TWUDP #4 URBANDEVELOPMENTDIVISION TRANSPORTATION, WATER,AND URBANDEVELOPMENT DEPARTMENT ENVIRONMENTALLY SUSTAINABLEDEVELOPMENT THEWORLD BANK Urban Poverty in the Context of StructuralAdjustment RecentEvidenceand Policy Responses 0. N. Moser Caroline AliciaJ. Herbert RozaE. Makonnen May 1993 DISCUSSIONPAPER The lWU Discussion Paperspresentpreliminary researchfindirns andare intendedfor irnernl reviewanddiscussion.The viewsandInterpretations intheseDiscussi'nPapersarethoseof the author(s) andshouldnot be atbibutedto the WorldBank. to its affiliatedorganizationsor to any individualactingon their behalf. 0 1993 The World Bank Washington.D.C. All Rights Reserved First Printing May 1993 This is a document published informally by the World Bank. In order that the informationcontainedin it can be presented with the hasnot beenprepared least possible delay. the typescript in accordance with the procedures appropriate to formally printed texts, and the Worid Bankacceptsno respons.bility for eors. The World Bank does not accept responsibilityfor the views expressed herein. which are those of the author and should not be attributed to the World Bankor to its affiliated organizations. The findings,interpretains and conclusions are resultsof researchsupported by the Bank; they do not necessarily represent official policy of the Bank. The designation employed,the presentation of material,and any maps usedin the document are purely for the convenience of the reader and do not imiplythe expression of anyopinion whatsoever on the part of the World Bank or its affiliates concerningthe legal statusof any country. territory. city, area,or of its authorities,or concerningthe delimitations of its boundaries or nationalaffiliation. by Caroline0. N. Moser.The World Bank,and Alicia J. Herbert and Roza E. Makonnen.consultants This paperwas prepared to the Urban Development Division. THE WORLD BANK UrbanPoverty in the Contextof StructuralAdjustment RecentEvidenceand Policy Responses 0. N.Moser Caroline AliciaJ. Herbert Roa E Makonnen PAPER DISCUSSION INTRODUCTION This paper is one of a number of economic and social policy backgrowid papers written as part of the research project on "Urban Poverty and Social Policy in the Context of Adjufflllentn being undertaken by the Urban Development Division of the World Bank in Ecuador, Hungary, the Philippines and Zambia. This is a �kground review paper of recent evidence and policy responses. Its purpose is threefold. First, it reviews the available evidence on urban poverty in developing countries in the context of structural adjustment and macroeconomic policy reform during the last decade. Second, it describes the relationship, under conditions of adjustment, between macroeconomic policy changes and urban microlevel outcomes at both household and intrahousehold levels. Third, it assesses the ability of compensatory measures to alleviate particular problems that urban populations in specific countries have experienced during periOOl> of adjustment. EXECUTIVE SUMMARY The purpose of this paper is threefold. First, it reviews the available evidence on urban povertyin developing countriesin the contextof structuraladjustmentand macroeconomic policy reform during the past decade. Second, it describes the relationship, under conditions of adjustment, between macroeconomicpolicy changes and urban microlevel outcomesat both householdand intrahouseholdlevels. Third, it assesses the ability of compensatorymeasuresto alleviateparticularproblemsthat urban populationsin specificcountrieshave experiencedduning periods of adjustment. Several important reasons exist for undertaldngsuch a review. First, the World Bank has concludedthat over the last decade adjustingcountrieshave shown a better growthrecord, with greater improvementsin socioeconomicindicators,than non-adjustingcountries. Evidencehas shown, however,that adjustmentpolicies are not acceleratingsocial progress where it is most needed,with little impacton long-termchronicpoverty(Kakwani,Makonnenand van der Gaag, 1990). Second, in many developingcountries,the debt crisis and recessionof the past decade and the resultingstabilizationand structuraladjustmentloans (SALs),have had differentimplications for varioussocial and economicgroups m both rural and urban areas.Whilethe overallincidence of povertymay have declinedat the nationallevel, as the 1990 WorldDevelopment Report notes, this is not necessarilythe case at all local levels. Restructuringof the rral/urban terms of trade, as well as exchangerate movements,for instance,have put some sectorsof the urban population at particulardisadvantage(World Bank, 1990c,l). More recent estimatespresented in the 1992 WorldDevelopmentReport reveal a negligible reductionin the incidenceof povertyin developing countriesduring the secondhalf of the 1980s. Further, due to the severity of