Job Quality, Growth, and Emerging Markets
The International Labor Organization (ILO) suggests that
by “maintaining aggregate demand via wage policies as well as by more direct
public investment initiatives, and improved access to finance for small firms
can have immediate short-term impacts on investment and employment while also
improving long-term growth prospects.” Over
the past decade, the middle income, emerging economies, like BRIC nations (Brazil,
Russia, India, and China), demonstrated that strong labor markets, favorable
business conditions, and increased aggregate demand lead to high national
growth rates. Following the ILO’s model
for growth stimulation (or by acting as the reference base for the model), experiences
in Brazil and in Russia demonstrate how improved job quality correlate with GDP
growth.
In the first decade of the
21st century, emerging market Brazil quickly rose to become an
upper-middle income country. During this
time, Brazil experienced a 6.75% growth rate.
Its GDP grew from $1.13 trillion to $2.17 trillion. In 2010, while many Western countries faced
economic stagnation and recessions, Brazil’s real growth rate maintained an
impressive 7.5%. Averting the storm, Brazil followed the prescribed job quality
improvement strategies outlined by the ILO.
In Brazil, the quality
of jobs has not receded with the global crisis.
Brazil falls in the exclusive category of concurrently fostering higher
employment rates and lower incidences of non-standard work. The World of Work Report 2012 declared that Brazil has actually “increased their
employment rates without compromising on job quality.” Between 2007 and 2010, employment stability
increased as Brazil’s “unemployment rate fell by 2.6 percentage points.” Brazil ranked one of the highest on the
ILO’s Employment Protection Legislation Index. It has one of the most “stringent
legislations” regarding employment protection.
As a result of strong
labor markets, Brazilian workers capture productivity surpluses in their wage. Over the ten year period from 1995 to 2006,
Brazil’s labor force increased minimum wages.
The country’s most basic salaries rose by 100% in real terms during this
decade. In terms of the greater
Brazilian labor market, between 2003 and 2004, per capita labor income increased
by 3.28%. In a working paper titled Linkages Between Pro-Poor Growth, SocialProgrammes And Labour Market: The Recent Brazilian Experience, the UnitedNations Development Programme (UNDP) notes that “productivity was the major
factor contributing to [Brazilian per capita labor income] growth…it
contributed a positive rate of 1.86 percent.”
Even amidst the aftermath of the world economic crisis, Brazil’s labor
force continues to extract benefits from productivity advancements. Per capita GDP rose 46% from $7,400 in 2000
to $10,800 in 2010.
UNDP argues that labor
force participation rates are good indicators of economic recovery. “When the economy is not dynamic enough to
absorb the labor forces in the market,” writes the UNDP, “people, such as
unskilled labor, are likely to be discouraged from participating in the labor
market. Yet when there is a sign of
economic recovery, the labor force participation rate also tends to rise.” Again, Brazil is a world leader of increased
labor force participation. Since the
global recession hit in 2008, Brazil’s labor force has grown by 10 million. In contrast, the US’s labor force has only added
600,000 people. Brazil’s rising labor
force participation signals a growing economy.
In other crisis
aversion signals, Brazil has proven anything but stringent with stimulating domestic
investment. Brazilian credit markets are
in fact expanding. This year, the country
rose to become the world’s tenth largest issuer of domestic credit. Brazil has $2.8 trillion in total domestic
credit supply. While other economies
suffer cutting austerity, Brazil’s credit markets grew $600 billion last year. Public infrastructure allocations alone
reached $396 billion from 2007 to 2010.
Not surprisingly, as labor
markets strengthened, per capita productivity levels for those with lower
incomes grew. Over a ten year period
starting in the mid-1990s, per capita productivity for the poor increased from
0.18% per year to 0.56% per year. As
demonstrated above with minimum wage increases of 100% in real terms, all
levels of society capture benefits from productivity increases. The UNDP concludes that “there is a strong
association between growth and poverty reduction in Brazil.” Equalizing income and asset distribution
accelerated growth rates in Brazil. The
UNDP attributes this increase in per capita productivity capture for the poor to
increasing educational equality. Educational
improvements, they claim, result in higher productivity throughout the entire economy.
Similar to Brazil,
Russia demonstrates the success job quality improvements and growth
stimulators. From 2001 to 2010, Russia’s labor force increased 6% and unemployment
rates dropped almost in half from 12.4% to 6.4% (1999-2008). As labor markets strengthened, Russian GDP
almost doubled, jumping from $1.12 trillion to $2.22 trillion a decade later. This GDP growth rate of 7.9% per year led
Russia to quickly rise as an upper-middle income, emerging marketing nation.
The ILO suggests that
“in the Russian Federation the new jobs are equally distributed across the
quintiles and jobs in manufacturing and construction sectors are prevalent in
all quintiles. The new jobs in lower
quintiles are predominantly in accommodation and food, and in the upper
quintiles they are concentrated in mining, finance, real estate, information
and communication and professional and scientific sectors.” Since 2007, even amidst a global recession,
Russia’s informal employment rates dropped. Displaying
the prevalence of higher quality employment, 40% of Russia’s workforce currently
occupy middle class jobs. With increases in job quality and in productivity, per
capita GDP doubled from $7,700 to $15,900 in the first decade of the century.
With a growing economy,
a growing number of jobs, and a growing quality of employment, millions of poor
crawled out of poverty. 40% of Russia’s
population was below the poverty line in 1999.
A decade later, in 2009, only a mere 13% of the population remained
below this line[2]. As inequality decreased so did Russia’s
middle class. The middle class grew from
15% of the population to 25% over this same time period.
Concurrent increases in
job quality and spending power led to increases in aggregate demand and
economic expansion in Russia. Over the
past ten years, amounts of private housing in Russia have jumped from
approximately 1.6 billion square meters to close to 2.6 billion square meters. The number of new vehicle registrations in
Moscow is roughly 13.3 times greater than a decade and a half ago. And spending on luxury goods skyrocketed from
almost $5 per person in 2000 to over $40 per person in 2010. Although money and increased purchasing power
is not an intrinsic goal, income measures provide the means for individuals to
access more freedoms and securities such as education, medical expenses, luxury
items, etc.
CONCLUSION
Both Brazil and Russia
experienced extraordinary economic growth over the past decade and demonstrated
resilience in the face of the global recession.
In 2010, the countries grew 7.5% and 7.9% respectively. Improvements in emerging markets’ job quality
both signal and contribute to the health of these economies – factors the ILO
promotes as models for replication. While
both countries’ economies benefit from vast oil profits, strong labor markets
ensure that wages capture productivity gains and that workers reap more equal
distribution of wealth. Decreases in
inequality, along with improved credit markets, foster investment. Together, these stimulate aggregate demand
and encourage economic growth. Emerging market
growth strategies offer demand driven alternatives to supply-side austerity policies.
[1]
Demonstrated later in the discussion of Brazil is an explanation of labor
absorption into the market and its relationship with growth.
[2] There poverty numbers are not a result of population growth. Russia's population actually shrank by 7 million people from 2000 to 2010.
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