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Sunday, 17 April 2011

What is the best way to create jobs?

The transmission from growth to jobs is not automatic. In Africa growth has been driven predominantly by the price boom in natural resources. This does not directly generate much employment: revenue growth has been mainly due to higher prices rather than increased quantities, and in any case the sector is not labour-intensive. Indirectly, it can even reduce formal wage employment through the standard Dutch disease squeeze on domestically produced manufactures as a result of real exchange rate appreciation. So how, during a commodity boom, is employment best generated?

Jobs will come from that part of the economy which is internationally non-tradable. Further, since the revenues from resource extraction are unsustainable, much of them should be devoted to assets rather than consumption. The sector which satisfies both these conditions is construction: it is non-tradable, and its outputs, structures, are capital goods. But what structures should be produced? The conventional answer is infrastructure, but its construction is often not employment-intensive. An alternative is housing: were Africa's slums replaced by decent, low-cost homes it would create mass employment for young men. Housing is an asset that is relatively easy to collateralize: the homes for Britain's nineteenth century cities were financed by building societies.

Channelling the revenue from commodity booms into urban housing is a long way from conventional growth-focused economic thinking, but it is the sort of idea that will be needed if the new power of the street is not to turn dangerous.
From Collier's interesting piece - Information is Power: But Where Will It Lead?  The necessity of drawing out the linkages between resource revenue and wider diversification or general employment creation in other sectors, is something I touch on in our monthly essay - Five Questions on Zambia's Diversification. The problem in Zambia is that we are not willing to get this resource revenue windfall.

2 comments:

  1. Hi Cho,

    Indirectly, it can even reduce formal wage employment through the standard Dutch disease squeeze on domestically produced manufactures as a result of real exchange rate appreciation.

    I think a lot of bs is talked about 'Dutch Disease'. By far, the biggest squeeze on domestically produced manufactures is not a hypothetical strong Kwacha making imports cheaper, it is the 'free market' flooding Zambia with cheap goods made elsewhere.

    Oh if only there was a strong Kwacha muscling out local producers, because that would be very easily fixed with targeted import tariffs (targeted on products already made in Zambia only).

    ReplyDelete
  2. While construction certainly will create jobs and assets, and indirectly should improve infrastructure, the question is: who will occupy these buildings and justify the investment?

    Building does create jobs and ancillary economic activity, but if there's no demand for it, then you're just constructing a bubble -- a costly one at that. China's learning about it. Construction will take care of itself if you cultivate infant industries.

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