Low-productivity Sectors Research Articles

Skill Formation, Immigration and European Integration: The Politics of the UK Growth Model

ABSTRACTWhile a reluctant European player now heading for the Exit, the UK was also an enthusiastic adopter of several key EU economic policies – namely, the skills and technology policies of Agenda 2020 and labour mobility. These initiatives worked with existing British policy, and structural biases, to exacerbate the already bifurcated structure of UK capitalism – between the high-paid technology and financial services sector on the one hand, and low-cost, low-wage sectors on the other hand. In particular, and central to the argument of this paper, immigration from Eastern and Central Europe after 2004 helped to sustain low-cost manufacturing and services industries by undermining firms’ incentives to invest in training. This combined with endemic failures in the UK’s skills system, which is heavily geared towards producing graduates with general skills but neglects the needs of mid and lower segments of the labour market. EU integration, therefore, exacerbated cleavages over skills between high- and low-productivity sectors and may have contributed to social divisions that led to Brexit.

On the Measurement of Employment Intensity of Agricultural Growth

Employment is the bedrock of a functioning economy for any nation wishing to progress and prosper. It is of great importance for policy makers to be able to measure the employment intensity of a nation’s economy to identify regions of productive employment growth. Employment intensity has traditionally been measured in relation national economic growth typically as ratios. However, ratios are naturally biased and unbalanced. This does not allow the observer to take into account the differences in regions that may differ greatly in socioeconomic structure. For instance, some regions may be mired in poverty while others prosper greatly although both may show employment growth. This may instead indicate that employment is transferring from low productivity sectors into high productivity sectors instead of actual growth in the agricultural sector. Thus, we propose a new measure of employment growth focusing on the agricultural sector which we call the “Employment Intensity Index” which is symmetrical, proportional and scale invariant to regional differences. The index provides a single number that is comparable, simple and growth sensitive across all types of economic sectors across all differing policies within those sectors/regions regardless of the GDP/geographic size of sector/region. We then proceed to show its applicability.

Planning for Human Development—Experiences in Asia

The Human Development paradigm states that for workers to create value and enjoy the fruits of their labour, they have to be adequately accomplished through better education, skills, adequate nutrition and health, among other factors. It makes a case for investing in people as a precondition for progress. Recent literature on development also notes that economic growth cannot be sustained without people’s inclusion. The essence of a dynamic HD framework, therefore, is that human capital, inclusion and measures to improve people’s empowerment are paramount. Much of Asia was/is labour surplus; hence, making optimal use of the labour in the growth process until the time when labour from the low productivity sectors (read: agrarian sectors) is redeployed elsewhere would be most desirable. This follows from the standard economic theories and is not new. However, the process does not automatically happen; it has to be planned and carefully executed. This paper puts forth a case for HD-based planning: a process where human capital and the economic sectors are brought into an integrated framework. In practical terms, this implies that three factors are addressed to achieve HD: agrarian reforms, industrial policy and human capital. The paper attempts to assess how select Asian countries have progressed on these counts in the recent past. It identifies the raison d’etre of the high achievers’ success and the low achievers’ lack of it in the (implicit or explicit) planning process. Finally, it presents a simple model of how an HD-planning framework might look like.

The wage transition in developed countries and its implications for China

The expression “wage transition” refers to the fact that over the past three decades in almost all developed economies wage increases have leveled off. There has been a widening divergence and decoupling between wages on the one hand and GDP per capita on the other hand. Yet, in China wages and GDP per capita climbed in sync (at least up to now).In the first part of the paper we present comparative statistical evidence which measures the extent of the wage transition effect.In a second part we consider the reasons of this phenomenon, in particular we explain how the transfers of labor from low productivity sectors (such as agriculture) to high productivity sectors (such as manufacturing) are the driver of productivity growth, particularly through their synergetic effects. Although rural flight represents only one of these effects, it is certainly the most visible because of the geographical relocation that it implies; it is also the most well-defined statistically. Moreover, it will be seen that it is a good indicator of the overall productivity and attractiveness of the non-agricultural sector.Because this model accounts fairly well for the observed evolution in industrialized countries, we use it to predict the rate of Chinese economic growth in coming decades. Our forecast for the average annual growth of real wages ranges from 4% to 6% depending on how well China will control offshoring and the development of its healthcare sector.