the recession of the late 1980s and the disappointingprogress made in severaldevelopingcountries,the absolutenumberof poor increasedby more than 100 million during the 1985-1990period (World Bank, 1992, 29-30). Third, although policy makers increasinglyhave recognizedthe effects of adjustmentin the political,economic,and social arenas,they have not yet unifiedtheir concernsas an urban issue. Macroeconomistsseem relatively unconcernedabout the disproportionatelyheavy impact of economicchange on the city and its residents(Cohen, 1990, 53). The most serious constraint in undertakingsuch a review relates to the lack of adequateor reliable data. Both Bank and non-Bank sources are cited to present as objective and multidimensional view of the issues as possible.However,ultimately,as in any reviewof existing data, the validity of all of the data cannot be vouched for. In addition, the review focuses on issues that do not lend themselvesto quantitativeassessment,such as relationshipsbetween factors whichincrease or decreasehouseholdimpoverishment. Here the review relies heavilyon qualitativework, particularlyof women in development(WID)researchers. ii Since the accuracy of each data source cannot be individuallyverified,there are important limitationsto a review such as this. Its purpose,however,is not to comparethe relativesituation of urban poverty in different developing countries experiencing debt, recession, structural adjustment,or economic refonn. It is rather to present a descriptionof the situationcurrently confrontingurban low-incomehouseholdsin developingcountries, from a cumulativediversity of different data sources,and from this to reach some very general conclusionsto assist policy makers and researchers. In any review of poverty in the context of economicreform and adjustment, a numberof further qualificationsneed to be raised at the outset. Above all, the issue of the counterfactual must be recognized. Over the last decade adjustmeait-lending countries have shown a better growth record, with greater improvementsin socioeconomicindicators, than non-adjustment lending countries (World Bank, 1990f).It is recognized,therefore, that while macroeconomic reforms may not be sufficientto alleviateor reducepoverty,the situationmight have been even more serious for low-inoome populations,had no economicreform taken place. The main conclusionof this review is that there is a clear associationbetweenmacroeconomic distortionsand the process of impovenshment taking place in urban areas today. It is legitimate to pay attention to short-termcompensatory interventions.However,these cannot be sustained unless thev shift their focus away from short-termobjectivesand seek solutionsto the longer- term structuralproblems associatedwith poverty. The only way to accomplishthis objectiveis to improve the human capital of the urban poor and to increasethe productivityof their labor. Major findingsand recommendations of this review includethe following: There T have been differential impacts on the various categories of the poor. The changes in food prices have particularlyaffected the "borderline"poor, increasing The changes in the labor market and wages have led often to the their vulnerability. impoverishmentof the working classes, giving rise to the "new" poor. In many contexts the plight of the "chronic" poor has been exacerbatedby the changes in prices, wages, and public expenditure. * The targeting of food subsidiesduring adjustmentcan increase their effectiveness, providing an importantincome transferto the urban poor. In addition,the increased for exampletransport,can ultimatelyenhancethe private provisionof infrastructure, productive capacityof the urban poor. v Under adjustment,the householdis the primary unit of survival. Householdshave developed various coping strategiesto buffer the effects of the changes in prices, wages/labormarket, and public expenditure.These strategiestend to vary with the context and among the differenttypes of householdsgiven their differentialaccess to and control of resources. iii * The household is not an undifferentiatedunit. Adjustment policies have had differential intrahousehold impacts and have provoked distinct responses from differentmembers of the household.For example, where women or children have relative lack of power and access to resources within the household,they can be disproportionately affected. * Policiesshouldsupportstrategiesthat emphasizeemployment growthand productivity of the informalsector, such as community-basedinitiativesto cope with rising food prices and reducedaccess to services. * Policy makers should recognize women's roles as active participants in the maintenance of householdwelfare.Becausesocietyin the pasthas recognizedwomen primarily for their reproductiverole, policy makers often have not specifically identified them in their