Unemployment rate is a misleading indicator to the labor market, conventional or not?

As we know, the number of people at work is generally related to whether an economy is growing or not. In other words, unemployment can be thought of as a double-edged sword; when economic activity is high, more people are needed to produce the higher amount of goods and services. Thus, it is very important to measure different aspects of the labor market in order to get a better feel for the health of the economy. The unemployment rate is probably the best-known labor market measure and certainly one of the most widely quoted.

The last session of the ERF’s Conference “The Egyptian Labor Market in a Revolutionary Era: results from the 2012 survey (ELMPS)” was a panel discussion on the labor markets in Egypt; we had the chance to interview Ragui Assaad (University of Minnesota), who was one of the panelists.  He argues that the unemployment rate, while useful, does not take into account a number of important features of the labor market, for example, it doesn’t show how the economy is doing during economic crisis and its effect on the labor market.

But is the unemployment rate really the most accurate indicator to the health of the labor market?

While the unemployment rate may be considered as the most informative labor market indicator reflecting the general performance of the labor market and the economy as a whole, it does not say anything about the type of unemployment; whether it is cyclical; not having enough demand for labor to employ all those who are looking for work, or structural; a longer-lasting form of unemployment caused by fundamental shifts in an economy, such as workers’ lack of requisite job skills or inability to move out of their regions. Moreover, it does not take into consideration the informal sector which constitutes a large share of the Egyptian labor market.

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Addressing inequality and poverty in the Pacific Islands

By Danileen Kristel Parel, Supervising Research Specialist, Philippines Institute for Development Studies (PIDS) and Felipe F. Salvosa IIPublications Division Chief, Philippines Institute for Development studies

Participants during the GDN 14th Annual conference

Pacific Asian Participants from the GDN 14th Annual Development Conference, June 2013

Pacific Island countries are facing challenges in addressing low income economic growth with high levels of vulnerabilities resulting from the impact of global economic crises. The three presentations during this session at the 2013 GDN Annual Conference tackle the issues specific to inclusive growth, poverty and inequality in the Pacific Island Countries. Speakers argue that for inclusive growth to be achieved, barriers to the participation of the poor in economic activities should be removed. According to Neelesh Gounder, University of South Pacific, broader macroeconomic growth policies like trade liberalisation need to be considered to promote growth in a broader sense.

Experience from Fiji

Masilina Tuiloa Rotuivaqali, University of South Pacific focus on the importance of social protection in economic growth. He claims that by paying attention to social protection policies, increased productivity and social stability can be achieved. Prior to 2008, social policies that focus on vulnerable groups have not existed. Although some social policies have been implemented in Fiji in 2008, Solomon Islands and Vanuatu still remain to have very limited formal social protection in place. Thus, there is a need for an integrated social policy framework in all three countries, namely Fiji, Solomon Islands and Vanuatu. This framework should be at the grassroots level to include relevant vulnerable groups.

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Southeast Asia, the new rising star in the global market

We have been referring to the developing economies in Asia as the “Asian Miracle” since they not only witness very high rates of sustained growth, but also underpinning that growth, rapid increases in labor productivity and the import, adoption, use and development of technologically sophisticated processes for generating high-value goods and services.

Southeast Asia's Labor Force By Flickr User Robert Scoble (CC).

Southeast Asia’s Labor Force By Flickr User Robert Scoble (CC).

According to some analysts, Southeast Asian economies are forecast to grow at an average of nearly six percent per year throughout this decade, despite the slowdown in other regions of the world. Based on the analysis of Eric J. Wailes and Eddie C. Chavez in their paper “ASEAN and the Global Rice Situation and Outlook“, the region is projected to account for 53% of net exports, 14% of net imports, 29% of harvested area and 25% of total production.

The region, home to nearly nine percent of the global population, is also home to a large and growing pool of highly skilled, low-cost workers, shaped over years of domestic and foreign capital investment. Moreover, the Southeast Asia region has a strategic location since it sits at the crossroads between China and India in Asia and USA, Australia and New Zealand in the Pacific which grants it a competitive advantage over other regions in the world.

Joshua Aizenman, Minsoo Lee and Donghyun Park shed light in their paper “The Relationship between Structural Change and Inequality: A Conceptual Overview with Special Reference to Developing Asia” on the reasons behind the economic success in Southeast Asia. They explain that an indispensable core ingredient behind developing Asia’s remarkable economic success has been the explosive growth of trade with the rest of the world and with other countries within the region. Equally important to the region’s rapid growth has been the large inflows of FDI and other foreign capital into the region. The region has now become a globally significant exporter of capital, in addition to its technological progress, which has steadily shifted the region’s technological level toward the global technology frontier.

Southeast Asia’s economic, political, and market factors, combined with a landscape focused on attracting capital and development, have created an environment ripe with opportunity, but one still fraught with challenges. For example, transmission of HIV/AIDS, transnational crime including drug trafficking, human trafficking, piracy, labor migration, political instabilities including ethnic conflicts, financial market volatility, geographic challenges especially natural disasters and trans-boundary pollution are some threats facing the region.

By jointly taking action on issues that transcend national boundaries, countries can maximize their development prospects and increase their capacities to alleviate poverty, promote regional peace and security, and achieve sustainable development. Cooperation that further integrates the region expands opportunities to realize faster and more equitable economic growth and higher achievements of human development for South-East Asia.

It is important to reduce cross-country inequalities so that the whole of South-East Asia can compete on even footing with the rest of the world. Any lag or bottleneck in one part of the region could drag the rest, thus special attention, assistance, and cooperation within the region are highly recommended!

How our Regional Windows are Different: Limelight on South Asia

We here at GDNet realize that knowledge, and information, all stored in our Knowledge Base (KB), is our edge. So we always come up with innovative ways of presenting, and repackaging, information to our users. Not only do we have 7 Regional Windows, but we also have our relatively newly-launched 23 thematic windows. Again, just variations of how you can access our vast pool of research papers, organizations, researchers, and the like.

Our focus today will be on the South Asia window, where we source and pool knowledge by Southern researchers from the region. We feature the latest development research, across our 23 themes, relevant to the region, and always make an effort to give underrepresented countries the voice and coverage they need.

We have handpicked two research papers on India, that effectively depict the development dynamic of this South Asian mega-country and BRIC nation. The first one revolves around changing demographics in and the varied rates of economic growth for the countries involved. The second highlights a different regional approach adopted by the country, one where cooperation and interconnectedness are key in a globalized world.

Demographic changes, and their effect on economic growth, were highlighted In the paper discussing prospects for Asian development . One of the premises being that when people age, they’re less productive and thus constitute a burden on society, and their loved ones.

The argument follows that countries home to a younger labor force are poised for growth, fueled by rural-urban migration and urbanization. People now opt for cities, in search of opportunities and a better lifestyle. But living in the city often means having fewer children. And lower fertility rates have translated into fewer inductees into the labor force, with adverse effects on productivity.

Moving on to India’s role as the largest economy in South Asia  and its decision to use soft power as part of its regional strategy, the second paper describes that dynamic; one where “benign power,” hinging on cooperation and interconnectedness, in a post-9/11, conflict-ridden world, is the way to go.

Thanks to globalization, and a changing demography, the political economic reality in the region has witnessed a complete turnaround. As powers rise and fall, most countries now realize that establishing connections based on the common thread of history, culture, religion, and strategic interests is the smartest route to take.

We will be featuring plenty of more synthesis papers from our regional and thematic windows; ones that give you a feel for the various conversations going on in the developing and underdeveloped worlds on economic growth and sustainable development.