Good Jobs for Inclusive Growth in Central Asia and the South Caucasus

Regional Report

• Publisher: Asian Development Bank
• Year: 2019
• ISBN:
  9789292615116
• Topic: Économie
• Subtopic: Économie du travail

This study explores prospects for inclusive growth in the Central Asia and the South Caucasus region and highlights the central role played by the creation of good jobs. The study reviews economic performance in the region and discusses prospects through 2030, introducing two growth scenarios related to the adoption of structural reforms for creating good jobs and inclusive growth. It also highlights the importance of adopting a full policy reform scenario.

CHAPTER 1

INTRODUCTION AND OVERVIEW

by Giovanni Capannelli and Ravi Kanbur

All eight Asian Development Bank (ADB) member countries in Central Asia and the South Caucasus (CASC) have traversed an eventful quarter century since the 1991 breakdown of the Soviet Union, of which they were all part. After an initial decade of collapse, the second decade brought recovery and healthy growth buoyed by strong commodity prices. But, today, as the eight countries—Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan in Central Asia, and Armenia, Azerbaijan, and Georgia in the South Caucasus—enter their second quarter century of independence, they face external and internal challenges to rapid and inclusive economic growth.

This study explores prospects for inclusive growth in CASC countries and highlights the central role “good” jobs play in achieving this objective. Many definitions of inclusive growth and good jobs exist. For this work, however, a broad conceptualization is more useful than narrow technical definitions, which may more directly apply to specific cases. Inclusive growth is defined as rapid and sustainable economic growth whose fruits are broadly shared so that development does not leave individuals or groups behind on well-being in income and non-income dimensions. Jobs are “good” when they are well paid and secure because of their high productivity, thus contributing to inclusive growth.

The study commissioned several country and thematic background papers as the basis for its analysis and information. The report also benefited from extensive consultations and knowledge events in CASC countries in 2016 and 2017, involving think tanks and international peer reviewers. The report identifies the study’s key issues, presents its findings, and sets out a policy framework for CASC governments useful to foster job creation and promote inclusiveness. The study also identifies a possible role for development institutions, such as ADB, in promoting an agenda for “good jobs for inclusive growth” in the region.¹

Importantly, the report offers a perspective for the CASC region as a whole. Country-specific policy recommendations are included in the background country papers prepared for the study.

1.1 | Diversity and Commonality

The CASC region is simultaneously diverse and similar. In 2015, per capita incomes ranged from a low of $1,080 for Tajikistan, through $4,020 for Armenia, to $11,850 for Kazakhstan. Poverty headcount ratios also vary, from 2.9% in Kazakhstan to 32.0% in Armenia. Countries differ in their natural resource bases, with Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan exporters of oil and gas, and the others net energy importers. While Kazakhstan is a source of international migrants’ remittances, other CASC countries such as Armenia, the Kyrgyz Republic, and Tajikistan rely heavily on remittance inflows, mostly from the Russian Federation. Political and institutional frameworks are also diverse, as are the countries’ cultural and ethnic compositions. Box 1.1 offers a glimpse at CASC demographics.

Box 1.1: Demographic Snapshot of Central Asia and the South Caucasus

The countries in Central Asia and the South Caucasus (CASC) differ significantly on demographic indicators, size, economic structure, gross domestic product growth, and labor force. The table below presents core demographic indicators across all CASC countries.

Core Demographic Indicators in Central Asia and the South Caucasus

a Number of people aged 0–14 per 100 people aged 15–64.

b Number of people aged 65+ per 100 people aged 15–64.

c Total immigrants less total emigrants/total population.

Sources: Asian Development Bank. 2018. Key Indicators for Asia and the Pacific 2018. https://www.adb.org/publications/key-indicators-asia-and-pacific-2018 (accessed 15 October 2018); United States Central Intelligence Agency. 2017.

Demographic data provide evidence for the effectiveness of government policies. Research shows that a country’s demographics can significantly affect its gross domestic product growth (through increases or decreases in working-age population growth), female economic activity rates (as small family size indicates women’s potential for activity in the labor force), and productivity growth. The above figures allow generalized cross-country comparisons for CASC countries based on core demographic indicators.

• In 2016, the population of CASC countries ranged from 3.0 million (Armenia) to 31.7 million (Uzbekistan). The population growth rate in 2001–2015 ranged from –1.2% per year (Georgia) to 2.1% (Tajikistan). The average annual growth rate for Asia for 2000–2015 is estimated at 1.2%.

