Synthesis documents

Assessing Private Sector Contributions to Job Creation and Poverty Reduction, IFC, 2013

    Currently 200 million people are unemployed globally, and the unemployment rate for youth is more than 2.5 times higher than that of adults. By 2020, 600 million jobs must be created in developing countries—mainly in Africa and Asia—just to accommodate young people entering the workforce. In developing countries, the quality of jobs is just as important. Almost a third of workers are poor, and about half —particularly women—are vulnerable, often working in informal jobs, which frequently provide fewer rights and protections for workers.

    This report is the result of an open-source study to assess the direct and indirect effects of private sector activity on job creation. The report examines how and under what conditions the private sector can best contribute to job creation and poverty reduction, drawing on a review of the literature and evaluations; surveys of more than 45,000 businesses in over 100 countries; a website, blog, and essay competition to solicit outside views; macro and micro case studies of IFC clients; and IFC’s own operational experience and lessons learned.

    Summary of results
    Key findings include:
    -According to the World Banks Enterprise Surveys, the key obstacles faced by private enterprises for job creation in developing countries are investment climate, infrastructure, access to finance and skills and training.

    -In general, small firms tend to have higher rates of job growth, but larger enterprises are more productive, invest more in training, and offer higher wages. Even though small firms have higher rates of job growth, in developing countries most of them are unable to grow to their full potential because of the mentioned multiple constraints.

    -Only focusing on direct jobs can be misleading. The number of direct jobs created by IFC‘s client companies may be small, but there is large job creation in their supply and distribution chains, which tend to benefit the unskilled and the poor. However, these indirect jobs, as well as second-order growth related jobs from improved services, are difficult to measure and better data and comprehensive methodologies are needed.

    -There is evidence that if markets are competitive, then higher productivity allows companies to produce more and thus makes it attractive for them to hire more workers. This effect outweighs job losses that can be associated with higher productivity. Furthermore, studies show that employment growth coupled with increased productivity is more likely to lead to reduced poverty.

    -Women and youth face specific employment challenges. For instance, women in many countries still face significant disadvantages—including legislative barriers, lack of access to finance, and cultural norms—that often force them to work in jobs that pay less and are more vulnerable. Providing better access to jobs for women is good for their families, their companies, and economies. A comprehensive strategy is necessary to address this multifaceted challenge.