Of Jobs Lost and Wages Depressed in the Philippines

By Melisa R. Serrano

The “jobs claims-higher wages” model is often used by supporters of free trade to argue for deeper integration and greater openness in trade and financial markets. In fact, neoliberal economists in cahoots with major organisations such as the World Trade Organization, the World Bank and the International Monetary Fund are inclined to push or impose a one-size-fits all deregulated export-led growth and development strategy. Developing countries often have to swallow the bitter pill of full liberalization in exchange for loans from the Word Bank and the IMF and for getting more market access in developed countries.

Trade liberalization is believed to lead to higher wages via price transmission. Free trade economists argue that a reduction of the after-tax or tariff price of imports lowers the prices of imported goods and import substitutes which in turn lead to increase in real incomes. And since a tariff reduction lowers the marginal cost of production (through a reduced cost of imported materials), this is expected to encourage and expand production. This purportedly increases the demand for labor.

But does a regime of free trade always create good jobs and increase wages in relative and real terms? The sad and sorry (and arguably continuing) state of stagnation in the Philippine economy in the heyday of liberalization – 1980 to 2000 – helps to debunk the causal link between trade and financial liberalization and job generating-high wages economic growth. For the Philippines’ dismal economic performance during the heyday of liberalization only brought stagnation, unemployment and declining real wages.

The lost decades in the heyday of liberalization

The period 1980-2000 has been alluded to as the era of rapid globalization when most of the developing world, including the Philippines, opened up further to world trade as part of structural adjustment efforts prescribed by the IMF-WB within the framework of the Washington Consensus. Total trade increase between 1980 and 1999 (49%) – touted as the more globalized decades - was higher than the period between 1960 and 1980 (31%). The dramatic rise of manufactured exports in the Philippines beginning 1981 also indicates the deepening of a free trade regime in the country.

From 1981 to 1985, a tariff reform program was adopted in the Philippines that narrowed down tariff rate structures. At the same time, an import liberalization program was launched which did away with non-tariff import measures. Beginning 1991, tariffs were gradually lowered over a five-year period until 1995. Overall, average tariff rates went down by a whooping 65% from 1994 to 2000.

Between 1993 and 1996, trade liberalization was vigorously pursued by locking in the country to international trade regulation and deeper integration through the ASEAN Free Trade Area (AFTA) in 1993, the World Trade Organization (WTO) in 1995, the Asia Pacific Economic Cooperation (APEC), and various bilateral trade agreements. A high degree of capital account liberalization was achieved in 1993 after being initiated in 1991 through the passage of the Foreign Investments Act. These reforms eased the entry and exit of foreign capital, largely in the form of short-term debts and portfolio investments (unhedged dollar borrowings or “hot money” used to finance real estate, construction, speculative and manufacturing activities), setting the stage for the country’s participation in the Asian financial crisis.

This regime of openness was marked by increasing frequency and depth of bust-recovery cycles pointing to a more volatile movement and a seemingly shorter cycle length compared to previous periods (Lim and Bautista, 2002). As a corollary, the country’s dependence on imports and unsustainable (private and short-term) foreign capital flows (or “hot money”) had been attributed to more frequent and shorter growth and recession cycles and the lack of macroeconomic development.

The result was devastating. It was only in the period 1980-2000 – the “lost decades”, a term coined by Bill Easterly in 2001 to refer to the growth performance of developing countries in the 80s and 90s - that the Philippines experienced negative growth. From a 66% rise of real per capita GDP (in 1985 US$) in the period 1960 to 1980, the country plummeted to -1% in the period 1980-2000 (Weisbrot et al 2001). The forgone increase in per capita GDP during the “lost decades” was estimated at 68%.