• Life expectancy at birth during 2001–2015 is estimated from 67.7 years in Tajikistan to 76.2 years in Georgia. Life expectancies at birth for Tajikistan and Turkmenistan are below the Asian average (70.4).

• All the South Caucasus countries have total fertility rates lower than the replacement rate of 2.1 children per woman. Fertility for CASC countries ranged from 1.65 in Armenia to 3.57 in Tajikistan, compared with an estimated 2.15 for all of Asia in 2010–2015.

• Median age ranges from 24.2 years in Tajikistan to 38.0 years in Georgia. The three South Caucasus countries have median ages greater than the Asian average (30.3 in 2015), while all Central Asian countries have median ages lower than the Asian average.

• All CASC countries had a lower youth dependency ratio than the Asian average in 2015 (36%).

• In 2015, old-age dependency ratios in Armenia and Georgia were much higher than the Asian average (11.1%). High old-age dependency ratios for these two countries indicate the considerable burden that the economically active population and the overall economy face to support and provide the social services needed by old people, who are often economically dependent on the rest of the population.

• The data also show how migration patterns differ across CASC countries. In Kazakhstan, immigration has been light since 2001, while emigration has quite significantly slowed population growth in Armenia and the Kyrgyz Republic.

• Urbanization varies significantly across countries: for the Kyrgyz Republic, Tajikistan, and Uzbekistan, it was lower than the Asian average for 2000–2015 (48%).

Source: Authors.

The eight CASC countries also have many things in common. Most obvious and important is that they share the legacy of the Soviet Union, which brings with it the complications of transition from a planned to a market economic system and relatively high dependence on the Russian economy. Besides a pronounced intraregional labor mobility facilitated by the widespread knowledge of the Russian language, the CASC economies are also considerably linked in trade and remittances, due to their shared past and geographical proximity to each other and the Russian Federation.

The CASC countries have relatively small populations and domestic markets and are landlocked, with vast mountain areas and deserts hindering connectivity. Private sector development is relatively limited, economic structure is largely undiversified, and self- and informal employment are significant. Another legacy from the Soviet Union is that CASC countries tend to adopt relatively generous social protection schemes, which help mitigate market inequality. However, the sustainability of these programs remains in doubt, especially since the realignment of international commodity prices started in 2014, with large implications for fiscal sustainability. Also hampering progress toward inclusive growth are a generalized and pronounced inequality between regions within countries, as well as gender and youth inequality.

Another hangover from the Soviet Union era is that a significant share of domestic output was allocated to serve the needs of other republics of the union, with relatively high agricultural specialization and a manufacturing production often concentrated in large factories. The latter, in some cases, formed “mono-cities” with high clustering of people, skills, and related services in limited geographical spaces.

Production planning was supported by a fairly sound system for economic data collection and by actively promoted labor migration—also aimed at facilitating cultural and ethnic integration among the diverse populations of the Soviet Union. Moreover, communism was decidedly equal by design in terms of income and economic opportunity, including free education, health, and other public social services. In addition, concepts of private entrepreneurship and private property were alien.

As the CASC countries emerged as independent states in 1991 with market economies, many of these features started to change. Income inequality rose considerably, especially during the 1990s, although it improved across the region amid poverty reduction and better income distribution. The fragmentation of the economy of the Soviet Union, and its large, centralized demand for goods and services, implied the emergence of relatively small domestic markets with new trade and investment barriers created among them, while cross-border labor migration remained relatively fluid (Box 1.2). Virtually all of the large manufacturing plants and mono-cities fell apart, with marked dispersion of labor skills and qualifications. CASC countries developed different business models and new approaches to social protection, also based on the availability of revenue from the exploitation of natural resources and ability to develop the private sector and entrepreneurship.

Box 1.2: Insight into Labor Migrants from Central Asia and the South Caucasus

Since the early 1990s, migration from many of the countries in Central Asia and the South Caucasus (CASC) to the Russian Federation and, to a lesser extent, to Ukraine and Kazakhstan, has increased dramatically. As the figure shows, remittances from migrant workers have become an important source of household incomes in Armenia, Georgia, the Kyrgyz Republic, Tajikistan, and Uzbekistan.

Remittances from the Russian Federation ($ million, cumulative flows, 2011–2017)

Source: Central Bank of the Russian Federation. 2018. www.cbr.ru/eng/search/?text=remittances.

