The Jobs Agenda

As Simeon has pointed out, it may still be premature to predict the end of the crisis. Even if the worst of it is past, the negative impact of the crisis on a number of economic variables could be persistent. A prime example of this is employment, and, potentially, overall labor productivity. 

Public works programs have figured prominently among some stimulus packages (see here and here, for example). While these programs have the clear benefit of supporting employment, they are not without their potential downside. Neil Gregory, a senior adviser on Financial and Private Sector Development at the World Bank, explains the trade-offs:

...if jobs are created by policy interventions which bias production choices towards more labor-intensive production, that may increase welfare for the workers concerned, but lower overall social welfare. A classic example is labor-intensive public works projects. While they may be important as social safety nets, they may be inefficient in building infrastructure. For example, hand-dug drainage ditches quickly erode and need constant maintenance, whereas PVC drainage pipes, installed by machine, may be more effective in avoiding highway erosion and have much lower maintenance costs. In the extreme, policy measures which create jobs by interfering with the efficient use of labor may impose an efficiency tax on the economy which leads to reduced employment overall. 

The question then becomes how emerging markets can best support the jobs agenda in the resolution of the crisis without pushing labor into unproductive uses. Flexible labor markets, along with efficient corporate insolvency systems, will be key.