productive role. Consequently interventions have not adequatelycompensatedhouseholdsfor adjustment-related income losses. Sincewomenare the prime usersof local communityservices,cutbackshave affected them disproportionately. Where community-level initiatives are developedto lower costs, in most instances,they dependon unpaid female laborand time. To ensurethe reliability and sustainabilityof community-based service delivery of infrastucture, policy makers shouldrecognize women'srole as communitymanagers. * In householdcopingstrategiesunder adjustmentconditions,children fiequentlymake an importantinvisiblecontributionto the maintenanceof householdwelfare.If future humanresourcesdevelopmentis to be guaranteed,compensatory interventionsshould include this in their design. This paper is dividedinto threeparts. Part I reviewsthe literatureon the urban sectorand low-incomehouseholds in the developingworld during the 1980s. It examines the effects of changes in prices, wages, and public expenditurethat arise from macroeconomic reform at the urban, household,and intrahousehold levels. A numberof importantquestionsarise: * How have thesechangesaffectedthe way that cities contributeto macroeconomic development? * Has urban poverty increasedduring the 1980s? * Which categoriesof the poor have these changesaffectedand in what ways? * What type of strategies have households developed to deal with the changing macro policy environment,and what are the implicationsof these strategiesfor differentmembersof the household? iv Part II provides a comparative review of country experiences with compensatory interventions,initiatedto alleviateproblemsthat urban populationsexperienceunder adjustment. The evidencecomesfrom morethan 30 differentcompensatory interventions carriedout in World Bank projects in 12 countries.' These interventions include food and nutrition programs, employment-income generating interventions, and social and econoiric infrastructure interventions.Several fundamentalquestionsare examined: * Who are the urban populationgroups that need compensationduringadjustment? v What measureshave countriesundertakento assist them to absorbthe shocksthat they have experienced? costs associated with * How effectively have these messures reduced the soci*xl adjustment? The review also discussesthe processesby whichpolicy makers identify compensatory interventions and the institutionalarrangements within whichthey carrythem out. It assessesthe experiencecountrieshave gained so far from targetedcompensatoryinterventions.In so doing, the intention is to increase understanding of both the potential effectivenessand limitationsof these interventionsin reducing the social costs associatedwith adjustment. Finally, Part III highlightssome of the main conclusions. to the Repoit Backgmund Significant economic growth characterized the 1960s and the early 1970s in many developing countries. Since the mid-1970s,however, a combinationof external shocks and internal factors has interruptedthis growth, particularlyin Afnca and Latin America. These shocks have included inappropriatedomestic mlacroeconomic policies, the quadruplingof oil prices, and the wealmessesin international commoditymarkets.Many developing countrieshave experienced severe economicand financialcrises.Facingunanageable public sectordeficitsand substantiallevels of extermaldebt, manydevelopingcountriesbegan to implementSALs.At zhe same time, they initiatedpolicy reformsaimedat producingextenal and internalequilibrium by improving resource allocation, increasing economic efficiency, and stimulating long-term economic growth (Ribe et al., 1990,3). To date, about sixty-twodevelopingnations,mainly in Latin America and Afica, have undertaken SALs. Efforts to induce extenal balance included expenditure-switching policies, such as changes in relative prices, aimed at reallocating resourcesaway from the productionof non- tradeabletoward tradeablegoods. Countnes also adopted expenditure-absorption policies such 1. For the sake of brevitythe summaryexcludesboth detailedreferencesto specific countriesand the citationof all sources.These can all be found in Volume11which includesan extensivebibliography. v as reductions in consumption,governmentexpenditure,and investment in efforts to promote internal equilibrium.Finally, many adopted reforms to stimulategrowth through the reduction or eliminationof productand factor market distortions. In the early years of adjustment lending many were optimistic, believing that such programswould be temporay. They believedthat as growthresumed,poverty would continue to diminish (Ribe et al, 1990). Yawever,nearly a decade later it is evident that the adjustment processis taking longer than many anticipated.Additionally,the restorationof sustainedgrowth often har been both difficult and protracted. In the short