At the macroeconomic level, remittances have sustained demand for goods and services, contributing to economic growth and lowering poverty. The table summarizes key features of the region’s migrants.

Profile of Central Asian and South Caucasus Labor Migrants

Source: F. Irnazarov. 2017. Key Trends and Issues of Labor Migration in Central and West Asia. Paper prepared for this report. https://www.adb.org/projects/49045-001/main#project-documents.

Research shows that wages and employment differentials between sending and receiving countries are usually among the main motivating factors for migrant workers. In aggregate, differences in earnings, unemployment rates, cost of living, and public transfers are all important determinants. Younger people are more likely to migrate, encouraged by the time to achieve return on investment, lower social cost of separation from family and friends, and lower cost for information search.^a

Important gender differences exist.^b Most labor migrants from CASC countries are male (with the notable exception of Armenia). Women tend to be segregated into occupations such as domestic work or garment manufacturing; and while migrant men also experience occupational concentration, evidence shows that women have a smaller range of choices in jobs.^c

Furthermore, labor migration from CASC countries is both long term and seasonal. Data indicate that while most migrants originate from rural areas—except Armenia and Georgia, where they also come from urban areas—in Central Asia, migration tends to be more seasonal than in the South Caucasus.

a A. Zaiceva and K. F. Zimmerman. 2016. Migration and the Demographic Shift. In John Piggott and Alan Woodland, eds. Handbook of the Economics of Population Aging 1A. pp. 119–177. Amsterdam, The Netherlands: Elsevier.

b E. M. Grieco and M. Boyd. 2003. Women and Migration: Incorporating Gender into International Migration Theory. Migration Policy Institute. 1 March. https://www.migrationpolicy.org/article/women-and-migration-incorporating-gender-international-migration-theory.

c S. Pedraza. 1991. Women and Migration: The Social Consequences of Gender. Annual Review of Sociology 17 (1). pp. 303–325.

Source: F. Irnazarov. 2017. Key Trends and Issues of Labor Migration in Central and West Asia. Paper prepared for this report. https://www.adb.org/projects/49045-001/main#project-documents.

1.2 | Regional Features

Based on its analysis and background papers, this study has identified five features common to all CASC economies with relevance for policies for good job creation and inclusive growth, relative to other regions:

(i)high share of low-productivity agriculture;

(ii)considerable low-productivity self-employment and informality;

(iii)high cross-border labor migration, especially toward the Russian Federation;

(iv)high spatial disparity within countries;

(v)small market size for non-resource production within each country.

All CASC countries also face the common challenges of medium- to long-term global trends in technology and short- to medium-term volatility in commodity prices and other international economic variables.

Technological changes are displacing basic, unskilled labor with skilled labor and capital while increasing overall factor productivity, a global phenomenon. All countries that open up to absorb global technology and investment, and increase labor productivity, will naturally face the challenge of a low employment intensity of economic growth. Without focused policies addressing both the demand and supply sides of the job market, these trends will increase unemployment of basic labor and push up the wage premium for skilled labor, jeopardizing inclusive growth.

The volatility of commodity price cycles, especially affecting hydrocarbons and natural resources, is the second common cloud in the horizon. The severe downturn in oil and gas prices, which began in early 2014, has been undermining economic activity and fiscal balances not only in the energy-rich countries, but in the other countries as well, which tend to be largely reliant on remittance earnings.

1.3 | Analytical Framework

A basic analytical framework that combines global forces with the local features of CASC countries would focus on assets, returns to assets, and nonmarket transfers as generating income for households and individuals. In such a framework, the inclusiveness of growth depends on the (in)equality of asset distribution, (in)equality in returns to these assets, and (in)equality in public transfers. Assets include land, and physical, financial, and human capital.

But for the majority of people in CASC countries—and certainly for lower-income groups—income from employment is the main source of livelihood and economic opportunity. The inclusivity of economic growth is, therefore, determined by the distribution of human capital and the different rates of return based on skill level, sector of employment, location, gender, and age. Public transfers can help mitigate inequality and improve inclusiveness, provided they are sustainable, but the crucial factors remain employment and wages (i.e., jobs and the returns to jobs).

Once employment and jobs are identified as central to inclusive growth, the analytical framework can be developed by considering demand-side and supply-side factors that determine employment and wages. In addition, labor markets and their flexibility and ab...