Does free trade create jobs? Challenging the “jobs claims” model

There is an abundance of economic literature pointing to the positive impact of trade liberalization on employment and wages. Neoliberal economists argue that although tariff reductions do have a negative impact on wages and levels of employment, any adverse effect can be wiped out by a tariff reduction’s effect on reducing domestic prices. However, as Akyuz (2005) points out, simulations done by the World Bank highlighting the benefits that developing countries could reap from further liberalization under the Doha Round are bereft of reality. These studies use “general equilibrium models” that assume automatic market clearing, rapid redeployment of resources and full or equal employment after liberalization. However, factors of production, including labor, capital and land are often sector or product specific and thus immobile. Expansion in sectors benefiting from liberalization requires investment in skills and equipment, rather than simply reshuffling and redeploying existing labor and equipment. Thus, like the case of the Philippines, the overall impact of rapid trade liberalization could be unemployment, deindustrialization and growing external deficits despite a significant increase in export growth.

The Philippines’ export participation in high-technology manufactures through international production networks (IPNs) involves mere assembly of components that adds little value and utilizes labor, the most abundant and least mobile factor. The bulk of Philipino exports are import-intensive, particularly electronics and garments. The high import intensity of these two sectors implies that they add very little value and have a moderate employment impact. In 2000, these sectors generated a meager 6.9% of total gross value added and 5.7% of total employment. A declining trend is similarly observed in employment growth rates between 1980 and 2000. Between 2000 and 2002, it is estimated that the annual layoff rate in the electronics sector was between five and 10 percent as a number of establishments have either closed down or reduced their workforce.

Does free trade lead to higher wages?

Between 1980 and 2000, increased frequency and depth of bust-recovery cycles brought about by the uncertainties of a trade and financial liberalization regime wreaked havoc on wage patterns, resulting in wage stagnation since the late 1980s. On average, the real wage rate in the Philippines in 2002 was around three quarters of what it was in the early 1980s. Felipe and Sipin (2004) note a clear downward trend of labor share at 0.6 percentage points per year during the period 1980-2002. The authors conclude that labor in the Philippines has lost at least 10 percentage points of its share in value-added during the last two decades. Although export performance was generally robust during the period, “strong increases in the manufacturing exports of developing countries – particularly those participating in IPNs – may have taken place without commensurate increases in incomes and value added” (UN 2006:75).

The argument that, in a deregulated export-led growth, job loss in the “restructuring” process results in greater efficiencies and new jobs with higher wages will replace old ones is flawed according to Ranney and Naiman (1997). This assumption is based on a situation of full employment. The market is seldom able to replace lost employment with comparable jobs. Even if new jobs were created, people who lose jobs often do not get the new ones. Moreover, many of the replacement jobs are of inferior quality. It should also be noted that higher wages in the export sector could be due to high unionization, labor shortages in specific occupations, or higher productivity. Moreover, imports can depress wages in certain industries and occupations.

The way forward

Clearly, the IMF-WB sponsored market liberalization prescriptions and the country’s obedience to such diktats, proved to be devastating as the Philippines went from being a poster girl of the WB-IMF to the basket case in the East Asian region. Unlike its more successful neighbors where liberalization took place gradually and cautiously over the past two decades after a period of successful industrialization and development, the Philippines pursued big bang liberalization as a way of getting out of its debt and development crisis without the necessary industrial or manufacturing base.

What is now certain is that the stagnation of developing countries during the “lost decades” was a major blow to the optimism surrounding the Washington Consensus. In fact, the IMF had already conceded in 2003 that, at least for many developing countries, capital market liberalization did not lead to more growth but to more instability. Unfortunately, this acknowledgment came after the dreadful effects of capital markets liberalization in many developing countries.

There are crucial factors for an economy to be able to reap economic benefits from external trade and financial liberalization. The major ones are: (1) producing export products with high technological content (high value added) located in growing global markets; (2) creating domestic linkages for these exports; (3) capacity to capture a share of value added in international production networks; (4) attracting greenfield FDI that is anchored in the domestic economy; (5) coherent industrial or production sector strategies that promote industrialization and/or support structural transformation of economies (macroeconomic policies, investments in physical infrastructure, incentives and support for innovation, protection of infant industries, selective policies targeting specific sectors or firms); and (6) timing and speed of liberalization (gradual integration is preferable to a big bang or premature approach). Unfortunately, these factors are still missing in the Philippines’ economic constellation.

