13-19 December 2013 #685

Innovation and inequality

Stefano Scarpetta

Even while many developing and emerging economies lifted millions of people out of extreme poverty, the perception that growth meant greater inequality was always bubbling below the surface. But now increasingly persistent unemployment and under-employment are giving new impetus to the rise in inequality, as the OECD reported to the G-20 in July.

Indeed, in the wake of the 2008 financial crisis, youth unemployment now averages 16 per cent in advanced countries and exceeds 40 per cent in some European countries. As a result, the challenge of inclusive growth has moved to the top of the global economic-policy agenda.

It is often said, for good reason, that the widening income gap largely reflects technological change, which has drained many economies of blue and even white-collar jobs, while channeling the fruits of improved productivity to high-skilled elites. But the digital revolution can also enable inclusive growth. Internet applications and other communication advances are spreading knowledge and information to millions of poor people.

Improved labour-market efficiency is another piece of the solution. In many countries with high jobless rates, employers cannot find people with the right qualifications. The solution is twofold: better market information and better connections between the world of education and the world of work. That is why it is critical for countries to invest in high-quality schools that provide ample career-related guidance and counseling so that a successful school-to-work transition can start when tomorrow’s workers are young.

While most countries aspire to move toward a ‘knowledge society’, this should not mean downplaying technical and vocational education. On the contrary, advanced economies need many skills and high-quality technical education, especially if followed by effective apprenticeship programs, can create smooth transitions from school to work. Germany, Austria, Switzerland, and other developed countries are rightly praised for this. Germany’s youth unemployment rate is under eight per cent and a steady supply of skilled labour helps to sustain the country’s success as an exporter.

To be sure, this model cannot be adopted in every country – for one thing, it requires a high degree of trust between labour and management. But some practices can be modified for use elsewhere. The G-20 countries have recently adopted comprehensive guidelines for quality apprenticeships; each member country should adopt the most appropriate strategy within this broad framework.

There are many innovative approaches to sharing growth more equally. But they all point to a fundamental truth: if young people and the disadvantaged are to find satisfying and rewarding jobs, governments, employers, educational institutions, and civil-society groups all have an important role to play. Our economies’ long‑term sustainability depends on it.


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