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Guest post from the IFC’s Roland Michelitsch: Creating more and better jobs

Roland Michelitsch is the Chief Evaluation Officer and Manager at the Investment Unit in the Development Impact Department at the International Finance Corporation (IFC). He is leading an IFC study on job creation, and is responsible for measuring and reporting on the development results of the IFC’s activities and programs. Roland writes for the IFC’s Results and Impact blog.

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Creating more and better jobs is the surest way to help millions of people find their way out of poverty.

When 60,000 poor people were asked what they thought their best shot at getting out of poverty was, the predominant answer by a long shot was ‘through a job.’ A simple enough answer, but when you think about the scale of unemployment globally, ensuring that there are sufficient jobs is an enormous task.

Currently there are about 200 million unemployed people worldwide, most of them young people. We will need to create millions of jobs by 2020 just to keep up with population growth and the number of young people entering the labor force. Without work, they will be unable to care for themselves and their families and so the result, if these jobs don’t materialize, will be continued poverty.

At the same time, it’s not just any type of jobs we should be creating. More good jobs — with fair wages and opportunities to advance – are required, in particular jobs that are accessible to women and young people, where the need is most acute.

So how do we go about creating these jobs? The only sustainable solution lies with the private sector, which provides 9 out of every 10 jobs in developing countries.

I work for the IFC (International Finance Corporation), a member of the World Bank Group. IFC is also the largest development finance institution (DFI) focused exclusively on the private sector in developing countries. Creating more jobs, particularly higher-quality jobs that target the poor, is an urgent priority for us.

This challenge is too large for one institution to tackle. We recently published IFC’s jobs study, which looks at how the private sector creates jobs. When we launched the report, 27 other international DFIs agreed to collaborate with us to help create more and better jobs. We are also working with others, such as the ILO, academics, and our colleagues in the World Bank – and most importantly our private sector clients – who were all represented on the advisory panel for our study.

The IFC jobs study concludes that four obstacles pose a particular challenge to job creation in the private sector: a weak investment climate; inadequate infrastructure; limited access to finance for micro, small, and medium enterprises; and insufficient training and skills. Removing these obstacles can significantly increase job creation.

Our study found that the largest numbers of jobs created are created within companies’ supply and distribution chains. For example, an IFC loan to an Indian cement manufacturer helped the company expand and create more jobs. For every job created within the company, more than 20 were created in the surrounding supply and distribution chains, and many of these jobs benefitted poor people and provided them with opportunities. Take Ramu Rawat, who was unemployed, started as a worker, and now, 5 years later, is a supplier with his own construction company and supervising 200 employees. For the study, we conducted a number of case studies of IFC clients to assess job creation on supply and distribution chains. Click here to access them, or look at our “Telling Our Story” on Jobs for more examples like Ramu’s.

Other key findings include:

  • Micro, small, and medium enterprises (MSMEs) generate the most jobs in developing countries, but larger companies are more productive, pay more, and offer more training and development opportunities for employees. Smaller companies are also often most affected by obstacles to job creation, and thus are often unable to grow to their full potential.
  • Access to finance is a key constraint for MSMEs—easing it can result in significant job creation. IFC provides financing to a large network of financial intermediaries in emerging markets, which in 2011 financed 23 million MSMEs. We can now estimate that these MSMEs in turn employ over 100 million people, and a case study in Sri Lanka showed that SMEs receiving loans had annual job growth of 12 percent – more than twice the country average. Countries such as Myanmar, among the poorest in South Asia, can particularly benefit from projects that open up financing for SMEs.
  • Lack of power is the most significant constraint in lower-income countries. Providing companies with reliable power could boost annual job growth by at least 4 percent.
  • Women and youth face specific employment challenges. Legal barriers, lack of access to finance, and cultural norms often force women to work in jobs that pay less and are less secure. Young people are almost three times more likely to be unemployed. They also are more likely to work in informal jobs.

The study included a review of the literature and existing evaluations; analyzing enterprise surveys from over 100 countries; analysis of IFC’s own data and lessons of experience; focused project and country-level evaluations; inputs from others, through a dedicated website and blog, an essay competition on youth employment, and working with World Bank colleagues on the WDR 2013.

However, it is important to state that IFC is not a research institution, and so our intention in carrying out the study is very much about how we can implement what we learn in our strategy and operations. For example, we have already successfully helped our clients in some sectors, such as extractive industries, strengthen their domestic supply chains. The question now is how we can best build on this experience for other areas of our business. We are moving quickly to prepare an implementation plan and would welcome thoughts and suggestions about what you believe will work to create jobs and the priorities that global development institutions should focus on.

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