How to Create More Jobs in South Asia: Less Government

Great post by Julissa Milligan of AEI

"A recent World Bank report on South Asia finds that the most significant constraints to business growth in South Asia are poor government policies. Of the top 15 “severe” constraints surveyed firms listed, eight involved dealing with the government. Political instability topped the list, followed by corruption, tax administration, customs laws, government policy uncertainty, macro instability, the courts system, and labor regulations. The World Bank estimates that labor regulations alone cost India 2.8 million new jobs between 1997 and 2007.

Policy-related constraints were more severe for firms operating in the formal sector and for those in urban areas. This comes as no surprise; the informal sector operates outside of government regulation, and institutional capacity to enforce laws in the rural areas is much lower. However, policies not conducive to business growth are particularly harmful in formal, urban employment because these sectors provide the best jobs. The Bank found that jobs in the formal sector lead to the greatest increase in productivity and the biggest gains in poverty reduction. Moreover, jobs in urban areas are growing more quickly than jobs in rural areas and employment growth in urban areas is more likely to involve the switch from farm to more productive non-farm labor.

Over the past ten years, South Asia created an average of 800,000 new jobs per month and absorbed a growing labor force at increasing productivity levels. However, with the working-age population burgeoning, the region must accommodate 1 million to 1.2 million new entrants per month over the next two decades at rising productivity levels to maintain high levels of growth and a strong poverty reduction rate, according to the World Bank—a 25 to 50 percent increase over current job creation levels. Addressing the damaging constraints the region’s governments place on businesses is a necessary first step."