term, therefore, high transitional social and economiccosts occurbecauseof the structuralard politicalconstraintscountriesexperience during implementation. Structuralconstraintsto a smoothtransitioninvolveboth-lipplyconstraints-such as price rigidities-as well as demandconstraintsresulting from policies aimed at demand management to enable overall macroeconomic balance,and fiscal constraintleading to the rationalizationof public expenditure and a consequent reduction in public employment(Demely and Addison, 1987). Political constraintshave caused delays in the implementationof adjustnent programs. Although policy makers may recognize macroeconomicreforms as essential componentsof sustainable economic growt, perceived political implications have limited governments' willingnessto carry out such programs.As a cons.>quence, severalcountrieshave either heavily diluted these programsor abandonedthem. A publicationfromUNICEF,entitledAdjustmentwitha HumanFace(Corniaet al, 1987), highlighted the "social costs" of adjustment. This study provided empircal evidence of the deteriorationof social conditionsin ten countriesundergoingadjustnent. Some questions have arisen about the rigor of the analysisthis study presented.Its findings,however, -licited a call for reassessing the inmpact of adjustment policies on the poor within developing countries (Behrmanand Deolalika, I " '). Consequently,countriesadopting SALs have taken action at various levels to offset the costs of macroeconomicadjustment. These actions have included reallocation of public expendituretoward those sectorsthat are of particularconcernto the poor, such as primaryhealth and education,and the incorporation within SAJs and SECALsof measuresaimed at protecting the poor (World Bank, AdjustmentLendingPolicies for SustainableGrowth, 1990,35). In conjunction with these reforms, countries undertakdngSALs also have initiated compensatoryinterventions aimed at reducingthe short-termcostsassociatedwith the adjustment process. Countries have aimed these measures specificallyto help those target groups most adverselyaffected.The interventions incorporateincome-generating and incometransferpr,)grams as well as social safety nets. They includenutrition and food assistanceinterventions,designed to offset income and consumptionlosses arising from changesin prices. Policy makersalso have vi launchedemployment generationinterventionsto offset loss of income and consumptionarising from changes in the labor nmaket. Finally, developing countries have initiated social and interventionsto enhancebasic social and economnc economic infraistructure services. for the Review The Analytial Fmamewo*i Severe methodologicaldifficulties rise in trying to develop an explanatoryfranework that can identify the nature of the linkages through which changes in the macroeconomicand policy environmentaffet individualsand households.At the moacro level, it is difficult to separatethe impactsof extemal and intemnal shocksand policy mismanagement from the impacts of stabilizationand structuraladjustment. It is also difficult to define the causal relationship between specific policy mrasures on particular income groups since most frequently it is a combinationof measureswhich simultaneously affect both the economyand society. In addition, at the household and intrahouseholdlevels, developinga methodologyto assess relativeeffectsof differentinterventions the is problematic.Onereason is that these levels represent the results of multifacetedrelationships between different macro and micro level factors.The declininghealth status among low-income urban households,for example,may not occur solelybecause of cuts in public healthexpenditure.They may also result from other local factors,such as the quality of a family'shousing,water and sanitation,or socio-culturalnorms. Nevertheless,in addressingthis issue of causality, policy analysts have identifiedthree causallyinterrelatedlevels-the macro,meso,and micro-levels. The SDA Unitand UNICEF,and Manyother organizations, have used theseconceptsin theirwork. 2 This review also has adopted such a frameworkand analyzesthe impact of macroeconomic refonns at the meso and micro levels. However,it also extendsthe framework at the micro levelto focusnot only on households but also on intrahouseholdrelationships. Discussion at the macro level, involves an implicit assumption that the increased dependenceon the price mechanismunder adjustmentwill leadto greaterefficiencyin allocating and utilizing resources. This not only requires adjustnent at the aggregate level but also behavioralchangesat the householdand intrahousehold levels. However,there are many "meso- channels" through which macrocecononuc reforms affect responses and outcomes at the microlevel.In the urban context, these includechangesin prices, wages,employmentandpublic expenditure. Wherethere