Profile of the Economic Actors

1. Profile of the Economic Actors Applied Inclusive Growth Analytics Course June 30, 2009 Leonardo Garrido

2. Presentation plan • Discuss the rationale for a profile of the economic actors • Present elements of a profile of economic actors exercise • Introduce elements of a demographic analysis • Case study: Tajikistan

3. Why do we need a Profile of the Economic Actors? • Growth Diagnostics addresses the issue of low returns to investments and entrepreneurship • But being mainly directed to the analysis of businesses, it mostly overlooks a fundamental issue: • Are all economic actors properly endowed to benefit from and participate in the economic activity? • Non-Included groups may represent a significant share of population • Inclusive Growth: Concerned about the pace and pattern of economic growth • Rapid and sustained poverty reduction requires inclusive growth, which allows previously non-included sectors to contribute and benefit from growth. • Growth should be broad based across sectors and inclusive of a large part of the country’s labor force

4. Labor Force Employed mostly outside the Modern Sector in LDC • Higher self-employment, non wage employment in LDC. • Substantial share of Agricultural, informal self employment in total employment in LDC. • Low employment rates in LDC masks issues of underemployment or employment at subsistence levels. • Substantial fraction of employed population receive earnings close to or below the poverty line.

5. Is the growth process accompanied by employment generation and poverty reduction? • Answering this question requires knowledge of: • Which are the growing sectors? • Are the poor are benefitting from employment and productivity increases? • Which sectors growth have a bigger effect on poverty reduction? • What is the employment and labor income profile of the population? • Which are the sectors in which the poor are working? • Which are the non included sectors? • What are the characteristics of the Labor Force? Education, Health Status,

6. Profile of economic actors: Helps identifying ways out of poverty • It begs for an analysis of selected labor groups: • Employed vs unemployed (and underemployed) • Agricultural, Informal, Self employed vs Modern Employees • Rural vs Urban + Poor vs non poor (i.e. Poor Rural vs Poor Urban) • By Selected Economic Activities • It attempts to identify non-included groups and the ways out of poverty • In many cases a full employability analysis must be conducted when early stages of the diagnostic exercise appear to show significant human capital deficiencies • Jesus Cuaresma presentation on Human Capital • In addition, a demographic analysis must be necessary as demographic dynamic may have significant impacts on the structure of population and labor force

7. Demographic Analysis • Relevant for Inclusive Growth analysis if at least one of the following is expected to occur during the relevant period: • A demographic transition • Changes in fertility and / or mortality rates • Changes in migration patterns • Internal and / or across the border • Changes in participation rates • Mainly linked to changes in schooling and / or increased participation of female in the labor market • Demographic shock • Fragile or post-conflict states. • Natural disasters • HIV / AIDS or any other epidemics affecting population stock and / or leading to changes in morbidity rates

8. Demographic Analysis • Most growth models do not distinguish between output per capita (Ypc) and output per unit of worker (Ype). • In a demographic transition this is not necessarily true: • Changes in fertility, mortality and migration patterns yields different dynamics in population and labor force growth rate (for given participation rates) • emp = employment rate • par = participation rate • wapr = Working age population ratio to total population

9. Demographic analysis: Fertility and Mortality Rates • Countries have a window of opportunity to cash in a “demographic dividend” if they take advantage of improvements in the age dependency ratio (adr)

10. Profile of the economic actors • Knowledge of the distribution of working age population and labor force is essential to identify productive and non-included groups

11. Profile of the economic actors: Country specific and data intensive • Every Inclusive Growth analysis reveals particular issues of interest regarding the Labor Force: • Tajikistan: Migration, cotton workers • Zambia: Poor agricultural farmers • Mongolia: Skills mismatch and poor agricultural farmers • Benin: Informal economy • Kenya: informal economy and youth employment • Macro data alone is insufficient to generate a profile of economic actors • LSMS data • Labor Force Surveys • DHS data

12. Profile of Economic Actors. Case Study: Tajikistan • A profile of the economic actors point out of 3 groups / channels for poverty reduction, inclusive growth: • Migrants • Non cotton agricultural workers • Higher educated

13. Case Study: Tajikistan. Migrants

14. Case Study: Tajikistan. Migrants

15. Case Study: Tajikistan. Migrants

16. Case Study: Tajikistan. Migrants

17. Case Study: Tajikistan. Migrants

18. Case Study: Tajikistan. Migrants

19. Case Study: Tajikistan. Non cotton agriculture • Poverty rates have fallen the most in Tajikistan’s principal non-cotton farming areas • This sector has shown significant productivity improvements as a result of agricultural sector reforms • Non-cotton has been a much less regulated than cotton farming

20. Mincerian Returns to Education (I) • Dependent variable: Earnings, in logs (LY) • Interpretation of coefficient: Depend upon the specification of the education variable • If data on number of years of education is available: Coefficient represents marginal returns from additional year of education • Consider non linear specification to test for decreasing / increasing returns • If data on attainment is available (primary, secondary, higher education…) : Create dummy variables for each group. Coefficient represents additional return to education compared with base group • Both education (EDU) and experience (EXP) to be included in specification • Also consider the possibility of no linear impact of experience on earnings (EXPSQ) • Include as many individual, family, community and regional controls as possible (Vector V) to reduce omitted bias problems

21. Tajikistan: Mincerian Returns to Education (II)