Transcript Managing stresses: labor markets

Global Economic Prospects, 2007
Managing the Next of Globalization
Hans Timmer and Richard Newfarmer
World Bank
December, 2006
Medium-term outlook

Growth in developing countries will remain strong,
boosted by improved policies and favorable financial
conditions

The global economy has reached a turning point, and
ingredients for a soft-landing are in place

But turning points generate uncertainties, and
significant downside risks remain
Strong growth in developing economies
Real GDP annual percent change
Forecast
7.0
6.0
Developing
5.0
4.0
3.0
2.0
1.0
0.0
1980
1985
Source: World Bank
1990
1995
2000
2005
2008
Strong growth in developing economies
Real GDP annual percent change
Forecast
7.0
6.0
Developing
High-income
5.0
Developing ex.
China & India
4.0
3.0
2.0
1.0
0.0
1980
1985
Source: World Bank
1990
1995
2000
2005
2008
Growth now broad-based
# of developing countries
30
86-96
96-06
25
20
15
10
5
0
-6 -5 -4 -3 -2 -1 0 1
2 3 4 5 6 7 8 9 10
Average annual GDP growth (%)
Growth now broad-based
# of developing countries
35
96-06
00-08
30
25
20
15
10
5
0
-6 -5 -4 -3 -2 -1 0 1
2 3 4 5 6 7 8 9 10
Average annual GDP growth (%)
Developing countries’ policies have improved
percent
30
1980s
20
2002-2004
10
0
Av. Tariffs
-10
Median Inflation
Fiscal Deficit
Turning point in commodity markets
Price indexes, Jan 2003=100
Forecast
330
280
Metals and minerals
230
Crude oil
180
130
80
Jan- Jul-03 Jan- Jul-04 Jan- Jul-05 Jan- Jul-06 Jan- Jul-07
03
04
05
06
07
Tighter monetary policy to contain inflation
Percent -- Interest rates
6
United States
3 month t-bill
5
4
3
2
Core inflation
1
Ja
n
M
ay
Se
p
Ja
n
M
ay
Se
p
Ja
n
M
ay
Se
p
Ja
n
M
ay
Se
p
Ja
n
M
ay
Se
p
0
2002
Source: World Bank
2003
2004
2005
2006
Turning point in global imbalances
Current account balance, billions of dollars, 2002 and 2006, 2008
400
2008
2006
2002
200
0
-200
-400
-600
-800
-1000
USA
Source: World Bank.
Europe
Japan
Other HIC
East Asia &
Pacific (ex
China)
China
Europe &
Other
Central Asia Developing
Turning points come with risks




Surplus of global liquidity might trigger sudden reversal of
credit flows
Global imbalance still large and might trigger sudden reversal
in capital flows
Correction in U.S. housing market might trigger sharper
slowdown
Disruption in oil supply might trigger renewed upward price
spikes
The next wave of globalization




Over the next 25 years, markets will become more
integrated, developing countries will like grow faster,
and become a major force in the global economy
However, stresses over income distribution and in
labor markets could undermine potential growth
…and failure to manage environmental pressures
entails serious risks
Policy responses to these stresses are so far
inadequate to the challenges, so new efforts are
needed at both the national and multilateral level
Developing countries share of trade will rise as global
integration intensifies…
Exports from developing and developed countries, 2005-2030
US$2001 trln.
30
$27 trln
25
High-income
countries
20
15
10
Developing
countries
45%
5
22%
0
1980
Source: World Bank simulations with Linkage model.
32%
2005
2030
…and the share of developing countries in global output
will rise…
GDP of high-income and developing countries (market exchange rates)
US$2001 trln
80
$72 trln
70
60
High-income
countries
50
40
30
Developing
countries
20
31%
10
16%
0
1980
Source: World Bank simulations with Linkage model.
23%
2005
2030
Growth would raise income and reduce absolute poverty

Average per capita incomes in developing countries are likely to double..