Aid, Growth and Employment in Africa

Aid, Growth and Employment in Africa

Gender and jobs: Evidence from urban labour market in India

This paper examines the trend, pattern, structure and qualitative aspects of jobs available to women workers in Urban Areas in the post-reform period. Apart from this, the paper also analyses the determinant of female work participation and their sectoral and occupational choice of work. The study finds that over a period of time female work participation has declined in urban areas despite having a wide spectrum of job opportunities. The magnitude of decline is much sharper in the case of illiterate women, women from lower castes and poorest economic classes. Considering the structure of employment, it is observed that the female employment in regular salaried jobs has increased but in the other two categories it has declined. However, within regular salaried jobs, females are highly concentrated in few low-productivity sectors and stereotypical feminine occupations. Further, a very sharp inequality by class is noticed among regular salaried women workers. The paper finds that women from the poorest classes are highly concentrated in the informal sector with no job contract, no social security and extremely poor working condition as compared to workers from the richest class. The paper argues for an urgent policy intervention to ensure access to productive and decent jobs and to provide protection to these vulnerably placed women workers.

Post-growth policy instruments

This paper proposes a framework to evaluate post-growth policy instruments which gauges their capacity to lessen the pressure for growth emanating from the labour market and the state’s contradictory legitimisation and accumulation imperatives, whilst increasing societal well-being and reducing the biophysical throughput of the economy. It is argued that the most effective policies to do this are measures to reduce average working hours, expand low productivity sectors and reduce inequality. Specific policies instruments include public sector expansion and the promotion of cooperatives, the introduction of citizens’ basic income schemes, environmental tax reform, the abolition of fossil fuel subsidies, reforms to monetary policy, financial regulatory reform and the introduction of alternative measures of progress to gross domestic product.

Can Latin American Production Regimes Complement Universalistic Welfare Regimes?: Implications from the Costa Rican Case

Much of the literature on political economy expects complementarities between (universal) welfare regimes and production regimes. This article draws from Costa Rica’s showcase of human development and universalistic social policies to address how the production regime supports and constrains the welfare regime. We show that there were some positive relations between the two regimes at various points but that they were neither fully nor mostly complementary. At the heart of our interpretation of Costa Rica’s performance—and Latin America’s pervasive lack of complementarities—lies the dominance of structural heterogeneity in the production regime. Our analysis has significant implications for current theoretical and policy debates in Costa Rica and elsewhere. At the theoretical level, we highlight key features of production in Latin America and the need to consider such material bases as part of robust welfare policies. At the policy level, our argument stresses the importance of promoting both leading and low-productivity sectors simultaneously and of securing stable funding mechanisms for the welfare regime. Our article thus offers a cautionary note to Latin American countries slowly moving toward the creation or re-creation of universal social programs in the context of relatively unchanged production regimes. Since tensions between production and welfare regimes may also be appearing in a growing number of postindustrialized developed countries, theoretical and policy implications can easily travel beyond Latin America.

Efficiency of two sided investments in an equilibrium unemployment framework

This paper investigates the efficiency of investments by firms and workers in a matching model with high- and low-productivity jobs. Search is sector specific and random within sectors. Search frictions and ex-post bargaining imply that wage inequality arises as a result of the difference in investment costs between the sectors. The efficiency properties of the equilibrium are analyzed under the particular division in bargaining proposed by Hosios (1990). The conclusion is that the equilibrium is inefficient, with a too low fraction of workers and a too high vacancy-unemployment ratio in the high-productivity sector. The opposite happens in the low-productivity sector.