Bibliography

Akyüz, Yilmaz. 2005. “Trade, Growth and Industrialization: Issues, Experience and Policy Challenges,” in www.twnside.org.sg/title2/t&d/tnd28.pdf

Felipe, Jesus and Grace C. Sipin. 2004. Competitiveness, Income Distribution, and Growth in the Philippines: What Does the Long-run Evidence Show? ERD Working Paper No. 53, Manila: Asian Development Bank, June.

Lim, Joseph Y. and Carlos C. Bautista. 2002. “External Liberalization, Growth and Distribution in the Philippines,” Paper presented for the international conference on “External Liberalization, Growth, Development and Social Policy,” January 18-20, 2002, Melia Hotel, Hanoi, Vietnam.

Ranney, David C. and Robert R. Naiman. 1997. Does `Free Trade’ Create Good Jobs? A Rebuttal to the Clinton Administration’s Claims. Chicago: The Great Cities Institute, January.

United Nations. (2006). World Economic and Social Survey 2006 – Diverging Growth and Development. Geneva: United Nations Economic and Social Affairs.

Weisbrot, Mark, Dean Baker, Egor Kraev and Judy Chen. 2001. “The Scorecard on Globalization 1980-2000: Twenty Years of Diminished Progress,” Center for Economy and Policy Research (CEPR), July 11, in www.cepr.net/publications/globalization_2001_07.htm.

Melisa R. Serrano is University Extension Specialist/Researcher in the School of Labor and Industrial Relations, University of the Philippines (U.P. SOLAIR). The article is part of a paper she presented at the International Conference on “Labour and the Challenges of Development”, 1-3 April 2007, University of the Witwatersrand, Johannesburg, South Africa, convened by the Global Labour University. Melisa holds two Masters degrees, one in Labour Policies and Globalization (from the Global Labour University, University of Kassel and Berlin School of Economics) and another in Industrial Relations (from U.P. SOLAIR). Melisa’s present research is on agrarian reform and labor and alternative development.

