PSD Blog - The World Bank Group

Who Creates Jobs?

Editor's note: Dorsati Madani is a Senior Economist at the World Bank's Strategy and Analysis Unit (CICSA) of the Investment Climate Advisory

There is widespread perception that small businesses are the primary creators of jobs in most countries. A presentation from the World Bank's recent Conference on Entrepreneurship and Growth entitled, "Who Creates Jobs? Small vs. Large vs. Young" used US census data to add an interesting twist to the debate regarding the role of firm size in employment creation.

The paper finds that business start-ups contribute substantially to both gross and net job creation, but that young firms also have very high rates job destruction due to frequent failures. Conditional on survival, young firms grow more rapidly (in terms of employment) than their more mature counterparts. A related finding is that once the authors account for firm age, it becomes the definitive factor in job creation. Firms employing 5-499 employees are found to have lower net growth rates than the largest firms (10000 or more workers) in the economy. 

These results raise an interesting policy issue. Assuming a similar pattern of job creation for developing countries, how do we reconcile the emphasis placed by development institutions - including the WBG - on small and medium enterprise (SME) development? Is this sub-sector the right focus of our PSD efforts? If so, how can we ensure not only SME creation, but survival to support net job creation over the medium to long term? On the other hand, if the SME approach does not create the net medium to long term jobs so desperately needed in high unemployment developing countries, what should our policy recommendations be?

World Bank Events Shout-Out

The World Bank and IFC are featuring several excellent events this week that are well-worth attending.

On Thursday and Friday, a Conference on Entrepreneurship and Growth will be held in at the World Bank's main headquarters. Topics range from "Promoting Business Formalization and Growth" to "Firm Dynamics and Size". Dozens of speakers will be featured, from both inside and outside the Bank.

Next, Infoshop will be hosting a discussion this Thursday with Robert Skidelsky, who has just finished his latest book, Keynes: The return of the master. I am especially fond of Skidelsky, and look forward to hearing his thoughts on how Keynesianism is back with a vengeance as a result of the financial crisis. The conversation begins at 12:30pm EST.

All events are open to the public. If you are not in the Washington area or are unable to attend, fear not! I will be Tweeting highlights from each event as they unfold. (If you missed this morning's conference on achieving scale in entrepreneurship, you can view a summary on Twitter).

Got Behavioral Economics?

Despite economists’ frequent assumption that humans are rational economic agents, let’s admit it, we have limitations; we may be weak, altruistic, easily manipulated or scatter-brained among many other things. Thus, results based on, say field experiments relying on one-off interviews may tend to miss a lot of that important human behavior.

Now hanging in IFC

I was walking through the lobby of IFC today, and there was something pretty unusual hanging—a bunch of oversized, transparent garbage bags. I took a snapshot with my phone (apologies for the modest quality of the photo). From a distance, I couldn't tell what was inside, but when I got up close I saw they were filled with tons of plastic bottles—all used by IFC staff. The sign below the bags reports that IFC staff consume some 80,600 plastic bottles every year.

So why put them on such dramatic display? The IFC Footprint campaign is putting on an event entitled "What a Waste" to promote environmental awareness in the organization. They'll also be screening the film Addicted to Plastic. (For World Bank Group staff, here is a full schedule of events.) At the behest of one of my (greener) colleagues, I bought an L.L. Bean bottle a couple of months ago at a cost of $21.95. I'm pretty sure I have recouped the purchase price by this point.

Weekend Links

A new look at the tragedy of the commons.

The Halo Effect, explained.

Mongolia is in the news this week.

A societal preference for boys has become an unlikely source of power for Indian women.

Consumption versus Income Inequality.

Why it's time to start studying Portuguese

First, there was speculation in the press that Brazil's President, Luiz Inácio Lula da Silva, might be the next President of the World Bank. Then Moody's upgraded Brazil's debt to investment grade, citing its resilience in the crisis and bright future growth prospects. And just last week the International Olympic Committee announced that the 2016 Olympic Games would be held in Rio de Janeiro, with Lula simply ebullient:

We are not a second-rate country, we are a first-rate country and this is what this victory means.