Work force ageing and expanding service sector: a double burden on productivity?

Expansion of the service sector has often been considered as a threat to aggregate productivity. We examine whether work force ageing is a cause of further concern in the service sector, using matched employer–employee data from Finland. The results show hump-shaped relationships between average age of the work force and establishment productivity. The results vary somewhat across different service industries (hotels and restaurants, trade, transportation, and business services). The conclusion is that there is some worry about a double burden from ageing of the work force and expansion of the low-productivity service sector, especially in the labour-intensive, low-skill fields.

Catalonia's energy metabolism: Using the MuSIASEM approach at different scales

This paper applies the so-called Multi-Scale Integrated Analysis of Societal and Ecosystem Metabolism (MuSIASEM), based on Georgescu-Roegen's fund-flow model, to the Spanish region of Catalonia. It arrives to the conclusion that within the context of the end of cheap oil, the current development model of the Catalan economy, based on the growth of low-productivity sectors such as services and construction, must be changed. The change is needed not only because of the increasing scarcity of affordable energy and the increasing environmental impact of present development, but also because of the aging population. Moreover, the situation experienced by Catalonia is similar to that of other European countries and many other developed countries. This implies that we can expect a wave of major structural changes in the economy of developed countries worldwide. To make things more challenging, according to current trends, the energy intensity and exosomatic energy metabolism of Catalonia will keep increasing in the near future. To avoid a reduction in the standard of living of Catalans due to a reduction in the available energy it is important that the Government of Catalonia implement major adjustments and conservation efforts in both the household and paid-work sectors.

Poverty Reduction through Long-term Growth: The Thai Experience

Thailand's impressive long-term rate of economic growth has resulted mainly from accumulation of physical capital. Total factor productivity (TFP) growth at the economy-wide level explains about one-third of the aggregate growth of output. However, this TFP growth was due entirely to resource reallocation from low-productivity sectors, especially agriculture, to higher-productivity industry and services sectors. TFP growth at the sectoral level has been important only in agriculture. Poverty has declined remarkably over time despite a steady increase in income inequality. The rate of decline in poverty incidence has been directly related to the rate of economic growth.

Revisiting the Determinants of Productivity Growth: What's new?

This paper studies the main determinants of total factor productivity (TFP) growth using principal component analysis and a dynamic panel data model and, through a case study, explores key areas where accelerated reforms in the Maghreb countries would boost TFP gains. The results reveal that reforms targeted at attracting foreign direct investment and rationalizing government size, shifting resources from low-productivity sectors to higher ones, and encouraging women to enter the work force, could accelerate TFP gains. Equally important are reforms aimed at strengthening human capital, increasing the volume of trade, and improving the business environment.

Revisiting the Determinants of Productivity Growth: What's New?

This paper studies the main determinants of total factor productivity (TFP) growth using principal component analysis and a dynamic panel data model and, through a case study, explores key areas where accelerated reforms in the Maghreb countries would boost TFP gains. The results reveal that reforms targeted at attracting foreign direct investment and rationalizing government size, shifting resources from low-productivity sectors to higher ones, and encouraging women to enter the work force, could accelerate TFP gains. Equally important are reforms aimed at strengthening human capital, increasing the volume of trade, and improving the business environment.

Interregional productivity variations in Chinese manufacturing and mining industry

A shift-share model is employed to analyse the interregional productivity variations in Chinese manufacturing and mining industry. Our empirical results show that sector productivity difference is huge; surprisingly, the most productive coastal regions are found to be specialized in low-productive sectors; the inland provinces suffer a uniform productivity lag, which suggests policies geared to increase regional productivity, such as infrastructures and human capital, are crucial to close the productivity gap between the inland and the costal.