Oil, Food and Economics - Sumita Kale

If the subprime crisis wasn’t bad enough, the oil price spike has unnerved the world this year. And with food and fuel prices soaring in all countries, the policy prescriptions are back to the standard myopic solutions of interest rate hikes, duty cuts, export curbs etc. But if we step back and try to see the larger picture to decipher what these prices are signalling, what do we find? One theory that has finally got the prominence it has deserved is the Peak Oil Theory. In fact, for Matt Simmons, energy investment banker and ‘Peak Oil’ theorist, the signs that crude was entering danger zones have been clear since 1989, but it was only post 2002 when China kick started its explosive growth that the situation became bleak. For most of the world though, peak oil has become a keyword only recently because of the rapid rise in the oil price this year. According to Simmons, it was the unplanned for growth from developing countries that has taken up 99 percent of spare capacity and which has continued despite a ten fold rise in prices. Of course, to a large extent consumers are insulated from international oil prices : Price increases from about the $60 level have not been passed on to consumers, especially in the developing countries. State revenues are being sacrificed and/or consumers are being insulated by subsidies. To begin with, the true extent of oil reserves in the world remains an unknown; the rising share of state-owned oil companies has led to secrecy on reserves data. Spare supply capacity is fuzzy and this explains the frenzied rise in prices currently as there is a paranoia that is gripping the market. In short, supply constraints are more than likely to stay, than disappear. There are also various industry issues such as aging oil wells, rising costs of extraction, chronic rig and skilled manpower shortages etc. – the list is long. 80% of oil infrastructure needs to be rebuilt; the fresh demand for steel will in turn impact inflation. Simmons who has been anticipating this for long now says that the world has to go on a ‘war footing’ now and force a change in consumption pattern – the current trend is just not sustainable. What about food prices? At a symposium convened in March by the Banque de France, Martin Redrado, Governor of the Central Bank of Argentina, was spot on when he said that the rising inflation is to a large extent due to the ‘convergence’ of consumption levels – the developing countries are catching up in consumption patterns (growth in auto demand etc.) and change in dietary habits at a time when there is a delicate balance between production and demand. Two unanticipated impacts on the already delicate balance between supply and demand have had an impact on prices. The first is climate change reducing global grain output (droughts in Australia and Ukraine etc.); and the second is the impact of high crude prices in diverting grain for bio-fuel production that has triggered off the rising prices in corn, soya, wheat etc. Since food contributes a significant portion of consumer budgets in emerging economies, this will show up in forthcoming wage revisions, putting more pressure on prices. Higher energy and food prices will impact growth via higher interest rates that are being forced upwards in an attempt to curb the price rises. Redrado’s paper has interesting policy implications as it throws a spotlight on the social and political tensions that will arise as countries are forced into a period of lower growth and higher inflation. Per capita consumption of food and crude oil is much lower in China and India, than in the US- to bet on a slowdown in these economies, therefore, has social ramifications as well. On the other side, high oil prices are causing prosperity in oil-rich countries, the recent debate over sovereign wealth funds is just one instance of the political implications of this growing wealth. Prices may settle this year or the next, already there is relief coming in on the wheat front with better output forecast in Australia this year. Relief on the oil front though at this point seems doubtful. But all these problems hitting the world today highlight one important signal : you ignore the environment and natural resources at your peril. Would this have been the case if economics didn’t try so hard to distance itself from geography, sociology and other ‘soft’ disciplines? Trying to go deeper into this, I came across this interesting piece on Ecological Economics by Robert Constanza from the University of Vermont. “Ecological economics is a transdisciplinary effort to link the natural and social sciences broadly, and especially ecology and economics (Costanza 1991). The goal is to develop a deeper scientific understanding of the complex linkages between human and natural systems, and to use that understanding to develop effective policies that will lead to a world which is ecologically sustainable, has a fair distribution of resources (both between groups and generations of humans and between humans and other species), and efficiently allocates scarce resources including “natural” and “social” capital. This requires new approaches that are comprehensive, adaptive, integrative, multiscale, pluralistic, evolutionary and which acknowledge the huge uncertainties involved. For example, if one's goals include ecological sustainability then one cannot rely on the principle of "consumer sovereignty" on which most conventional economic solutions are based, but must allow for co-evolving preferences, technology, and ecosystems (Norton et al. 1998). One of the basic organizing principles of ecological economics is thus a focus on this complex interrelationship between ecological sustainability (including system carrying capacity and resilience), social sustainability (including distribution of wealth and rights, social capital, and coevolving preferences) and economic sustainability (including allocative efficiency in the presence of highly incomplete and imperfect markets).” Sounds familiar to my previous post on Mukherjee’s ideas on what Economics should include. Clearly the need of the hour for us economists! Looking forward to a debate on this one! ********************** PS: This post includes valuable inputs from Suyodh Rao, (an economist based in Hyderabad, India)- thanks Suyodh, for all your mails about oil, food and water!

Putting Short Term Stability Before Long Term Growth: Fifty Years Is Enough

by Ben Fine

This article has been published as a Policy Brief (No. 12) by the Intergovernmental Group of Twenty-Four on International Monetary Affairs and Development (G24). Blog authors are grateful to the G24 for allowing it to reproduce it; copyright remains with the G24.

It is fifty years since Jean-Jacques Polak published his classic article “Monetary Analysis of Income Formation and Payments Problems” in the IMF Staff Papers. This paper provided the theoretical basis for the IMF’s financial programming, and continues to do so today. This is remarkable in and of itself. The world economy has gone through major changes over this period, as have corresponding fashions within economic theory as triumphant Keynesianism gave way to varieties of monetarism in the wake of the collapse of the post-war boom.

