeam Guide Resource SPectrum's

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F .- \C;C ¢ .dS, P ctrum NowAvailableOn-line

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ITodownload allthe issuesof Spectrum, pleasevisit usonthe webat:

.i http:j//wwwworldbank.org/spectrum

vi~~~~oi ModernSlaves The following was excerpted from a submission by Kevin Bale.

Slaveryhasbeenwithusfor thousands of years.It hasbbeen presentin mostculturesat onetimeor another, takingslightlydifferentforms.Likeothertypesof crimeit haschanged overthe centuries, butWfor most-ofus slaverymeanswhathappened in the 19thcentury. Webelieveslavery -ended withthecampaigns thatbrought an endto legalslavery.Nothingcouldbefurtherfromthetruth. Slaverymeanscontrollingsomeonecompletely usingviolence,paying,them nothing,land exploitingthem economically. Bythismeasure thereare27 millionslavesin theworld.Manyarekeptina form mnew of slavery thathasemerged since1945.Thisnewslavery is different, slavesarecheaper todaythanat anytimein human history.Slavesweremajorcapitalpurchases in the 19thcentury, todaytheyareso cheaptheyaredisposable. Studieshavedocumented the slaveoriginsof severalinternational productssuchas carpets,sugar,and jewelry.Wemaybe usingslave-made goodsor investing inslaverywithoutknowingit. Slave-produced cocoa, for example, goesinto the chocolate we buy.Rugsmadeby slavechildrenin'India,Pakistan, andNepalare mainlyexported to Europeandthe US.Theglobaleconomic valueof slavery is estimated to be$13 billionper

vi';Sgf:mg,Eflm year.But,thereis noclearpicture oftheeconomy of slavery. K

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If thereis goodnewsaboutmodern slavery, it is the dramatic growthin mediainterest,publicawareness, and ;; officialaction. A storyearlierthis yearof a "slaveship" off the coastof Beninwasjust oneof a growing number of storiesthatstirredpublicinterest.Withgrowing publicsupport,organizations likethe UnitedNations andtheWorldBankareableto bringmoreresources to bearto builddatabases, develop effective interdiction, workoutwaysto freeandrehabilitate trafficking victims,helperectlaws,andconduct the research needed to address the issue.A representative of Anti-Slavery International explained, "It Isveryheartening, afteryears of neglect: on this issue,to be part of a globalmovement againstslavery.It is still in its infancy,but it is growing everyday." KevinBaleis a PrincipalLecturerat theRoehampton Instituteof Surrey,England, andthe world'sleadingexpertoncontemporary slavery.Heis theauthorof Disposable People:NewSlaveryin the GlobatEconomy, Universityof Califomria Press (1999).

Correction The January2001 issue of SPectrum(SP SectorStrategy Launch) incorrectly stated number of people killed in the Algerian conflict since 1993 to be 200,000. The correct

numberIs 100,000.

Welcome Dear Reader, The ability to woirk is the onlly asset of miianiy of the world's poor people. This is why labor markets matter so much to the World Bank mission of poverty reduction and cconomic dcvelopment. It is through paid work that most people can generate income to meet their material needs, get a sense of self-worth, and better integrate into society. Sound labor market policies can support workers by reducing unemployment and underemployment and by helping them manage and cope with the risks associated with unemployment, lowincome, and poor working conditions. Well-functioning labor iiarkets

conlLribute critically to) economic asod social develtspment.

In this issue of SPectrum,we not only taLe a closer look at the World Bank Labor Market Team's cutting-edge work, but also provide an overview of the global trends domioiating today's labor marketrs. Globalization, the revolutioln in insformatiornand communication techniologies.saifbijig macroeconomic policy, the growing importancc of the informal scctor, changing population pattcrns, and the changing role of women arc just thc most visible of a host of dramatic dcvelopments that have altered employment over the past quarter-century. These enormous changes raise an array of challlengesfor wsorkers,employers, govertomilents,trade unions, and policy-makers. You will find a range of articles in this issue, covering a diversity of issues from designing effective labor market programs to considering the role of international labot standards in a globalizing world. You will find pieces that span the globe, from improving conditions for Thai workers in the wake of the Asian financial crisis to appreciating the life of informal sector workers in South Africa. I also want to mention the latest product from the Labor Marker Team. In collaboration witls the World Bank Inistitute (WBT). we have sponsored a new flagship course on Labor Market Policies held for thc first time this spring in Washington,D.C. This courseprovidedparticipants- from all the six regions of the Bank's work as well as OECD countries - with a solid grounding in the key issues that arise in the labor market. Duting the next year, we plan to offer this evenit again, extending its reach onra regional basis and by utilizing distance learning technologies. You can read more about the Labor Mlarket Policy course on page 41. Let me end by offering a quote from World Bank President James D. Wolfensolrr. "Work - sale, productive, ant] eirvironmentally soiind - is the key to economic and social progress everyvvhere. In the advice it gives governments and in the policics it promotcs, thc World Bank has long recognized the critical valuc of work. This is more than an economic issue; it is at the heart of human development."

