Employment effects of different development policy instruments

Three interlinked mechanisms are crucial for development: (A) Technological Upgrading, (B) Integration into International Markets and (C) Restructuring Labour Markets. Little is known about why and under what conditions the three mechanisms being studied generate (or fail to generate) more and better employment.

This project aimed to provide new empirical insights and theoretical perspectives by combining different scientific disciplines and research methods such as quasi-experimental methods, econometric analysis of micro and macro datasets, semi-structured interviews with key actors (field research), and sociological and legal analysis of policies and regulations. It will increase our understanding of which policies lead to development processes that are sustainable from the point of view of growth processes, business logic and societal values.

The project is expected to contribute to scientific progress in the fields of development studies, economics, law, sociology and industrial relations. The project will help national and international policymakers and stakeholders by providing summaries of baseline studies, country programmes and comparative analyses of various policy instruments in terms of their ability to generate employment, thereby adding to development strategy discussions and policy making.

• In Bangladesh we investigated the impacts of a private sector targeted skill development program aimed at helping young members of extreme poor families to acquire skills, which can help them to secure jobs in garment factories, on employment. We found that the well-targeted skill training program was quite successful in terms of inducing migration and securing a formal wage employment at the urban destinations.
• In Ethiopia it is observed that for small enterprises, access to credit appears to be a binding constraint for the employment growth. However, often firms are classified as too big for microfinance institutions, while being considered too small to be eligible for getting credit from formal banks. Thus direct government intervention is essential for employment growth in small enterprises. Another finding is that labor mobility occurs between low paying sectors, hinting that employment does not generate skills that would enable upward mobility. This once again points out the importance of externally provided skill-training to increase employment quality.
• In Ghana we spotted a positive relationship between FDI and both product and process innovation. It appears that product innovation is connected to higher employment. In terms of employment quality we find that skill biased technological change, which predicts capital skill complementarity, does not materialize, at least not in the Ghanaian context.
• The inquiry of Madagascar showed that the efficiency/productivity of informal firms, which accounts for a very large portion of overall employment, is remarkably low. This once again calls for external intervention in the form of training and guidance to increase productivity and job quality.
• The research in South Africa reveals that government interventions to rectify the inheritance of discrimination might have caused the reduction in employment of unskilled labor. However, there appears to be a wide range of firm strategies developed as a response, including workforce expansion.
• In Vietnam, we document that the informal sector has an important role in giving work to earn a living for a quite large portion of the overall labor force. However, the quality of jobs in the informal sector is far below that of the formal sector. Micro, small and medium firms now become the biggest creator of new jobs in the formal sector while larger enterprises are still the biggest employment pool. We show that in the short run large enterprises are the most crucial base for formal jobs in Vietnam. However, in the long run, micro and small enterprises will play an increasingly important role in creating new jobs, and therefore also helping in formalizing employment.
• These findings allow us to articulate three general results: i) First the continuum based conceptualization of the formal/informal divide is much more capable of reflecting the reality of employment relations in developing countries than the binary differentiation approach. Ii) Second, the economic sphere of societal existence does not operate independently from wider societal dynamics. This confirms the hypothesis regarding the socially embedded nature of economy and employment relations. Iii) Finally, the actual consequences of policy interventions may deviate substantially from the declared intentions though not necessarily in a negative sense. Actors, not always but frequently, figure out ways to make the intervention work in some way in their favor. This shows that in employment relations, actors do have both active/creative agency and a clear understanding of what they need.

• Bangladesh ​​
• Ethiopia
• G hana
• Madagascar
• South Africa
• Vietnam

• Link to project on SNSF research database P3 ​