We also have had fifty years of development economics, during which there have also been shifting and competing perspectives from modernization through the Washington consensus and beyond, to notions of the developmental state, as attempts have been made to understand why the success of East Asian NICs should contrast so much with achievement elsewhere. Is it credible that across this material and intellectual ferment, the “Polak Model” should remain sacrosanct?

To his credit, Polak’s initial contribution was extraordinarily modest and qualified in its aims. He made it crystal clear that the main problem addressed is a temporary balance of payments deficit in a developing country, this gap usually the result of excessive domestic credit to fill the gap arising out of a fiscal deficit. He presumed that the only reliable data available are those concerning monetary variables, and that the only corresponding policy variable is control of the domestic money supply.

The model only seeks to determine the level of nominal income, with its distribution between the output level and the price level to be determined by some other means. In this respect, in principle, the model is not monetarist since it must violate one or other of the assumptions that prices are fixed (at the world level) or that output is fixed (at full employment). In practice, not without justification, financial programming is heavily associated with the ideology of monetarism because of the pessimistic stance taken on productive potential.

It has targeted balance of payments and/or fiscal deficits with shifting instruments across countries and over time as fixed exchange rates have given way to floating exchange rates, and control of inflation and liberalization of money markets have been emphasized more or less to suit. Today, for example, the IMF is more likely to advise appreciation of the exchange rate to bring down inflation in middle-income countries than to address foreign or fiscal deficits, although these remain a priority for low-income countries, especially in Africa.

One criticism of Polak is his making virtue out of necessity. Even if monetary variables are the only ones that can be measured and controlled, they are not necessarily best for remedial action. A patient with a broken leg is not best treated with a thermometer to take temperature and aspirin to bring it down, even if these are all that is available in the hospital. This apart, Polak can be judged to have appropriately sought, but failed, to constrain the use of his model for purposes for which it was not designed.

He did, for example, refine the model, in a joint article in 1971, by adding extra variables and equations. But, as was explicitly recognized within this contribution, this was nothing more than an elaboration of the Hicksian IS-LM-BP model, standard across every undergraduate textbook.

This prompts three observations. First and foremost, such a model was constructed in the context of developed countries, raising doubts over applicability to developing countries. Second, as has remained the case throughout the life of financial programming, the model cannot address issues of development as its scope is confined to the so-called short run, over which everything to do with development is taken as fixed. Third, it is ironic that the Polak model began to embrace Keynesianism explicitly just as the approach was falling into disrepute with the stagflation of the 1970s.

Significantly, in the second half of the 1980s, the IMF did seek theoretically to reconcile growth or development objectives with short-run macroeconomic adjustment in proposing a marriage between its Polak model and the World Bank’s growth model. Three further observations follow.

First, the model was fundamentally flawed, bound by export pessimism (as if the world economy did not grow) and leading to declining levels of productivity increase over time. In other words, it remained heavily bound to the short run, and essentially to zero per capita growth in the long run. Second, ironically, this was when new growth theory had begun to flourish, suggesting how productivity increase could be generated over time, but the marriage model was bound to old growth theory in which productivity increase is exogenously determined. And, third, Polak reacted strongly against any attempt to forge a marriage between financial programming (confined and only appropriate to the short run) and growth theory. Indeed, in a personal communication commenting on the marriage model, Polak suggests:

My view is that it is not a worthwhile project, and each subject should be approached on its own, provided the practitioners are fully aware of any recommended policies on the other objective (which to be sure has not always been the case between the Fund and the Bank). A possible simile, somewhat limping of course: the jobs of a schoolteacher and a paediatrician are both to do good to a child, and each should be aware of the other … but the professions should remain specialised for greatest efficiency in each field.

