1. 1
Aid, Growth, and Jobs
Gary S. Fields
Cornell University and IZA
May, 2013

2. I. Defining the Problem
The global poverty problem:
• Of the world’s 6.7 billion people:
• 1.3 billion people living on live than US$1.25 per person per
day, PPP-adjusted
• Another 1.7 billion live on between $1.25 and $2.50, PPP-
adjusted
The global employment problem:
• 200 million unemployed
• 900 million working poor
2

3. 3
II. Fighting Poverty through the Labor Market
• This talk: Which policies in labor markets and
policies impinging on labor markets would help
reduce poverty the most?
• Definition of labor markets:
o The places where labor services are bought and sold.
o Includes wage-employment and self-employment.
o Includes agriculture and non-agriculture.

4. 4
How would L mkt policies affect people like these?

5. 5
III. Developing an Analytical Framework

6. 6
Working Hard, Working Poor
• The poor want to work.
• Not only do the great majority of the poor work, they work
long hours, but they earn very little for the work they do.
• The composition of employment is very different in
developing countries from that in developed countries.
• Typically, the better jobs are in wage employment, not self-
employment.
• Unemployment rates are lower in the developing countries
than in the richer countries.
• What the developing countries have is an employment problem
– that is, poverty among those who work - rather than an
unemployment problem.

7. 7
The Problems Workers in the Developing World
Face
• An insufficient number of good jobs
• Uncertainty of work
• Low earnings despite long hours
• Few job-related social protections
• Indecent work

8. 8
The Multi-Sector Labor Market Approach
• Dualistic or segmented labor market framework
• Key features of dualism/segmentation:
Existence of better and worse jobs
Better jobs rationed
• Ingredients of multi-sector labor market analysis:
How the “good jobs sector” works
How the “poor jobs sector” works
Linkages between the two sectors

9. 9
IV. Helping the Poor Earn Their Way Out of
Poverty: Policies Considered in the International
Literature
1. Basic workplace protections
2. Harnessing the energies of the private sector
3. Economic growth, international trade, and foreign
assistance
4. Labor market policies for generating more paid
employment
5. Raising self-employment earnings

10. 10
Policy Evaluation Framework I Like to Use
Policy instrument(s) 
Model, including both theoretical and empirical
components 
Predicted outcomes 
Policy evaluation criterion(a) 
Policy evaluation judgment

11. 11
Sound labor market policies require
sound labor market models.
1. From a welfare economic point of view, the policy judgments
are explicit, mutually consistent, and thoroughly worked out.
2. From a theoretical point of view, the models are sufficiently
detailed and suitably rigorous.
3. From an empirical point of view, the models guide and are
guided by solid quantitative evidence.

12. 12

13. 13
A problematical policy syllogism:
1. We want to help the poor.
2. The poor work disproportionately in the informal sector.
3. Therefore, we should invest in the informal sector, which is
where the poor are.

14. 14
Wrong!

15. 15
Another problematical policy syllogism:
1. We want to help the poor.
2. The poor will remain poor as long as they remain in poor
sectors.
3. The informal sector pays poorly relative to the formal sector.
4. Therefore, we should invest in creating new formal sector jobs
and formalizing existing informal jobs.

16. 16
Wrong again!

17. 17
What is right?
Social cost-benefit analysis:
If our aim is to reduce poverty the most,
we want to invest our resources
in whichever sector and whichever activity
produces the highest marginal social benefit
(in poverty reduction terms)
relative to the marginal social cost.

18. 18
V. Social Cost-Benefit Analysis in Action

19. 19
Which sectors and activities are most worthwhile?
We can only know once we do careful,
policy-relevant, context-specific labor market modeling.
No general answer.
My hunch: in many contexts, increasing self-employment
earnings through low-cost interventions such as affordable
micro-credit.

20. 20

21. 21
What about education?
World Bank mission to Gambia
Task: Assess possible World Bank loan in education sector
Questions:
1. Which level of education to prioritize?
2. How to intervene at that level?

22. 22
Some education policy options

23. 23
Per-Pupil Expenditures (in dalasis)
Primary 178
Secondary technical 257
Secondary high 573
Gambia College 1351

24. 24
Conclusion government reached:
Primary education

25. 25
VI. Concluding Thoughts
Pitfalls in policy-making
1. Inappropriate use of “productivity”
2. Reliance on the wrong kinds of empirical studies
3. Fallacy of composition
4. Attention to only a subset of the goods and bads
5. Lack of social cost-benefit analysis

26. 26
Priorities for Labor Market Research
1. How people in developing countries are working and why
they are doing what they are doing.
2. Empirically-grounded theoretical models of labor markets.
3. Sector-level and market-level analysis of various labor
market outcomes.
4. In-depth empirical analysis on which particular policy
interventions matter how much.

27. 27
Some Final Words
Let us try to be:
1. Bold enough to be explicit about our policy evaluation
criteria.
2. Specific about our theoretical models.
3. Comprehensive in our empirical evidence.
4. Humble enough to know when the best policy conclusion
is to draw no policy conclusion at all.
For the world’s poor, the stakes are too high for carelessness.