Enjoy your reading. Yours truly,

/42/ Robert Holzmann

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osin the Gap Toomanyworkersin developingcountriesare failing to reapthe potentialbenefitsof the information technologyrevolutionand globalization. Investing in humanresourcesand designingeffectivesocial

protection strategies for informal-sector workers mustbepriofitiesfor development andpoverty reduction. Rapidly evolving informiiationitechnologies and globaliLatiorn presenr opporttunities tor er[nployliient and

Economic performance is the primary determinant for

improvements

clear language abour the magnitude

in incomes and working scandards in

developing as well as in dcveloped countries. Howcvcr, a

labor miiarket conditionls. Bercherriiain's study speaks in of the gap in pro-

ductivirv and income between developing and the devel-

closer look reveals that benefits have been slow to come

oped countries. This is most evident in the statistics on

for workets in developinig countries. The gaps between

Gross National Product

rthe developing and the (levelolped world( are large andi]

OECD counitries ranges frormi60 times greater thani utie

growing on almost all dimensions

corresponding

of the labor markct.

The challenges that this poses are formidable

and inno-

vative responses will nieed to he takein inside as well as

(GNP). GNP per capita in the

figure for the poorest region (South Asia)

to seven times greater than the level of the best-off developing

regioni (Latin America and the Caribbean).

outside the labor market policy envelope. "With the cxception of East Asia, devcloping rcgions In a new study on the key global trends and major labor

have not narrowed the gap over the past fewvdecades.

mzarket policy issnies, Gordoni Betcheriiian,

This does Iiot mean tIe econoniies of these regions did

leader of the

World Bank's Labor Market team, spells out what is

slot expand dtiring these years btit whatever growrtl

nccded if policy makers arc serious about closing thc

there was did not meet thc huge population

gap. He emphasizes three crirical challenges that must be

in much of the devcloping world," says Betcherman.

cenitral to these efforts to generaLe ensployliieni illcoml1e opportunities

in all countries

expansions

and

bhw to develop

The growing gap is also evidetnt in real wage trends dhnr-

human resouirces, how to offer effecrive social protection

ing the 1990s. While most OECD economies

to workcrs, and how to regulate the labor markct to pro-

to show moderate but consistent growth in real wagcs,

tect the fundamental

the situation in developing countries has been very

rights of workers in an economi-

cally efficient manner.

uneven and often very disappointing.

continLe

"Many East Asian

TheGrowingGap 1odav about 160 million sworkcrs worldwidc arc unemployed. This figure does not include the millions squeaking out a subsistence

living by working iii inifor-

V WBlaboreconomistGordonRetcherman pointsto dramatic growthof the world'slaboFforce as a key challenge.

rnal sectors. About a half billion workers arotind the world cannot carn cnough to raise their families above the US$1 a day poverty line. These problems are greatest in developing countries where improvements in the economic and social conditions of workers have been elusive. {;s

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declining opportunities

countries have had sutbsiantial inicreases in real wages although

growth of inega-cities

an historically unprecedented

regional financial crisis of 1997. Elsewlhere, however, swages often have detcriorated and in the case of Etletwuo poorest regions

sectors outside

in traditional

Lurbaniareas. In many developing countries, the rcsult is

gains were rollcd back somewhat during the

which is creating enormous pressurcs to accommodate the booming labor supply."

Afr ica and South Asia - many countries

experienced rcal wage declines of the order of 25 percent study doCUmIeiLts the explosion in urban

or even Tilore during the 1990s," says Betcherman. His

Betcherman's

study also sho-ws that on top of this, inequality also

labor markets in developing countrics.

appears

not be ignored by national governments

and the changing economic technological

strutcture; globalization;

change; and

Globalization

and Migration

Globalization

is a much debated phetiomiienon and an

part of the controversy conccrns its impact on

important

the cxpanding informal sector. "These trends are all closely litked. Together they are affecting the structure and content of employment,

or intterlnaioisal

organivanions.