This is well and good as far as it goes, but it neatly sidesteps what has been a major criticism of the stabilization policies of the IMF and the structural adjustment policies of the World Bank, the negative impact of what is adopted in the short run on longer run performance. The latter is better seen as attached to an evolving economy over time, rather than as some given equilibrium around which appropriate policies are targeted. Polak, and his model, simply do not address this issue as he is only too aware.

The recent turn to poverty reduction has intensified the failure to observe the reservations that Polak has expressed over the use of his model. The first, and, for some time, the only model underpinning PRSPs uses financial programming as its organizing framework. It does so while assuming that there is a single labour market and full employment, thereby, for the convenience of the model, abolishing the major sources of poverty – unemployment and low wages -- in one stroke. This is even justified on the grounds that the model is universally and conveniently applicable across all countries.

It is certainly not the case that the Polak model for financial programming determines IMF policy. Indeed, it allows for considerable discretion. But it does set a framework within which policy is discussed, one which prioritizes the short term over the long run, and financial functioning and targets over the traditional concerns of development. It is time for a fundamental rethink and a new framework – one both recognizing, rather than subordinating itself to, increasing financial volatility, and genuinely engaging adjustment with developmental goals, with poverty alleviation and growth as starting points, rather than add-ons.

For a fuller discussion, see Ben Fine, "Financial Programming and the IMF", in B. Fine and K.S. Jomo (eds), The New Development Economics: After the Washington Consensus, Dehli: Tulika and London: Zed Press

Ben Fine is Professor of Economics at the School of Oriental and African Studies, University of London, and Director of the Centre for Economic Policy for Southern Africa at SOAS. Recent books include “Social Capital versus Social Theory: Political Economy and Social Science at the Turn of the Millennium” (2001); “Development Policy in the Twenty-First Century: Beyond the Post-Washington Consensus” (2001); “The World of Consumption: The Material and Cultural Revisited” (2002); “Marx's Capital” fourth edition (2004); and “The New Development Economics: A Critical Introduction” (2006). His research interests include "economic imperialism" or the relationship between economics and other social sciences, especially social capital; the material and cultural determinants of consumption, particularly food; privatisation and industrial policy; and development theory and policy.

Jobless growth, a new impediment to development

by Codrina Rada

Following the lost decades of the 1970s and 1980s, during which many developing economies recorded extended periods of output decline, the economic profession has seen a renewed interest in the debate about what drives economic growth. Much of the mainstream academic work on the issue has been focused on those classic factors that foster capital accumulation and productivity growth -- savings, human capital or technological change. Nothing surprising here since the theoretical basis had already been well-established by the Solow model of growth, versatile enough to accommodate the sustainable take off of yet a few more academic careers. Unfortunately, there wasn’t much sustainability for development and therefore for many in poverty in the policy prescriptions derived from such models. 

Empirical evidence shows that strong labor productivity growth is not anymore sufficient to solve problems of acute poverty or underdevelopment. For the last decade or so many developing economies have claimed good economic performance but oddly enough growth has not led to a substantial decline in the underutilized labor force. In fact the informal sector in most of the developing countries has been on the rise. Global Employment Trends, a 2004/5 report from the International Labor Organization and Key Indicators from the Asian Development Bank’s 2005 report on Asian economies show that “out of a total labor force of 1.7 billion in the DMCs[1], around 500 million are underutilized in terms of being either unemployed or underemployed…” (ADB 2005)[2]; “during the 1990s, own-account and family workers[3] represented nearly two-thirds of the total non-agricultural labor force in Africa, half in South Asia, a third in Middle East…”; “In Latin America the urban informal economy was the primary job generator during the 1990s....urban informal employment in Africa was estimated to absorb about 60 per cent of the urban labour force and generate more than 93 per cent of all new jobs in the region in the 1990s” (ILO 2005).

