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Better Jobs Mean Better Development

Manufacturing industries are no longer the labor-absorbing sectors they used to be, and that is a big problem for developed and developing economies alike. Achieving sustainable, inclusive growth will now depend on creating opportunities in services – a sector not generally associated with good, productive jobs.

CAMBRIDGE – Conventional economics has always had a blind spot when it comes to jobs. The problem goes back to Adam Smith, who placed consumers, rather than workers, on the throne of economic life. What matters for well-being, he argued, is not how or what we produce, but whether we can consume our preferred bundle of goods and services.

Modern economics has since codified this approach by capturing individual well-being in the form of a preference function defined over our consumption bundle. We maximize “utility” by selecting the goods and services that offer us the most satisfaction. Though each consumer is also a worker of some kind, jobs enter the equation only implicitly through the income they provide, by determining how much money we have available to spend on consumption.

Yet the nature of one’s job has implications far beyond one’s budget. Jobs are a source of personal dignity and social recognition. They help define who we are, how we contribute to society, and the esteem that society in turn bestows on us. We know that jobs matter because people who lose them tend to experience large and persistent reductions in life satisfaction. The monetary equivalent of such drops is typically a multiple of a person’s income, rendering compensation through government transfers (such as unemployment insurance) infeasible for all practical purposes.