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Report: Economic Mobility in Developing Countries Has Stalled for the Last 30 Years

MD Staff

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Generations of poor people in developing countries are trapped in a cycle of poverty determined by their circumstance at birth and unable to ascend the economic ladder due to inequality of opportunity, says the World Bank Group’s Fair Progress? Economic Mobility across Generations Around the World’ report, released today.

Mobility has stalled for the last 30 years, says the report, which tracks economic mobility between parents and their children through the prism of education, a critical asset that influences an individual’s lifetime earnings. It looks at people born between 1940 and 1980, and finds that 46 out of 50 countries with the lowest rates of mobility from the bottom to the top are in the developing world.

Gender gaps, however, are closing with girls in high-income countries now out-performing boys in tertiary education and catching up in the developing world. In the not too distant future, the share of girls with more education than their parents will exceed the equivalent share for boys globally.

The ability to move up the economic ladder, irrespective of the socioeconomic background of one’s parents, contributes to reducing poverty and inequality, and may help boost economic growth by giving everyone a chance to use their talents, the report notes. People living in more mobile societies are more optimistic about their children’s future, which is likely to lead to a more aspirational and cohesive society.

“All parents want their children to have better lives than their own, yet the aspirations of too many people –especially poor people – are thwarted by unequal opportunities,” said World Bank Chief Executive Officer Kristalina Georgieva. “We need to invest in children from a very early age so that they are well-nourished and well-educated; ensure that local communities are a safe place for children to grow, learn, and thrive; and level the economic playing field by creating good jobs and improving access to finance.”

The report draws on a newly developed Global Database of Intergenerational Mobility with unprecedented coverage of 148 countries, home to 96 percent of the world’s population. It paints a uniquely detailed picture of socio-economic mobility and inequality of opportunity around the world. It also sheds light on the patterns and drivers of income mobility and their relationship with educational mobility by examining available data from 75 countries.

The data show that, on average, upward mobility from the bottom has declined and the numbers of people remaining trapped at the bottom has increased in developing economies. For individuals born in poorer households, the opportunity to climb up the ladder is narrowing in many economies in which average living standards are already much lower compared with high-income economies.

Countries with higher mobility in education are better placed to generate future growth, as well as reduce poverty and inequality. And, conversely, stalled mobility raises concerns about future progress, particularly for Africa and South Asia, where most of the world’s poor live and where the prospects of children are still too strongly tied to the socioeconomic status of their parents,” said Carolina Sanchez, Senior Director of the Poverty and Equity Global Practice at the World Bank.

But the report also finds huge variation in the extent of intergenerational mobility in the developing world. For example, only 12 percent of the people born in the 1980s in the Central African Republic, Guinea, and South Sudan have achieved education levels higher than their parents, compared with 89 percent of people from South Korea and 85 percent from Thailand.

A close examination of six large developing countries – Brazil, China, Egypt, India, Indonesia, and Nigeria – reveals that economic mobility rose in all of them from the 1940s to the 1980s, albeit to varying degrees. However, since the 1960s, progress has slowed in four of these countries and completely stalled in China and Nigeria. The global trends in gender convergence are seen in Brazil, China, Egypt, and Indonesia, where the mobility gaps between girls and boys are close to zero. No such convergence has taken place in India or Nigeria, where the gender gaps are almost as large today as they were a half century ago.

However, the rise in educational mobility in many high-income economies and in parts of East Asia, Latin America, and the Middle East gives some room for optimism, suggesting that inequality of opportunity can be reduced with the right policy actions. Educational mobility in Brazil, Egypt, and Indonesia, for example, increased significantly from people born in the 1940s to those born in the 1980s – even though income mobility remains low in these countries.

“This report paints a sobering but nuanced picture of economic mobility and inequality of opportunity in the developing world. On the one hand, the average developing country has very low rates of economic mobility across generations and, most worryingly, there has been no real improvement in the last three decades. On the other hand, the experience of some countries shows that with political will and the right policies, that can be changed,” said Francisco Ferreira, Senior Advisor on poverty and inequality at the World Bank.