 The problem with the jobless growth phenomenon in the developing countries is two-fold. First, efforts to fight wide-spread poverty levels are destined to fail unless jobs are created for the many unemployed and poor. As Fields (2004) points out “poor are poor because they earn little from the work they do”[4]. And if growth does not produce high-productivity, high-pay jobs, its purpose to foster development and alleviate poverty, will eventually be defeated. Secondly, economic history suggests that sustainable growth is associated with structural changes towards secondary and tertiary sectors, shifts in sectoral employment from low to high-productivity sectors and changing patterns of specialization towards higher value-added products (UN 2006). For economists and policy makers alike these recent trends pose a significant challenge: strong productivity growth generates unwanted social and economic outcomes i.e. under and unemployment.

This is not to say that productivity growth is unwelcome. On the contrary, it remains the essential ingredient for long-run growth. But it will fail to produce development unless outcomes, such as the jobless growth and lack of structural change, are addressed by policy. Generally speaking the solution to this dilemma is a matter of successful implementation of both pro-growth as well as socially relevant economic policies.

While there are many dimensions policies should address I want to refer here to few which I think are essential. Strategies can be thought of based on their target: vulnerable groups, distributive issues, inadequate demand and anemic structural changes. First of all, households in the informal sector are especially vulnerable because they lack a steady income flow and often fall outside the social safety net system. In the short-run an economic shock or natural disaster reinforces development and poverty traps as resources are usually insufficient to distribute to all those in need. In the long run consequences for development are substantial as these groups lack adequate access to education, health care and consequently economic opportunities. Finally, economic insecurity for extended periods of time is conducive to political instability which is likely to put a check on investment and therefore economic growth. Institutional changes and policies which target the most vulnerable groups in a society become essential (see 2008 World Economic and Social Survey, UN, DESA).

 Second, there is the issue of how to distribute the gains from economic expansion. This is a delicate matter from both a socio-political and an economic perspective. On the social and political side, redistributive measures are often resisted by those in the formal sector who are asked to give up part of their income. In fact a large informal sector may make it impossible for the government to implement any redistributive measures without strangling expansion in the formal sector or facing serious political opposition from the affluent part of the society. From an economic point of view, redistribution has to take into account how different economic classes behave in terms of their consumption and investment patterns, otherwise growth may be adversely affected. Overall, redistribution is effective in the long-run only if it encourages the creation new productive activities.

 Third, strong productivity growth generates job loss when aggregate demand is insufficient. The 2006 World Economic and Social Survey suggests that the structural transformation from primary to secondary and finally tertiary sectors in the rapidly growing East Asian economies throughout the last few decades was supported a great deal by fixed investment. The core strategy is a classic example of Keynesianism and it calls for either an increase in domestic expenditures, investment or government expenditures, or for measures that would stimulate external demand, such as a competitive exchange rate policy. Either one should ultimately target the absorption of underutilized labor force.

 Finally, when structural change is anemic or in other words economic growth does not lead to changes in the basic configuration of the economy, policy should look to establish forward and backward linkages between different sectors of the economy, including the informal sector.


 Source: United Nations, World Economic and Social Survey 2006, UN, New York. Asian Development Bank, Key Indicators 2005: Labor Markets in Asia: Promoting Full, Productive, and Decent Employment International Labour Organization (2004), Employment Trends, ILO Geneva. [1] Developing Member Countries (DMC) of the Asian Development Bank [2] Where Asia’s labor force of 1.7 billion accounts for about 57.3% of the world’s total labor force (ADB 2005) [3] The two categories account for a broad definition of underemployment. ILO 2005 [4] The quotation by Fields (2004) is from the ADB (2005) report. Codrina Rada is Assistant Professor at the Department of Economics, University of Utah. Education: 2007, Ph.D. in Economics, New School for Social Research; 2005, M.Phil in Economics, New School University; 2000 MA in Sociology, University of Massachusetts, Boston, BA in Economics. Current research interests: ‘Jobless growth: A New Tale for the Global World’, ‘The Macroeconomics of Pensions’ and ‘Developing and Transition Economies in the Late 20th Century: Diverging Growth Rates, Economic Structures, and Sources of Demand’