are direct linkagesbetweenchangesin the macropolicyenvironment and the microleveloutcome,these are identified.One suchexampleis the unemployment that can result from retrenchmentin the civil service. In most cases,however,the linkagesare multifacetedand 2. The meso-economic level has beendefinedby the WorldBanklsSDAUnit as 'the variableswhichcomebetween the macropolicyinterventions,on the one hand, and the microlevel(or householdlevel) variableson the other' (World Bank,Analysis Plan for Understanding the Social Dimensionsof Adjustment,1990). vii often indirect. In this case, the review can only identify the potentialassociation.A frequently cited examplehere is the in&ect linkagebetweenfood price increasesand changesin household nutritionand health status. Having reviewedthe micro-levelimpact of changes in prices, wages, employment,and public expenditure, the paper then assesses the effectiveness of targeted compensatory interventionsthat countries undergoingadjustnent have initiated. Three major categories of compensatoryinterventionsare appraised: * Nutrition and food assistance interventionsaimed at amelioratingincome, and consumnption losses arising from changes in the price and availability of conswnptiongoods, particularlyfood items. * Employment-income whichcountrieshave undertakento generationinterventions and offset incomeandconsumptionlossesarisingfromchangesin the composition level of employmentand wages. • Social and economicinfiastructureinter'-ntions aimedat cutting losses resulting from reductionsin public expenditureon the provision of social and economic infrastructureand services. In assessingthe effectiveness severalcriteriaare used. The appraisal of these interventions of nutritionand food assistanceprogmmsis made in terms of both their effectiveness as income transfers and their coverage.Employmentand income generationinterventionsare appraisediri terms of their cost effectivenessin providing employment and incometo intendedbeneficiaries. The effectivenessof social and economic interventionsis made in terms of their ability to improvethe availabilityof basic social a-id economicservicesto target beneficiaries. In conductingsuch a comparativeassessment,severalimportantconsiderationsmust be taken into account First, countries initiating compensatoryinterventionshave used differing approachesin designingthese interventions.Some countrieshave designedinterventionsaimed at addressing issues prevalent within a specific sector such as in nutrition, employment,etc. Othershave designeda portfolioof interventionsconsistingof a multisectoral packageof actions within severalsectors. Second,countrieshave used differinginstitutionalarrangementsto administerand execute compensatory interventions.Somecountrieshave delegatedthe responsibilityfor the execution of compensatoryinterventionsto existinggovenmmental agencieswhile others have established new institutionalstructures,such as Social InvestmentFunds,to undertakethis taslk Further, in some cases, countrieshave used nongovernmental agencies,such as NGOs and communityand other local level organiations, to administerinterventions. viii Third,the level of beneficiaryparticipationin the selectionof compensatory interventions differs among countries. In some instances, countries have used a "oemand-driven" approach, respondingto the specificneeds of targetedbeneficiaries. Other countrieshave utilizeda supply- driven approach,identifyinginterventionswith minimalbeneficiaryparticipation. -s. In Fourth,countrieshave utilized differing financingmechanismsto fund interventri some cases, resourceshave been generated from both domesticand external sources, such as donor agencies. In other instances, financing for interventions has been generated from govemmentbudgetaryresources. TheUuban of StmcturnAdjustnent Impacts The presentreviewinvolvedsifting of Bank and non-Bankstudiessearchingfor evidence to miakean accurateanalysis of the impacts of the variouscomponentsof adjustmenton pnces, wages, and public expenditure.The overall goal was to make a preliminaryassessmentof their impact at the urban, household, and intrahouseholdlevels. These componentsof adjustment include devaluation,trade policy, market refonrn,fiscal and monetarypolicy, and institutional reform.Among the key findings: e Urbanprices, especiallyfor food, have increasedsharplyin many countries.At the same time policy makers have adopted subsidyremovalsand other measuresto eliminatedistortionsin the economyand to allocate resourcesmore efficiently. • Householdshave developeda range of coping strategieswhich include changing consumptionand dietary patterns and adjusting expenditurein the direction of and communitylevel cheaperand oftentimes less nutritiousgoods. Intrahousehold initiativeshave also been developed. * Women and children are "at risk" in households where the