…and more people from developing countries will enter the ”global middle class”
1400
Number of people (million)
Africa
1200
South Asia
1000
Middle East
Latin America
800
Europe & Central
Asia
600
400
East-Asia
200
0
2000
2030
Growth would raise incomes and reduce absolute poverty

Average incomes are likely to double

…and more people from developing countries will enter the ”global middle class”

…and sharp reductions in dire absolute poverty
1,400
1,200
1,000
Millions of people
28%
Other
Sub-Saharan
Africa
20%
800
12%
South Asia
600
8%
400
East Asia
200
0
1990
2003
2015
2030
Managing stresses: uneven benefits
At global level, some regions lag, notably Africa
Per capita incomes as percent of high-income countries
40
2030
35
30
2005
25
20
15
10
5
0
East-Asia South Asia Europe &
Pacific
Central
Asia
Middle
East &
North
Africa
SubLatin
Saharan America &
Africa
Carib.
Note: Ratio of PPP-adjusted per capita incomes relative to high-income average. PPP is fixed at base year (2001) level.
Source: World Bank simulations with Linkage model.
Managing stresses: uneven benefits
Within-country income distribution could become unequal
in coming years
25
Number of countries
20
15
10
5
0
very large
large
decrease
small
minimal change
Income inequality
small
large
increase
Note: Based on changes in the Gini-coefficient: very large >|0.05|, large>|0.03|, minimal change <|0.01|
very large
Managing stresses: uneven benefits
Returns to skilled workers will likely rise relative to
unskilled workers
Ratio of skilled wages relative to unskilled wages
7
6
2030
5
4
2001
3
2
1
0
EAP
Source : Bank staff calculations
ECA
LAC
MENA
SA
SSA
Managing stresses: labor markets
…while globalization spurs productivity, tensions in labor
markets could become more severe
Share of high-income countries’ imports of manufactures originating in developing
countries (%)
80
70
Other
Asia
60
50
40
China
30
ECA
20
Latin
America
10
Middle
East
Africa
0
1973
1983
1993
2003
2020
Source : For 1973-2003, data from WITS, Bank staff calculations. Projections using the Linkage model for 2020 and 2030.
2030
Managing stresses: labor markets
…and may take a different form because of services trade
Growth rate of exports of business services 1994-2003
India
Estonia
Romania
China
Israel
Brazil
Argentina
Mauritius
EU-15
US
Canada
Barbados
Dominica*
Australia
Norway
Ghana
Japan
0%
Source:
100%
200%
300%
400%
500%
600%
700%
800%
Data from IMF Balance of Payment Statistics: Business services are defined as Total
services minus Transportation, Travel, and Government Services.
Managing 3 stresses: environmental pressures
Global institutions and policies are still too weak to deal with
severe environmental pressures

Carbon emissions are causing global warming
Annual carbon emissions (millions of tons)
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
1990 2000
Source: OECD GREEN model simulations
Others
Large developing
countries
High-income
countries
2010
2020
2030
2040
2050
Managing stresses: environmental pressures
Global institutions and policies are still too weak to deal with
severe environmental pressures

Carbon emissions are causing global warming

… and overfishing threatens major fisheries
Trend 1995-2005
110
90
Trend 1950-95
70
50
30
19
50
19
53
19
56
19
59
19
6
19 2
6
19 5
68
19
71
19
74
19
77
19
80
19
83
19
8
19 6
8
19 9
9
19 2
95
19
98
20
01
20
04
10
Realizing the potential of global integration requires an
affirmative policy response – domestically and globally

Domestic policy must enhance competitiveness and ensure that growth is
broadly shared
 Institutional measures to raise productivity and growth
• Removing barriers to integration
• Improving investment climate
 Investing in education
 Protecting workers – but not jobs

Multilateral collaboration
 Using development assistance to promote integration of lagging
countries
 Removing barriers to the products that the poor produce
• Near-term priority: Doha Development Agenda
Global trade reform can be pro-poor
Percent income gains (losses) by centiles of global distribution if official development assistance were to cease
(expressed as difference from baseline scenario of chapter 2)
25.0
Growth incidence
Average
20.0
15.0
10.0
5.0
0.0
-5.0
1
11
21
31
41
51
61
71
81
91
Cumulative population ranked by per capita income
Realizing the potential of global integration requires an
affirmative policy response – domestically and globally

Domestic policy must enhance competitiveness and ensure that growth is
broadly shared
 Institutional measures to raise productivity and growth
• Removing barriers to integration
• Improving investment climate
 Investing in education
 Protecting workers – but not jobs

Multilateral collaboration
 Using development assistance to promote integration of lagging
countries
 Removing barriers to the products that the poor produce
• Near-term priority: Doha Development Agenda
 Reinforcing mechanisms to deal with global externalities
Global Economic Prospects, 2007
Managing the Next of Globalization
Hans Timmer and Richard Newfarmer
World Bank
December, 2006