To top off my case that it's time to start studying Portuguese, the Brazilian city of Florianópolis (pictured) will be hosting one of the coolest conferences later this month. Between October 26-30 infoDev will be running the third Global Forum on Innovation & Entrepreneurship. On-line registration is open through the 18th. Lula explained after last week's announcement that Brazil would "sleep less, think more, and work much harder." The Global Forum would probably be a good place to start.

Update: Over at the World Bank's Growth and Crisis blog, Ihssane Loudiyi reports on a recently released annual socioeconomic survey conducted by the Brazilian government. The long and short of it: Brazil continues to improve along many measures of social and economic progress. (Although we must add a caveat that the results are for 2008, so some of the impact of the crisis may not yet be apparent.) Here is more info about the survey.  

(Photo Credit: Armando Vernaglia)    

Access to finance at the Annual Meetings

Amidst the flurry of activity at the joint World Bank-IMF Annual Meetings, one initiative was announced that probably won't grab as much attention as the IMF's most recent World Economic Outlook or Managing Director Dominique Strauss-Kahn's agile dodging of a flying shoe. But for the world's poor, the IMF's launch of a new Access to Finance project will probably be much more important. From the press release:

The International Monetary Fund (IMF) today launched the “Access to Finance Project,” which is aimed at collecting annual geographic and demographic data on access to basic consumer financial services worldwide. The aim of the project is development of high-quality, cross-country data for policy makers and researchers...

...Specifically, data will be collected on the geographical and demographical outreach of financial services. The outreach of financial services is proxied by bank branch network, availability of automated teller machines, and by four key financial instruments: deposits, loans, debt securities issued, and insurance.

Tweets of the Day: Istanbul Edition

Here are the latest updates from the World Bank/IMF meetings from our Tweeter-in-Chief, Neil Gregory:

nfgregory: In Istanbul for World Bank annual meetings - focus this year on post-crisis economic recovery. First impressions - mood mostly bullish.

nfgregory: importance of developing local capital markets, local funding. Can still benefit from skills of international banks, but with local funding

nfgregory: Protectionism, restrictions on capital flows mean that economies like Egypt need to rely more on domestic demand, domestic capital markets

nfgregory: Entrepreneurship key to new job creation. Governments supporting through deregulation, venture capital, local equity market development.

You can follow all of Neil's Tweets here, or from our World Bank PSD Twitter page.

More Tweets after the jump...

Your man on the inside (of the Annual Meetings)

The joint World Bank-IMF Annual Meetings are getting started in Istanbul, and this year promises an especially busy schedule. How will you keep up with it all? You can follow our man on the inside: Neil Gregory, Senior Adviser to the VP of Financial and Private Sector Development. He'll be Tweeting from the Program of Seminars that precede the start of the Annual Meetings proper next Tuesday. You can follow Neil @nfgregory. We'll also be Re-Tweeting Neil's commentary @worldbankpsd.

Mobile Banking: The banks are asleep at the wheel

Last week saw an all-day event at the World Bank on Mobile Innovations for Social and Economic Transformation. The sessions covered the use of mobile phones in everything from governance to education. I attended a morning session on mobile innovations in financial services in which speakers covered issues on payments for ex-combatants in the DRC, Government-to-Person (G2P) payments, and pre-paid value card solutions.

However, the most interesting remark in this session came not from one of the speakers but the invited commentary. Why is it that we see network-centric players dominating this field in some cases (e.g. M-Pesa) or independent firms (e.g., Celpay, the provider of payment solutions for ex-combatants in DRC)? Andi Dervishi, the Global Practice Lead for Investments in Payments at IFC, put it very simply: "The banks are asleep at the wheel."