Simultaneous search with heterogeneous firms and ex post competition

In this paper we study the allocation of workers over high and low productivity firms in a labor market with coordination frictions. Specifically, we consider a search model where workers can apply to high and or low productivity firms. Firms that compete for the same candidate can increase their wage offers as often as they like. We show that if workers apply to two jobs, there is a unique symmetric equilibrium where workers mix between sending both applications to the high and sending both to the low productivity sector. But, efficiency requires that they apply to both sectors because a higher matching rate in the high-productivity sector can then be realized with fewer applications (and consequently fewer coordination frictions) if workers always accept the offer of the most productive firm. However, in the market the worker's payoff is determined by how much the firm with the second highest productivity is willing to bid. This is what prevents them from applying to both sectors. For many configurations, the equilibrium outcomes are the same under directed and random search so our results are not driven by random search. We discuss the effects of increasing the number of applications and show that our results can easily be generalized to N-firms.

Productivity and Interest Rates in Economies with Financial Frictions: Facts and a Theory

We document and account for two facts regarding the relation between international interest rates and total factor productivity (TFP) in a sample of developing countries. First, there is a negative correlation between both variables at quarterly frequency. Second, the share of agricultural labor and interest rates are positively correlated, whereas the share of agricultural labor and TFP are negatively correlated. Manufacturing labor shows opposite correlations. These relationships are particularly strong in the aftermath of financial crises. We then construct a model in which the presence of costly intermediation can produce such relationships. We show that, after increases in interest rates, a requirement to intermediate factors of production in high productivity sectors, like manufacturing, causes resources to leave these sectors. Resources end up in low productivity sectors, like agriculture, where intermediation is cheaper. This lowers aggregate productivity. We show that the channel we identify is quantitatively important in the case of Korea after the 1997 financial crisis.

Simultaneous Search with Heterogeneous Firms and Ex Post Competition

We study a search model where workers can send multiple applications to high and low productivity firms. Firms that compete for the same candidate can increase their wage offers as often as they like. We show that there is a unique equilibrium where workers mix between sending both applications to the high and both to the low productivity sector. Efficiency requires however that they apply to both sectors because then the coordination frictions are lowest. For many configurations, the equilibrium outcomes are the same under directed and random search. Allowing for free entry creates a second source of inefficiency.

Is FDI Integrating the World Economy?

FDI's spectacular growth, in diverse forms, during the past two decades represented an important force generating greater economic integration. FDI increased substantially in relation to global productive capacity, cross border mergers and acquisitions component of FDI put domestic corporate laggards on notice, and the spread of FDI to non‐tradable service sectors generated the possibility that these traditionally low productivity sectors would be brought closer to the standards of international efficiency. Yet, FDI did not perform an integrating role in a more fundamental sense. There is little evidence that FDI served to speed up income convergence across countries. This was the case for two reasons. First, FDI flows remained highly concentrated. Second, the benefits from FDI appear to have accrued principally where conditions were already conducive to investment and growth. Hence, though cross‐country disciplines through bilateral, regional and multilateral efforts are important in reducing the distortions that lead to misallocation of capital, domestic efforts to raise absorptive capacity will ultimately be critical. Efforts to increase labour mobility, as foreseen, for example, under GATS, could have a significant effect in raising the benefits from FDI as the more mobile labour serves to bridge the cultural, institutional and contractual differences across nations.

The Effect of Government on Economic Growth in Fiji

This paper investigates the empirical relationship between the size of government and the process of economic growth in Fiji. The results reported here present a mixed picture, in that the model estimated specifies two different effects of the government sector on economic growth. Using annual time series data for the period 1964–1999, it is found that government expenditure exerts a strong beneficial impact on economic growth. However, marginal factor productivity in the government sector is found to be lower than that of the private sector. The reasons for this low productivity are two-fold: the result of the lack of market incentives and signals in the public sector and the involvement of Fiji's government in some activities which may be rationalised in terms of the socio-political objectives of the Fijian government. While recognising that there may be factors which may hinder the process of efficiency in the private sector, it can be argued that by shifting factors of production from the low productivity (government) sector to the high productivity (private) sector, the rate of growth of GNP will increase.