distribution of consumptionfavors males and income-eaning adults. * Women bear most of the responsibilityof coping with increased prices and shrinling incomes since in most instances they are responsible for household budgetingand maintenance. * Geneally, the desired shift in labor from the production of non-tradeableto tradeable goods is taking place, but this is accompaniedby such changes as increasingunemployment and underemployment and declining wage levels. * The restructuringof the public sector in many instanceshas meant widespread retrenchment,reductionsin the growthof public employment,and wage freezes ix * In response to labor market changes, household size and composition have changedand adaptationsmadein the domesticlife cycle.For example,the number of incomeeaniing adults in the householdcan increase,as can the dependenceon remittancesfrom abroad. * More women and children are enterng the work force to compensate for households'income losses. * Cuts in public expenditureunder adjustmenthave led to deficient provision in infrastructureand services,which in tum may affect urban economicactivity. * Where public cutbacks have occunred,more responsibilityhas been placed on private enterprise,households,and communitiesto provideservices. * The introductionand/orincreasein user fees for both economicand social services have, for very poor fiamilies,constrainedhousehold budgets in tenrs of other expenditures. of Findings Eabomulon Pdces Price changesserve larger macroeconomic goals. The urban poor, however,in the short- tem generallybear the brunt of increasesin the price of consumptionitems, particularlyfood. At the same time, households develop strategies aimed at making the best of their low and decliningresources. Evidence from cities as diverse as Manila, Dar es Salaam, Guayaquil,MexicoCity, and Guadalajara indicates that households changed their consumption and dietary patterns and adjustedhouseholdexpenditurein many instancesin the directionof cheaperand less nutritious substitutes.There has also been an increasein householdself-provisioning, particularlythrough the cultivation of staples on family plots, as in cities such as Sio Paulo. Both womnen and childrenalso have increasedtheir participationin the labor market.At the communitylevel, local authoritieshave encouragedcommunitiesto purchase stapsefood items in bulk quantities. An assessmentof these strategieshas identifiedthree main limitations.First,thoughsome of these strategies,such as the increaseduse of child labor, may serve to maintain consumption levels in the short run, in the longer term, they are of limited or negative value to poor households.The effects of other responses, such as changes in the dietary pattern and the reduction in the number of meals per day, have both immediate and longer term negative consequences.Community initiatives may prove to be positive, particularlyin the short and mediumterm. To the extent that they rely on the unpaidlabor of women,however,the long run ability of such programs to sustainthemselvesis questionable. x Intrahouseholddynamicsalso involveadditionalimportantproblems. Womenandchildren can constitute a high risk group where they lack equal access to food and other resources. Women,however,are not merely victimsof skewedintrahousehold distribution.Genderdivision of household labor allocates the responsibilitiesof budgeting and maintenanceof household welfare to them. They are, therefore, pivotal in putting livelihood strategies into operation. Increasingly,women have to juggle their reproductive,productive,and conmnunity managing roles to meet the needs and requirementsof other householdmembers. Wagesand LaborMauket The evidenceso far suggeststhat, by and large, the desired shift in labor resourcesfrom non-tradeablesto tradeablesis taling place. Asian countrieshave been relativelysuccessful in incwreasingmanufactuTing employment. In Latin Americaand Africa,the shift into tradeableshas occwred largely becauseof the shift back into agricultureand out of governmentemployment. Changes in sectomal wages also have encouragedthis shift. At the same time, however, the unemployment rate in such countriesas Argentina,Bolivia,Brazil, Chile, Cote d'Ivoire, Ghana, Kenya, and Malaysia,has increased. Other important quantitativechanges in the labor market includeincreasesin underemployment and in the laborforceparticipationrate,particularlyamong women. in many of the countriessurveyed,an overall decline in real wages has accompanied these trends. Varying degreesof regulationand control of labor in the economy,can influence the performanceof the labormarket However,labormarketinstitutions often appearto be symptoms of underlyingpoliticaland economicforceswhich makeadjustnent difficult.Sometimes,policy makers unfairly blame these institutions.In certain contexts-the Caribbean,the