The Strategist

IMF: Lower employment in industry is not a sign of slowdown

04/10/2018 - 14:28

One of the analytical sections published yesterday in the IMF’s new World Economic Outlook is devoted to analysis of the impact of industrial employment on productivity and the level of income stratification in the economy. It confirms that although employment in industry, in both developed and developing economies (except China), is declining, this does not necessarily lead to a slowdown in economic growth and an increase in inequality. It happens because among those who lose jobs are people with low and average qualification.

samjok5 via pixabay
samjok5 via pixabay
The growth in the share of employed in the services sector is related to structural shifts, namely, increasing incomes and technological innovations in production. Thus, in the past five to ten years, some service sectors have become closer to the industry in terms of growth in value added and productivity per employed person. And, for example, transport, telecommunications, financial and business services exceed the industrial level and the growth rate of output per employee. Moreover, labor productivity in service sectors in developing and transition economies is rather low. This fact allows it to grow rapidly, reducing the productivity gap with developed economies, according to the IMF.

The analysis also shows that the level of inequality in labor earnings in industry is somewhat lower than in services (in the sample of 20 developed economies). But to explain the aggregate inequality, the characteristics of a country are more important than the industrial sector’s size. For example, the inequality in Denmark accounts for about one-third of the inequality in the US, both in industry and in services. And the biggest factor that caused the change in aggregate inequality in advanced economies since the 1980s was the increase in the difference in all sectors, rather than the reduction in jobs in industrial production. The IMF recognizes that the negative consequences of the disappearance of production jobs can be significant for individual workers, especially in regions that have developed as production centers. To mitigate these consequences, it is proposed to subsidize and regulate the redistribution of such workers by strengthening the social protection system.