Industrial policies for productive transformation

The objective of diagnostics for inclusive and productive employment is to understand the nature of the deficiency of productive employment and to identify the constraints on and opportunities for enhancing inclusive and productive employment, with a view to providing a sound knowledge base for effective policies, institutional reforms and other interventions aimed at reducing the deficiency of productive employment. The development of an analytical and conceptual framework for growth diagnostics by Hausmann, Rodrik and Velasco has had a major impact on recent growth analysis and serves as a source of inspiration also for the development of an analytical framework for inclusive and productive employment diagnostics. It combines a binding constraint approach with the use of a ‘decision tree’ as tool for disentangling causal chains and identifying the fundamental, rather than proximate, constraints on growth. This approach can usefully be recast and expanded to become a key component in a methodology for employment diagnostics, when combined with various types of reality checks, including in-depth discussions with key local informants and stakeholders, in addition to a methodological approach aimed at providing knowledge for pro-active policies, complementing reactive policies aimed at removing constraints.

An employment target is an explicit, political commitment to achieving an outcome on the labour market, usually within a defined time period. That time period might well coincide with a political (election) cycle, but not necessarily, particularly in those countries with planning commissions independent of the electoral cycle. The global economic crisis has given a new impetus to the need and desirability of employment targets. A large number of countries presently have adopted various types of employment targets.1

In most developing countries poverty reduction strategies (PRS) or other types of national development strategies play a fundamental role as a basis for policy-making and resource allocation. These strategies invariably have poverty reduction targets as well as growth targets macro-economic stability targets at the centre. There is a need to introduce explicit and quantitative employment targets in the national development strategies (PRS) in order to move beyond non-quantitative references to the importance of productive employment and decent work in national development strategies to the introduction of firm and measurable commitments to achieve these goals. Such targets would reflect national concerns and priorities and as such would also demonstrate commitments to the MDG goal of 'Achieving full and productive employment and decent work for all, including women and the young'. Such targets clearly have to vary from country to country to reflect specific national context and ensure relevance. In countries with poverty reduction targets at the fore, they would also serve as operationalisation of these targets by spelling out what achieving the poverty targets would require in terms of generation of and access to productive employment opportunities. Considerable analytical and methodological work is needed to ensure that country specific employment targets fully meet the criteria or relevance, feasibility and coherence with other key targets.

Employment targeting is subsumed under the broader analytical approach to diagnosing constraints to job-rich inclusive growth. In fact, one can be thought of as the mirror image of the other. For example, one could approach the relationship from the dual perspective of: “given an employment target, what are the constraints in arriving at it (whether domestic or external)”; alternatively, one might ask the question in reverse – “given a variety of constraints to employment, what might constitute an appropriate employment target?” Employment targeting is a means of putting job-rich inclusive growth on the development agenda, manifesting political commitment and elevating productive and inclusive employment from being a mere residual outcome in development planning to becoming a chief objective. Employment diagnostics provides the means of telling us how employment targets can be achieved and what employment targets would be most relevant.

1 For instance, The European Union, China, India, Indonesia, Japan, Korea, South Africa, USA, Vietnam.