Launch of IFC’s jobs study

The World Bank’s private sector lending arm, the International Finance Corporation, has launched a Jobs Study, which it states took 18 months to prepare and was "closely coordinated" with the Bank’s World Development Report 2013 on Jobs (WDR 2013) launched last October. The IFC held a two-day conference in Washington on 14-15 January to discuss the report and its recommendations.

The claimed purpose of the IFC Jobs Study was "to assess the direct and indirect effects of private sector activity on job creation" (p 1 in the summary report) but a preface from the IFC’s CEO, Jin-Yong Cai, states that the study was commissioned more specifically "to get a better look at how IFC contributes to job creation" (p 3).

The IFC has been criticized in recent years by several outside analysts and civil society organizations because of its failures to assess the development and poverty-reduction impacts of its loans and investments and to develop investment policies that focus on targeted development outcomes. One can see this report as a first attempt to respond to those critiques.

The IFC Jobs Study frequently reads as an attempt at self-justification of the IFC’s current policies through a "jobs lens". The report even finds that the key elements of the IFC’s overall strategy fortuitously happen to coincide with the four areas that the study concludes are crucial for job creation: "a focus on investment climate, infrastructure, access to finance, and training and skills" (p 34).

In reality, the Jobs Study provides only fragmentary and approximate assessments of the jobs impact of IFC loans and investments, and in a few cases seems to gloss over valid critiques of some types of IFC investments that have been expressed by analysts in other divisions of the World Bank Group (some examples are provided below).

Despite this, the IFC Jobs Study contains several welcome aspects. It provides analyses and recommendations that are supportive of "quality jobs" where the ILO’s core labour standards are respected, takes a different view from IFC sister publication Doing Business about supposed obstacles to job growth created by labour market regulations, and identifies formalization of informal-economy activities as one of the priorities that the IFIs should support .

No serious assessment of IFC’s employment impact

The IFC Jobs Study admits that IFC investments do very little to create direct jobs, but claims that the multiplier effects – through suppliers, distributors or extra spending – can be substantial: "Among IFC client companies, the number of direct jobs created, net of job losses, tends to be relatively small, but the number of indirect jobs generated can be significant, though more difficult to measure." (p. 8)

This assertion is based on some case studies of questionable value. The highest job multiplier identified in these studies is for a mining project in a low-income African country. However, a World Bank speaker in the 14-15 January conference noted that the WDR 2013 concluded that extractive industry investments in low-income countries often have a net job destruction effect by rendering other economic activities uncompetitive through a higher exchange rate. This factor had not been taken into account in the IFC’s case study.

Another section of the Jobs Study speaks enthusiastically of the positive impact of micro-finance (a sector in which the IFC has made several investments) for creating jobs and reducing poverty (p 23), blithely ignoring the numerous studies that have concluded that these impacts have been highly exaggerated. Some of these critical analyses have been produced by the World Bank, such as this one on Africa published last year:

Constraints on private-sector job creation

A more useful section of the report analyses the obstacles to private-sector job creation in developing countries and provides a welcome alternative to the ideologically-motivated obsession with labour regulations as an impediment to job creation that one finds in Doing Business or in current IMF policy recommendations in Europe. On the basis of an extensive enterprise survey, the Jobs Study concludes that lack of access to finance, weak infrastructures – especially unreliable electric power, informality and lack of workers’ skills are the most important obstacles to job creation (p 11). Labour regulations were mentioned by only 3 per cent of firms surveyed. (The report notes the inherent weakness of enterprise surveys as subjective assessments.)

Also welcome is the Job Study’s emphasis on the need to formalize informal economy activities as the path to higher-quality employment creation (p 15-16). Less welcome is the report’s favourable assessment of so-called special economic zones as a means to overcome the obstacles (p 14-15). One of the examples cited as a success is Bangladesh, where the report fails to mention that the special economic zones imposed restrictions on trade union rights.

Another chapter on "Quality of Jobs" emphasizes the positive impact resulting from the respect of workers’ rights, which have been made a formal requirement of all IFC borrowers through IFC Performance Standard 2 (PS 2) on labour and working conditions. The report refers to studies documenting reduced accidents, reduced worker turnover and improved product quality as a result of improved labour standards (p 31).

Unfortunately the report does not refer to weaknesses in the IFC’s enforcement mechanisms for PS 2; the gaps in application created notably by IFC’s lending through private financial intermediaries; and the fact the Equator Principles, based on PS 2 and other standards and adopted by 77 private financial institutions, are devoid of any monitoring or reporting requirements. The Jobs Study does call for increased monitoring of labour standards in supply chains, an area in which the revised 2012 version of PS 2 offered some improvements over the previous version.

The IFC has only produced material in English on the report. A 47-page summary version of the IFC Jobs Study is available on-line (all page numbers above refer to this version):

The full 148-page report is also available on-line:

Article by Peter Bakvis - ITUC/Global Unions - Washington Office