Download Socially Sustainable Economic Growth

Socially Sustainable Economic
Growth
Christopher A Pissarides
London School of Economics
and SPSU Growth Laboratory
24.04.2014
St. Petersburg, SPSU
Themes
• Economic growth can improve the
condition of all citizens but can also create
conflicts that need to be addressed by
policy
• The main benefits of economic growth to
the population at large come from wellrewarded employment
• How do labor markets deliver the benefits?
2
Potential problems with modern
labor markets
3
Non-clearance
• Modern labour markets do not clear fast
like output markets
• Adjustments are slow because of time
required to acquire new skills, set up new
companies, change jobs and especially
uncertainties about the future
4
Equilibrium and growth
• In a dynamic economy equilibrium will be
characterised by monopolies, demand and
supply mismatches and unemployment
• The fruits from growth may not be shared
equally and “fairly” as a result – making
growth unsustainable because of social
frictions
5
Implications
• Wages do not reflect only labour
productivity but also monopoly power
• Adjustment to shocks is slow and wage
inequalities persist
• Growth sectors usually pay more to attract
more labour
• Growth is not “inclusive”
6
Role of policy
• Can reduce equilibrium unemployment by
helping workers find jobs faster
• Can help workers achieve good match
• Can speed up the transition to industrial
society by removing barriers
• Can increase inclusiveness and reduce
inequalities
7
Energy needs
• A more common reason given for
unsustainable growth is the use of nonrenewable energy
• I will not discuss this and related reasons
but will focus on employment issues and
income inequalities
8
Employment changes during
economic growth
9
Stages of economic growth
• In the first stages of economic
development there is reallocation of labour
from agriculture to industry and services
• Green revolution releases labor to migrate
to industry
• Industrial revolution first attracts and then
releases labour as new technology saves
labor
10
Beyond industrialization
• Services at first are low-skill ones, serving
the general public
• Eventually sophisticated business (and
some personal) services develop, such as
finance, accounting, medical care
• But the larger number of employees will
always be employed in services that do
not require many skills
11
Inclusiveness
• To avoid exclusion of some workers and
unequal distribution of rewards from
growth government needs to remove
barriers to mobility
• Housing costs: large variations across the
country
• Education costs: needs of agriculture,
industry and services vary and change all
the time
12
More mobility barriers
• Information deficiencies about jobs across
sectors and locations
• In modern societies structure of welfare
benefits can also be a barrier, e.g.,
entitlements not transferable, housing
benefits limited, unemployment benefit low
13
Role of policy
• Here is where social policy can help most
• Welfare benefits should be national, not
local, and be transferable
• These include policies like entitlements to
unemployment insurance, housing
benefits, child support, low-income support
etc.
14
Housing
• Housing is a major barrier to mobility. In
cities with many jobs housing costs are
usually much higher
• Government can help with housing policy,
such as provision of social housing
• But it needs to be careful to avoid the
formation of ghettos
15
Education policy
• During a transition the first entrants take
advantage of the best opportunities
offered by the new type of jobs, yielding
very high returns to their education
• This introduces large inequalities
• Education policy has a very important role
to play in preparing all workers for
manufacturing and service jobs
16
What type of education?
• Skills required for early transition to
industrial society are acquired at
elementary and early secondary education
• These should be provided free because of
the social benefits
• General type of education gives most
flexibility for work in the new economy
17
Further training
• Beyond the first stage specialisation takes place
on the job, after employment commences
• It could be informal learning of how the job is
done
• Or formal “apprentice” training, where the
school leaver works as an apprentice to a more
qualified worker and learns the job
• Government could subsidize apprentice training,
as done in Germany
18
Higher education
• Higher education and research are also
important because they drive further
growth through new innovation
• In order to achieve high standards in
university research universities need to be
well funded but be independent
• Government research funding is required
to supplement other university income
19
Funding
• In the USA university budgets are 3.3% of
GDP, in Europe only 1.3%
• Americans also give more independence
to their universities and public donations
are more generous
• Main reason that Europe lags behind the
US in top university performance and top
innovations
20
Information policy
• Providing information about new job
opportunities is one of the least expensive
and most successful policies
• Important to do it for individuals but also
nationally for the general public
• Important to engage companies in schools
about job needs
21
Service jobs
• There will always be a large demand for
unskilled services, as country develops
• Retailing assistants, domestic services,
nursing and social care are the main
examples
• But business services also grow,
especially in finance
22
Business services
• Business services require highly trained
individuals
• Formal education required at university
level
• With economic development, demand for
business services likely to expand faster
than in proportion to GDP
23
Policy in the post-industrial
society
• In the post-industrial society designing
policy gets more difficult
• The reason is that in services inequalities
are larger because of globalization and the
new technology
24
New technology: the office
revolution
• Growth of sophisticated services like
finance and international property rights
bring globalization
• Services technology is “weightless”, in the
sense that it can be transferred easily and
applied anywhere (e.g., Microsoft
software)
25
Inequalities in pay
• The result is that a few successful people
or companies become very wealthy
• The vast numbers of service employees
remain low-paid
• Attempts to increase pay through
minimum wages and other restrictions
lead to exclusion of lower skills (e.g.,
unemployment or non-participation)
26
Inequalities in pay
• Current situation of new technology
benefiting only top incomes is
unsustainable
• In the US virtually all growth in GDP since
the end of the recession went to the top
5% of wage earners
• New technology since 1980s has been
shifting the income distribution in favor of
higher incomes
27
Policy response
• Difficult to find good policy response
because of political objections and risk of
disincentives to new ventures
• In the US there has been virtually no
policy response despite well-meaning
intentions by Clinton and Obama
administrations because of difficulty to
pass anything substantial through
Congress
28
What can be done?
I. Markets
• In my view best policy response is to allow
the market to function freely, with some
restrictions that ensure good work
standards
• But very limited or no restrictions on things
like hiring and firing, shop opening times
and other forms of regulation of output
markets, and reasonable minimum wages
etc.
29
What can be done?
II. Low incomes
• Support for low incomes and excluded
individuals should be provided through the
market
• Such as family income support when the
householder is unemployed, subsidized
education and health care, subsidized
training
• All funded by progressive taxation
30
Examples
• “Flexicurity” of Scandinavian countries one
possible example
• School education of Finland and others
who perform highly in PISA tests another
• University structure of US and UK another
• Health care and pensions in Netherlands
and Denmark
31
Institutional structure
• For this system to work we need a good
state system and trust from the public
• Poor institutional structures and overeager state controls can bring inefficient
practices and make matters worse
32
Conclusions
• Good social policy and good institutional
structures (such as a good legal system,
transparent government, one-stop
decisions) are needed to ensure that
growth is inclusive and so sustainable
• Growth that excludes some individuals
and creates inequalities could lead to
social conflict
33