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4. Structural change for decent work
Introduction
The reallocation of jobs across sectors is central to the process of structural change and productivity
upgrading and yet it often entails considerable social adjustment costs that fall onto specific groups
in the labour market. Lay-offs in low-productivity sectors, increased training needs of workers, or
congestion in urban areas due to workers’ movements from the countryside into crowded cities are
only a few examples of problems that can arise from structural shifts in employment. Whether
structural change leads to more and better employment opportunities is an issue that has not
received sufficient attention.
This chapter provides new evidence on the role and importance of the reallocation of jobs
across sectors and demonstrates that, if the reallocation occurs from low productivity to high
productivity sectors, it both contributes to increased living standards and to improved labour market
outcomes such as a lower incidence of vulnerable employment and less working poverty. The
chapter also presents evidence as to the adverse impact the global economic crisis had on sectoral
reallocation and the slowdown in value added per capita growth rates, in particular in emerging
economies.
Decomposing value added per capita growth
Value added per capita growth can be decomposed into changes in productivity, variations in
employment and labour force participation, and demographic dynamics (see Appendix 1):
• Growth in labour productivity arises either from changes in labour productivity
within sectors – for instance through the implementation of new machines and innovative
technologies that allow more output with the same amount of labour input – or from the
reallocation of jobs across sectors (“structural change”) when workers move from low- to
high-productivity sectors (e.g. from agriculture to industry or services);
• Variations in employment and labour force participation can augment value added
per capita growth if there is an increase in the activity rate of the working-age population
either by reducing unemployment or by bringing more people to the labour market. In this
respect, the drop in both employment-to-population and labour force participation rates in
many regions with the onset of the crisis has been an important factor behind the current
slow growth environment;
• Value added per capita growth can also increase in a dynamic demographic context
when the share of the working-age population in the total population rises. These
demographic dynamics are typically slow-moving, very persistent, reacting little to policy
interventions.
Labour productivity growth through structural change has immediate consequences for employment
as it requires workers to move across sectors and jobs. These dynamics in the labour market have
potentially long-lasting effects if workers have difficulties in finding new employment opportunities Structural change for decent work 133
elsewhere. Lack of appropriate skills, limited geographical mobility and missing information
regarding available jobs can create large barriers to successful job-finding. At the same time,
structural change is central and necessary to increase living standards durably and equitably by
allowing ever more people to benefit from higher productivity levels in more advanced parts of the
economy. In the following, value added per capita growth is broken down for different regions and
over different time periods in order to assess the importance of structural change in growth patterns
and the impact of the crisis in this respect. In the next section, the chapter then aims at analysing the
impact structural change has had on the quality and quantity of jobs in these regions.
Structural change plays a significant role for economic growth in developing regions
Patterns of value added per capita growth have varied widely across regions over the last two
decades (see Figure 51). Nevertheless, some general lessons can be drawn from this regional
comparison.
A first lesson is that gains in labour productivity within sectors are the main driver of
growth. In particular, labour productivity growth in industry and services play an important role for
aggregate economic growth. Productivity increases in industry have been particularly important in
East Asia, whereas service sector productivity growth has played a larger role in most other regions,
particularly in South Asia. On the other hand, productivity improvements in agriculture figure least
prominently among the three broad sectors in most regions. Often, this is due to the relatively small
size of the agricultural sector compared with industry and services, which decreases the scope at
which agriculture can contribute to growth.
Second, in comparison with the contributions of labour productivity improvements within
sectors, productive structural change has quantitatively played a less important, but still quite
considerable role for growth in many regions, confirming earlier findings in the literature (Kucera
and Roncolato, 2012; McMillan and Rodrik, 2011). Structural change has contributed significantly to
economic growth especially in East Asia, South Asia, South-East Asia and the Pacific and SubSaharan Africa. The importance of sectoral reallocation has typically been smaller in Latin America
and the Caribbean, the Middle East and North Africa. In contrast, Central and South-Eastern
Europe has experienced significant productivity gains due to structural change only in 1999–2007,
but not much before and after this period. For the Developed Economies region, productive
structural change is negligible, which is explained by the marginal role that agricultural employment
plays in this region.
Third, labour market and demographic components of value added per capita growth – the
employment-to-population rate, the labour force participation rate and the share of working-age to
total population – tend to be less important drivers of growth, but can become important at times.
In the Developed Economies region, the strong rise in unemployment and the resulting drop in
labour force participation due to discouragement during the crisis slowed down economic growth
significantly. In South Asia, labour force participation has contributed negatively to value added per
capita growth as women were dropping out of the Indian labour market in 2005–10 (Kapsos and
Silberman, forthcoming). In the Middle East, growth patterns are dominated by demographic
dynamics.
Over the coming years through 2017, value added per capita growth is projected to be
largely driven by improved labour productivity in the services sector for most regions. This is
particularly the case for the Developed Economies, Central and South-Eastern Europe, South Asia Structural change for decent work 134
and Latin America and the Caribbean. Economic growth in East Asia and South-East Asia and the
Pacific is projected to entail large contributions of labour productivity improvements within services
and also within industry. Considering that these two regions are expected to be among the fastestgrowing regions in the world points to the importance of industrialization in the development
process. But also productive structural change is going to matter a lot for growth in these regions,
according to our projections. In Sub-Saharan and North Africa, economic growth when considered
in per capita terms remains relatively weak with no particular driver outstanding and pushing growth
upwards. Also the Middle East is projected to grow only modestly, with a growth pattern dominated
by labour productivity improvements within industry.Structural change for decent work
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