IDR Sustaining Employment Growth: The Role of Manufacturing Structural Change

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2 IDR 2013 Sustaining Employment Growth: The Role of Manufacturing Structural Change Ludovico Alcorta, Director, Development Policy, Statistics and Strategic Research Branch ODI, London, 27 th February, 2014

3 What is the report about? Global long-term trends in industrial structural transformation and employment What drives global industrialization and through it employment Industrial policies to generate employment through industrial structural transformation in developing countries What role for the international community in helping bringing about industrial development.

4 Main Findings 4

5 Is manufacturing still an engine of growth and employment generation? 5

6 Annual Growth Rate of GDP per capita 8.0% 7.0% Engine of Growth? Economic growth and changes in the MVA share in GDP (selected regions and country groups, ) China 6.0% First-tier newly industrialized 5.0% economies Eastern Europe (1995- CIS ( ) 2007) 4.0% Southeast Asia 3.0% Central America and South Asia 2.0% the Caribbean Semi-industrialized Middle East and 1.0% countries Northern Africa Low- to middleincome Sub-saharan Africa 0.0% Latin America -1.0% 0.0% 1.0% 2.0% 3.0% Annual average growth in the share of Manufacturing VA in GDP Source: Adapted from UNDESA 2006a based on CIC 2009; World Bank 2013b. 6

7 Percent Engine of Growth? GDP composition by sectors, Republic of Korea( ) US$ 22,084 (2005 PPP) US$ (2005 PPP) GDP Growth: 5.5% Manufacturing Non-manuf industries Agriculture Services Source: Adapted from Szirmai 2009; Szirmai et al. 2013, page 11. 7

8 Post-industrial society? Manufacturing still matters for employment generation a. 262 million manufacturing jobs (1970) b. 471 million jobs (2009) c. 16.3% of global employment (2009) 8

9 Employment headcounts (in 1,000) 600, , ,000 Post Industrial Society? Figure 9. Total Number of global manufacturing related employment, Direct jobs: from 180 million to 201 million Informal jobs: from 130 million to 187 million Lower bound estimate: induced-jobs are not considered. 300, , ,000 Man-related Informal Formal 0 Year Indirect jobs: from 64 million to 83 million Total jobs: from 374 million to 471 million

10 Million of people Post Industrial Society? Figure 12. Total Labour Force, Total Employment, and Total Manufacturing Jobs, 1995 and ,500 3,000 2,500 2,000 1,500 1, ,454 2, % 374 3,041 2, World Population (in working age) represented 4,600 millions in From them, 3,000 million were actively participating in the labour market, and 2,880 million are employed Labour Force Total Employment Total Manufacturing Jobs 16.3% of total labour force

11 Are jobs traveling away? Manufacturing employment grows in developing countries decreases in developed countries in developed countries decreases are mitigated by growing manufacturing-related services employment 11

12 Where are the jobs going? Source: UNIDO s elaboration based on UNIDO Database and WIOD 12

13 Manufacturing Jobs Geographical Distribution in 1995 Europe, 81,320 North America, 29,081 Middle East and North Africa, 5,833 East Asia, 164,098 South/Cent Asia, 54,209 Sub-Saharan Africa, 16,928 TOTAL 374 million jobs Latin America, 21,001 Oceania, 2,239 Europe North America South/Cent Asia Latin America East Asia Africa Western Asia Oceania Source: UNIDO, INDSTAT 13

14 Manufacturing Jobs Geographical Distribution in 2009 Europe & Cent Asia, 73,518 North America, 23,106 Middle East & North Africa, 9,972 East Asia, 200,513 South Asia, 81,825 Sub-Saharan Africa, 20,771 TOTAL 471 million jobs Latin America, 58,217 Oceania, 2,319 Europe & Cent Asia North America South Asia Latin America East Asia Sub-Saharan Africa Middle East & North Africa Oceania Source: UNIDO, INDSTAT, WIOD and ILO

15 The emergence of manufacturing-related services jobs Industrialized countries Source: UNIDO s elaboration based on WIOD (Timmer 2012). 15

16 What is there in manufacturing for the least developed and lower middle income countries? Least developed countries have immense potential for industrialization in food and beverages (agroindustry), textiles and garments, which provide: very rapid output and employment growth high productivity potential 16

17 Change in value added per capita by income, lowand lower-middle incomes ( ) Source: UNIDO s elaboration based on CIC 2009; UNIDO Database. 17

18 Changes in employment by income and manufacturing industry ( ) Source: UNIDO s elaboration based on CIC 2009; UNIDO Database. 18

19 Relative Labour Productivity (Total Average = 1) Industrial potential for lower and upper middle-income countries Relative labour productivity by income and sector, (Total economy average of productivity = 1) Low and lower-middle income Upper middle income High income Income Level (thousands of 2005 PPP dolars) Manuf Non-manuf ind Agric Serv Source: UNIDO s elaboration based on World Bank 2013b; Groningen Growth and Development Centre 19

20 Avoiding the middle income trap Middle income countries can benefit from entering industries such as basic and fabricated metals as well as rubber and plastics industries which offer: a range of intermediate and investment goods that are heavily demanded by other industries, face growing demand internationally have potential for large increases in productivity 20

21 Relative Labour Productivity (Total Average = 1) Industrial potential for lower and upper middle-income countries Relative labour productivity by income and sector, (Total economy average of productivity = 1) Low and lower-middle income Upper middle income High income Income Level (thousands of 2005 PPP dolars) Manuf Non-manuf ind Agric Serv Source: UNIDO s elaboration based on World Bank 2013b; Groningen Growth and Development Centre 21

22 What s left for high-income countries? High-income countries have openings for: investing and innovating in high-tech industries sustaining jobs in these industries related services. 22

23 Changes in value added per capita by income and manufacturing industry ( ) Source: UNIDO s elaboration based on CIC 2009; UNIDO Database. 23

24 The emergence of manufacturing-related services jobs Chemicals Source: UNIDO s elaboration based on WIOD (Timmer 2012). 24

25 What drives industrial structural change and employment generation? Existing drivers include wages, skills, technology and innovation, industrial organization, business environment, trade and investment Emerging drivers include resource efficiency Yet the impact of new and emerging drivers of structural change on employment depends on the industrial policies at hand 25

26 Innovation inputs and outputs and their impact on employment THE TWO FACES OF INNOVATION I N N O V A T I O N - I N P U T R & D E T C PROD PROD & PROC PROC I N N O V A T I O N - O U T P U T JOB CREATION JOB DESTRUCTION Source: Vivarelli

27 What role for industrial policy content and process? Promoting structural change Targeting key drivers of structural change Getting industrial policy to work: focus also on process Experimenting, learning and evaluating International cooperation 27

28 Thank you!

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