Activation Policies for the Poor in OIC Member States

2.1.1

Trends in labour demand

Jobless growth

Jobless growth is one of the deep-rooted causes of persistent unemployment in the low and lower-

middle income countries of the OIC and is, almost paradoxically, linked to economic growth.

Although economic growth is associated with development, the industrialisation and expansion of

the service sectors, which take place as development progresses, produce relatively fewer jobs. As

output growth increases, employment does not (or increases are not as large as those in output

growth). This is known as jobless growth.

This is contradictory to OECD countries, where economic

growth has been found to impact positively on employment. If the same relationship is to be

established in low income OIC Member States, complementary policies are required.

OECD

countries have a long-term employment elasticity of 0.46, meaning that for every percentage point

increase in GDP, total employment grows by approximately 0.46 percentage points. Low income

economies, however, have been found to have a long-term employment elasticity of 0.02.

According to the Islamic Development Bank, jobless growth in developing countries is due to

structural unemployment. This means that factor prices (labour and capital) are influenced by

economic developments leading to the favouring of capital intensive production techniques. At the

same time, the economy cannot absorb the surplus labour supply.

This typically occurs when the

agricultural sector shrinks and other sectors cannot absorb the labour supply from former

agricultural workers.

Measures to address jobless growth include structural policies to increase labour and product

market flexibility and reduce government size, and macroeconomic policies aimed at improving

stability.

Regionally, East Asia has been most successful at absorbing former agricultural workers

into the industrial and services sectors. However, in other regions, jobless growth has led to

increases in vulnerable employment and working poor. Skills development is needed to ensure that

workers can enter the formal services and industrial sectors.

Malaysia is an example of an upper-middle income country which, as the industry and service

sectors expanded, was able to absorb surplus labour from the agricultural sector. Other OIC Member

States with a large agricultural sector, such as Member States in Sub-Saharan Africa, are currently

challenged with addressing jobless growth as their agricultural sectors shrink and their service and

industry sectors expand.

The challenge of addressing jobless growth is strengthened by the fact that many OIC Member States

have young populations with a growing number of citizens of working age. New jobs are therefore

needed not only to absorb surplus labour caused by the adoption of capital intensive production

techniques, but also to absorb the growth in the labour force caused by growing populations. This is

why job creation is a key tool for governments seeking to establish activation programmes and why

it is one of the key factors included in our proposed framework for considering activation strategies,

as set out in the scope.

As mentioned, in OIC Member States that do not offer developed social safety net programmes,

people cannot afford not to work. In these countries, therefore, employment growth tends to be

driven by labour force growth rather than demand

with many workers taking up positions in the

informal or agricultural sectors. This supports the view that reviewing unemployment rates is not

IsDB Group (2012)

Basnett Y. & Sen R. (2013)

What do empirical studies say about economic growth and job creation in developing countries?

Overseas

Development Institute

Ibid

IsDB Group (2012)

Crivelli E. et al (2012)

Can policies affect employment intensity of growth? A cross-country analysis

. IMF Working Paper, IM

IsDB Group (2012)

ILO (2014)