According to the study, all of thcsc trcnds reflect four key factors that are now shaping labor markets around the world: urbanization

He argues that

these "structural" changes pose huge challenges that can-

tol he increasing in most developing countries.

workers. As countries becoimueirroe interdependent through

the possibilities for

increasing flows of goods and services, capital,

and technology, the rtiles governing the labor market

ein1plosyrmeritand earnings growth. and the nature of the relationship between capital aild laibol," says

seem to be changing as well.

Betcherman.

"Globalization provides opportunities for CcomiomieiC growth and thus, employment and rising incomes.

Key Factors

However. it also raises concerns al)out the downside

Urbainization

labor market risks in the form of uncmployment,

involves a progressive

The changing economic structure

ward wage pressures, audl a 'race

sense, thcsc trends are an expected part of developmenrt," says letclierimiaoi, "but what sve are seeing today is not

Lthedebates on globalization

only the 'pull' of jobs in cities bht also lie 'push' of

effects on labor markets," says Betcherman.

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ing conditions and public policy. To this point, however,

p

S

are hampered by the fact

that sve simply do not have elioLIgh solid evidence on its

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to

down-

rhe bottom' in svork-

shift fromLiagriculture to industry and, subsequently, to services. Urbanization is aimaccompanying process. cIn a

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Many researchers, however, have documented a general trend towards worsening employment outcomes for unskilled workers during the period when trade and investment liberalization has taken place. " This trend especially in the case of developing countries - runs counter to what woouldbe expected on the basis of international trade theory," says Betcherman. According to the textbooks, increased international trade should lead to more istensive use of - and thus rising prices for the abundant factor which is unskilled labor in the case of developing countries. One controversial issue where more empirical evidence is required concerns the effect of globalization on the level of employmtient."By stilmullating improvemenits in productivity and output, globalization can play an important role in job creation. On the other hand, to the extent that freer trade, for example, affects formerly protected sectors, then significant job destructioni can occur as well." says Betcherman. While discuissionisof globalization tend to focus Onl flows of goods, services and capital, the movensent of workcrs is also part of the phenomenon. International migration is nothing new, but globalization appears to motivate displaced workers to look for work elsewhere. Also, reduced transportation and cormimunicationcosts both increase the likelihood of relocating and returning, as well as makingit more feasible to emigrate without losing contact with one's home country. "There are many dimensions to the current international migration of workers," saysBetcherman. "These include the movement of both unskilled and highlyskilled labor In the former case, migration may contribute to poverty redtuctionianideCOllnoIliCgrowtlh ht there is also a host of policy issues including illegal trafficking, undocumented entry; 'sweatshops,' and the social protection of these workers. In terms of migration of skilled workers, ihere are conicernsabout "braiii drain" when developed countries rap in to developing country supplies of high-tech wvorkers. Technological Change The sLudyalso)addresses the drarsiatic charngesassociated with information and communieation technologies (ICT). In dcveloped countries, this is seen as the key to spurring output and productivity growth. "Technological innovation also holds great promise for>

To start, diffusion of the new technologies has been heavily weighted towards the developed countries. This only widens existing gaps. The study rises data collected by the World Bank and the International Labour Organization as documentation. For example, the critical coiyminicationis infrastructure is heavily concentrated in high-income countries. "Only three perctnt of the telephone infrastructure is in low-income countries and 18 percent in middle-income countries, with the rest in the richest nations. Tokyo and Manhattan each have more phone lines than all of Africa, according to World Bank statistics. Internet access is even more tilted towards high-income countries," says Betcherman. While the new technology overall seems to be associated with net employment gains, IC I clearly alters the composition of employment through the processes of job creation and destruction. Industrialized countries are increasingly involved in high-technology industries while shedding lower-technology ones. "Howcver, developing countries - with their lower cost structure - can accelerate tip the valuteclaini. Two examiiplescf this are India and South Africa which both have developed productive IT sectors with labor cost advantages." says Betcherman. Unfortunately, there are not eniough examples of - developing countries building para- titve advan-tages through a strong local skill base and inifrastructure, ancdan appropriate regulatory framework. t 3

Informalization Ar thesane rimethatglobalization and the ICT revoIltion have been taking place, we are also witnessing d somewhat unexpected trend - the

developing countries- firstbyofferingthesecountries the possibility of becoming importamitlocations for emerging technologies and services; second bv providing the possibility of 'leapfrogging' earlier stages of development; and third by creating opportunities to alleviate poverty thirough imTpiovedproductivity' amidgmowth." saysBetchermami.However, he warns that while ICT may havc the potential to stimulate development and reduce poverty' in low-income nations, here too potential is not being realized,