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Canada has the most comprehensive and elaborate migration system, but some challenges remain

MD Staff

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Canada has the largest and most comprehensive and elaborate skilled labour migration system in the OECD, according to a new OECD report.

Recruiting Immigrant Workers: Canada 2019 finds that Canada admits the largest number of skilled labour migrants in the OECD. Additionally, Canada also has the most carefully designed and longest-standing skilled migration system in the OECD. It is widely perceived as a benchmark for other countries, and its success is evidenced by good integration outcomes. Canada also boasts the largest share of highly educated immigrants in the OECD as well as high levels of public acceptance of migration. In addition, it is seen as an appealing country of destination for potential migrants.

According to the OECD, Express Entry – the two-step Expression of Interest system for federal permanent labour migration introduced in 2015 – has greatly improved efficiency and the effectiveness of permanent labour migration management. It allows for ranking migrants for selection from a pool of eligible candidates. A unique feature of the Canadian model, in contrast to other selection procedures, is the degree of refinement in the ranking of candidates eligible for immigration. It considers positive interactions of skills, such as between language proficiency and the ability to transfer prior foreign work experience to the Canadian context.

The OECD report stresses that core to Canada’s success is not only its elaborate selection system, but also the comprehensive infrastructure upon which it is built, which ensures constant testing, monitoring and adaptation of its parameters. This includes a comprehensive data infrastructure, the capacity to analyse such data, and subsequent swift policy reaction to new evidence and emerging challenges. Recent reforms addressed several initial shortcomings in the Express Entry system, such as too many points being attributed for a job offer (which led to a high intake of migrants working in the hospitality sector, for instance), and which were subsequently reduced. The current selection system focuses on human capital factors such as age, language proficiency and education and is largely supply driven – meaning that most labour immigrants are admitted without a job offer – in contrast to the majority of other OECD countries.

To further strengthen the system, Canada should address some remaining inconsistencies. For instance, entry criteria to the pool are not well aligned with final selection criteria and language requirements for several groups of onshore candidates are lower than for those coming from abroad. In addition, a specific programme designed to attract tradespeople allows migration for only a few occupations and not necessarily where there are shortages, which contrasts with its original objectives. Providing for a single entry grid based on the core criteria for ultimate selection would simplify the system and ensure common standards.

The management of permanent labour migration is shared between Canada’s federal and provincial/territorial (PT) governments. The increasingly significant role played by regional governments in selection and integration has resulted in a more balanced geographic distribution of migrants across the country. PT-selected migrants have a lower skills profile than federally selected migrants but boast better initial labour market outcomes and high retention. The OECD also recommends considering a provincial temporary foreign worker pilot programme, to allow PTs to better respond to regional cyclical or seasonal labour needs that are not otherwise met, without the need to resort to permanent migration through provincial nomination.

Most of the provincial nominees – like their federally selected counterparts – settle in metropolitan and agglomeration areas, a development that Canada is currently addressing with an innovative rural community-driven programme. This includes a whole-of-family approach to integration, designed to enhance retention. Indeed, the report notes that Canada has been at the forefront of testing new, holistic approaches to managing labour migration and linking it with settlement services, especially in areas with demographic challenges.

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Maintaining Economic Stability in Lao PDR

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Economic growth in Lao PDR is projected to rebound to 6.5 percent in 2019, up from 6.3 percent in 2018. Growth is expected to be driven by the construction sector, supported by investments in large infrastructure projects, and a resilient services sector, led by wholesale and retail trade growth. Against the backdrop of challenging domestic and external environments, the Government of Lao PDR has remained committed to fiscal consolidation by tightening public expenditure and improving revenue administration, according to the latest edition of the World Bank’s Lao Economic Monitor, released today.

