Labor Markets

The global agenda on poverty and shared prosperity hinges largely on the number and quality of jobs people have.

Amidst mounting challenges disrupting industries and the nature of work, policymakers worldwide are prioritizing strategies to bolster employment, enhance productivity, and activate labor markets, especially within informal economies. But despite the pressing need for robust labor market programs, current expenditures remain starkly inadequate. They hover at 0.3 percent of GDP on average globally, with upper-middle-income nations outspending their low-income counterparts by almost three times.

This highlights a critical gap in addressing the multiple hurdles facing developing nations, from high unemployment to persistent wage disparities and demographic shifts. These challenges vary across countries and regions.

High youth unemployment in many developing countries, such as 12.4% in Sub-Saharan Africa, hinders individual advancement and overall economic growth. Beyond job creation, improving the quality of employment, including fair wages and job security, is important.  Wage disparities persist along gender and ethnic lines. In Latin America for instance, the average monthly wage is $500, far below developed countries’ average, potentially perpetuating cycles of poverty and inequality.

Gaps also exist in the form of a skills mismatch between what job seekers possess and what employers need, and technological advancements and green transitions are compounding the challenge.

A challenge that is most acute in low-income countries is the significant size of informal employment as formal job opportunities are limited. Workers engaged in the informal economy lack job security, social protection, and often accept undesirable working conditions. Demographic shifts add further complexity to managing labor markets. In Japan, an shrinking, aging workforce faces a shortage of skilled workers while Sub-Saharan Africa’s youthful population needs jobs to reap its demographic dividend.  International migration, while providing opportunity, adds complexity when it comes to integrating migrant workers to address skill shortages or surpluses. At the same time, rapid technological innovation, such as automation and artificial intelligence, alongside the rise of non-traditional work arrangements like gig work pose additional challenges.

A comprehensive approach is necessary to address these formidable challenges. Advancing the global jobs agenda goes beyond policies promoting investments and growth. It requires investing in people, ensuring they have the right skills to get good jobs, are resilient against economic volatility, and able to transition smoothly from lower to higher-productivity jobs.

Labor policies and programs play a crucial role in achieving these objectives. They include labor regulations and insurance programs designed to protect workers and facilitate their move into better employment. Training and job-search assistance help workers in acquiring necessary skills and connect them with job opportunities. These programs further promote labor mobility, both domestically and internationally, and expand access to better economic prospects.

Last Updated: Apr 09, 2024

The World Bank works with countries to design and implement economic inclusion and labor market programs that enhance people’s employability, productivity, skills, and labor mobility. This approach reduces reliance on social transfers and emphasizes the "active inclusion" of the unemployed, beneficiaries of social assistance, youth, senior citizens, and specific vulnerable groups.

These programs aim to optimize skills and capital investments, facilitate market access, and improve job prospects, particularly for marginalized groups. By providing crucial support to millions in low-productivity jobs and those working outside the formal labor market, these initiatives empower individuals to access better economic opportunities. 

Examples of labor market programs and solutions:

Drawing from the World Bank Group’s experience and global lessons on what works, we work with countries to identify labor market programs that offer tangible solutions for their specific contexts.

Training programs, for instance, can cultivate cognitive, technical, and socio-emotional skills that benefit workers and employers. On-the-job training, including apprenticeships, is particularly important for early school leavers and in adapting to the evolving job landscape.

Wage subsidies, small business grants, and entrepreneurship programs stimulate job creation and livelihood opportunities by offering financial support, business guidance, and access to markets.

Labor intermediation efforts, often linked with unemployment insurance, facilitates smoother job transitions, enhancing labor market efficiency. Digital technologies further play a pivotal role in matching job seekers with suitable employment and training opportunities.

Policymakers often use a combination of active labor market policies (ALMPs) and unemployment insurance to strengthen people’s resilience when they are out of work, help them diversify their livelihoods and acquire new skills, and support their transition back to work.

There have been promising innovations in the approach to labor market programs in recent years. Governments increasingly value private sector involvement, are expanding programs to include the informal sector, and adopt approaches that comprehensively deal with multiple constraints job seekers face. Data and technology are leveraged to make these programs more efficient and effective, particularly in employment services, with a shift towards results-based approaches when working with private providers.

The World Bank’s Labor Global Solutions Group, part of the Social Protection and Jobs Global Practice, helps countries strengthen their labor markets through lending, collecting data and improving evidence, building capacity, impact evaluation, and fostering knowledge sharing and collaboration across countries.

Last Updated: Apr 09, 2024

In Argentina, the World Bank supports services aimed at improving job opportunities for unemployed individuals and those engaged in informal work. These include helping job seekers discern their skills, providing vocational training, and facilitating internships. Over 400,000 people have benefited from these services within the program’s initial two years. Early results from evaluations show an increase in formal sector employment as a result of these initiatives.

The Kenya Youth Employment & Opportunities Project helped 300,000 youth with a combination of skills training, business development training, and start-up grants designed to help them find a job or start and grow a business. Consequently, 77% of youth who underwent training and internships secured employment or became self-employed. Additionally, 93% of grant recipients either found jobs or became self-employed, and saw a 20% increase in their incomes. Notably, youth-led enterprises supported by the program saw a 64% rise in employees for small grants and a remarkable 145% increase for large grants compared to the control group.

The Uganda Youth Opportunities Project (YOP) provided vulnerable, rural youth with skilled trade training, mentorship, and financial grants. Four years after the intervention, there was a 38% increase in the earnings of participants. Years later, the enduring impacts of the grants were evident in improved assets, attainment of skilled employment, and potentially improved child health.

The project has provided over 95,000 women with life and business skills training, a $250 productive grant, participation in regular savings groups, and coaching support. Participation in the program increased the likelihood of someone in the household running a business by 37%, while profits from existing businesses rose by 63%. Moreover, the program reduced the likelihood of household hunger in the past year by 24% and increased reported happiness among participants by one third.

Last Updated: Apr 09, 2024