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growthiin informalsector employmentoutsidethe reach of tax systems,socialsecurityplans,and government regulation."Developmenteconomistshavetraditionallyassurmedl that informalization would diminish overtime,"saysBetcherman."Yetin many,if not most, devclopingand transitioncountries,the oppositeseems to be the case.This is clsalleiiging longstandinig viewsof development,but also raisesa number of challengesfor policymakers." The exactsizeof informallabor marketsis difficultto calctulatebecauseof data problemsand difficultiesin preciselydefiningthe sector.In manydevelopingcountries,availableestimatessuggestthat the majorityof the labor force is in informalemploymeiss. These workers are often poor and - lacking formalsocialprotection - are often especiallyvulnerable.At the sametime, there is evidencethat informalsectorsalso include dvniatsicanidvibranitactivitieswhich makeimiiportant economicand socialcontributions. TheChallenges Investingin HumanResources Regardlessof the stageof development,investmentsin human capitalmust be a high priority."The implications of the economicand technologicalchangesfor puLblic policyare clear.The importanceof huLman resourcedevelopmentmust be reinforced,from basic cducationto lifelonglearning,"saysBetcherman. "If globalizationi aiid teclsisological cliaiigeare to clhange presenropportunitiesfor economicgrowthand employment generation,human capitalis a crucialfactorin taking advantagein these opportunitiesas wellas minimizingsocialcostsassociatedwith adjustment.This is true at the individuallevelas well as the nationallevel," he continues. SocialProtectionand Regulation The socialprorectionof workershas been strainiedby the growth of informalemploymentand the limitations of traditional,informalmeansof socialrisk management. This has been exacerbatedby the majorcrisesthat haveaffectedso manydevelopingcouniitries in receist years.For example,the EastAsianfinancialcrisisquickly spreadto the labor market,resultingin large-scalclayoffs,rcal wagecuts,a deteriorationin wvorking conditions,and substantialflowsof workersfrom the formal tOthe informssal sector.Whiileinformalemiiploymeoit and informlalcominntitiyand fansilysupport helpedtoanly workersin the region,the risinghardshipwasevident. Governmentswere not preparedto deliverlabor market and socialprotectionprogramswheisthe labor market situationcalledfor it. One lessonlearnedfrom this experiencehas been the need to puttin placesound and realisticsocialpoliciesthat willbettcr cnable countries to dealwith future crises.From his work on the East Asiancrisis,Betchermanhas seen that policyinterventions can be improvedby better infornsatioissystems,

more responsiveinstitutions,and better coordination acrossagenciesand programs- areaswherehe and his team canaprovide teclsisicalassistance. Policymakersmust alsoregulatelabor marketsmore efficiently.There are manyaspectsinvolvedand viewsale diverse.This issueis becomingmore complexwith expandingglobalizationas countriesare becoming increasinglyconcernedabout stayingin line with their competitorsand as manylabor market issuesalsospill acrossnationalborders. What is criticalis the link to economicand socialoutcomes.How the labor marketis regulatedcan affectthe rate of job creationand destruction, productivity,wagesand profit; and the degreeof socialprotectionaffordedworkers.Importanttradeoffs must be understoodand taken into accountby policymakers.For example.strongemploymentprotectionrules areunderstandablyattractiveto goverisments conicerned aboit ththvulnerabiliryof workers.However,this may comeat a priceas employersmay bc reluctantto takcon workers.Rigidhiring and firingrulestend to benefit "insiders"on the job marketwhilehiavingthe opposite effectfor the "outsiders"who areoften womenand young workerstryingto geta footholdin the labor market. TheWayForward The labor marketchallengesfacedby the developing worldare formidable.Betchermanfindssomesuccess storiesthat can be told, but theseare overshadowed by the troublesometrends. He remainshopeful,howeveL "The experienice of the developedcouistriesarid their cutting-edgepracticescan offera usefulguideline. Collaboration'acrossthe developmentdivide'will be essentialas wellas alwayskeepingthe unique 'initial conditions'in developingcountriesin mind," he says.A GordonBetchermanisSeniorEconomistand leaderof the LaborMarketsTeamin theSocialProtectionUnitin the HeimanDevelopmentNetworka/ sheWorldBank.His paper 'An Ocerviciveof[ahor MarketsWVorlzWide:KA>V Trend,and -lMajor Policylssues,will bepublishedsoon.

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