Fiscal consolidation is expected to result in a decline in the budget deficit to 4.3 percent of GDP in 2019 down from 4.4 percent in 2018, driven by tighter control of the public wage bill and capital spending. This is expected to keep public expenditure stable at around 20 percent of GDP in 2019. The revenue to GDP ratio is projected to improve slightly in 2019 thanks to efforts to strengthen revenue administration and the legal framework. Looking forward, public debt is expected to decline from 57.2 percent of GDP in 2018 to 55.5 percent of GDP in 2021. The outlook until 2021 is subject to increasing downside risks.

Strengthening revenue collection is important to create fiscal space and reduce the burden of public debt,” said Nicola Pontara, World Bank Country Manager for Lao PDR. “Looking forward, it will be important to improve the business environment to support private sector development, including the growth of small and medium enterprises. These measures can contribute to maintaining a stable macroeconomic environment, promoting job creation and reducing poverty and inequality.”

The report includes a thematic section that summarizes the perceptions of small and medium enterprises (SMEs) on the business environment, based on the data of the World Bank Enterprise Survey. The key constraints reported by SMEs include access to finance, competition with informal firms – such as those that are not registered and do not comply with regulations – and electricity outages. The report maintains that strengthening the performance of SMEs can improve the quality of jobs, raise incomes, and contribute to the greater well-being of the Lao people.

The Lao Economic Monitor is published twice yearly by the World Bank Office in Lao PDR.

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Economic woes hold sway over geopolitics

MD Staff

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While geopolitical tensions in the Middle East Gulf remain high, with US sanctions recently extended to more Iranian officials and a Chinese oil importer, as well as another tanker seizure, oil prices (Brent) have eased back from the most recent high of $67/bbl. Shipping operations are at normal levels, albeit with higher insurance costs. The messages from various parties that vessels will be protected to the greatest extent possible, and the IEA’s recent statement that it is closely monitoring the oil security position in the Strait of Hormuz will have provided some reassurance.

There have been concerns about the health of the global economy expressed in recent editions of this Report and shown by reduced expectations for oil demand growth. Now, the situation is becoming even more uncertain: the US-China trade dispute remains unresolved and in September new tariffs are due to be imposed. Tension between the two has increased further this week, reflected in heavy falls for stock and commodity markets. Oil prices have been caught up in the retreat, falling to below $57/bbl earlier this week. In this Report, we took into account the International Monetary Fund’s recent downgrading of the economic outlook: they reduced by 0.1 percentage points for both 2019 and 2020 their forecast for global GDP growth to 3.2% and 3.5%, respectively.

Oil demand growth estimates have already been cut back sharply: in 1H19, we saw an increase of only 0.6 mb/d, with China the sole source of significant growth at 0.5 mb/d. Two other major markets, India and the United States, both saw demand rise by only 0.1 mb/d. For the OECD as a whole, demand has fallen for three successive quarters. In this Report, growth estimates for 2019 and 2020 have been revised down by 0.1 mb/d to 1.1 mb/d and 1.3 mb/d, respectively. There have been minor upward revisions to baseline data for 2018 and 2019 but our total number for 2019 demand is unchanged at 100.4 mb/d, incorporating a modest upgrade to our estimate for 1Q19 offset by a decrease for 3Q19. The outlook is fragile with a greater likelihood of a downward revision than an upward one.

In the meantime, the short term market balance has been tightened slightly by the reduction in supply from OPEC countries. Production fell in July by 0.2 mb/d, and it was backed up by additional cuts of 0.1 mb/d by the ten non-OPEC countries included in the OPEC+ agreement. In a clear sign of its determination to support market re-balancing, Saudi Arabia’s production was 0.7 mb/d lower than the level allowed by the output agreement. If the July level of OPEC crude oil production at 29.7 mb/d is maintained through 2019, the implied stock draw in 2H19 is 0.7 mb/d, helped also by a slower rate of non-OPEC production growth. However, this is a temporary phenomenon because our outlook for very strong non-OPEC production growth next year is unaltered at 2.2 mb/d. Under our current assumptions, in 2020, the oil market will be well supplied.

IEA

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