Philippines, Egypt, for example-international migration provided an important safety valve for the unemployedand otherscoping with fallingreal wages. Restructuring the public sector in many instances has meant widespread retrenchment,reductions in the growth of employmentand capping of wages. Labor maket trends have implications for the urban sector. Primarily,contaction of manufacturingand industrialproductionand the public sector has impoverishedthe so-called "newt poor-a highly visible and politically vocal group. This contraction has affected the chronic poor more indirectly.One result has been an increasing concentrationof retrenched formalsector labor into the informalsector. This, in tum, has depressedearningsin the informal sector. The growth of export-orientedindustries and their location in secondary cities has produced an impact on the urban spatial environment In Latin America,for example,prinmry cities declined in growth while secondarycities such as Bella Union, Artiga, Maldonado,and Punta del Este, continueto grow. In the face of labor narket changes,the householdis the criticalunit for survival.Studies in Guayaquil, Mexico City, and Guadalajaradocument this conclusion.They indicate that as household size and composition change, households adapted their domestic life cycles to xi counteractthe effectsof increasedunemployment, underemployment, and fallingnominaland real wages.Dependence on remittancesfrom abroadalso has increased.Many of thesestrategieshave become importantfor the new poor in recent times but have constituteda way of life for the chronicpoor for a long time. An examinationof the intra-household dimensionof labor market changesdemonstrates the importanceof specificgender issues.Womenhave been both victimsand beneficiariesof the process. Their concentrationin the non-tradeablesectors such as services and commercehas meantthat they have suffereddisproportionately. Whereeconomicreformhas been accompanied by the spread of export-oriented for industries,this has provided increasedfemale opportunities wage-eaning employment. In many instances,while women have increasedtheir participationin productivework men have not engaged more actively in child care. This has generated increasedpressure on women to balancetheir time, and forced elder siblings, usually females,to take up the slack. PublicExpenditue The effectsof structuraladjustmenton public expendituresfor health,education,and other serviceshave varied.No discerniblepattern has emerged.Lack of a rigorous methodology, and inadequatedata, have caused analysesof the impacts of adjustment on the various sectors, and the household,to be inconclusive. However,wherereductionshave taken place,it is evidentthat they have implications for the urban sector. Deficient provision of economic and social inWastructure undermines urban productivity and constrains the contribution of the urban economyto macroeconomic growth. Case studiesfrom Nigeriaand the Philippinesdemonstrate this conclusion. In many instances, increased participation of the private sector, communities, and householdshas accompaniedthe decline in public provision.Giventhe gender divisionof labor within households,this has meant an increasedworkloadfor women,both in their reproductive and community-managing or increase,in user fees also have added to the roles. The introduction, already constrainedbudgets of poor urban households. Appnuislof Compensatoiyluteuvenlions This paper reviews Bank and non-Bank documentation on thirty compensatory interventionsimplemented institutedto protectthe in thirteencountries.It appraisesinterventions poor from the negative aspects of the adjustment process within three major categories: 1) nutrition and food assistance; 2) employment and income-generationprograms; and 3) socioeconomicinfrastructureinterventions.Among the major findings: xii * Food and nutrition interventionscan offset income and consumptionlosses that may occurduringthe adjustmentprocess. However,they must be designedtaking into account the intrahouseholddistributionof the transferprovided. * Successfulfood and nutritioninterventionsshow that communityparticipationis essentialto ensureprogram effectivenessand sustainability. * Cash severancepaymentshave been the most effective interventionsfor laid-off civil servants,but they do not benefitthe lower-leveland unskilledworkerswho need help the most. * Public worksemployment schemesare effectivein providingincometo the urban poor but this income is temporaryand minimal. * Employmentand income generationschemeshave not adequatelyaddressedthe increasingrole that children play as economiccontributorsto the welfare of the household under conditionsof adjustment. * Complex institutional and administrative arrangements have marred the effectivenessof some interventionsdesigned to compensate for reductions in public expenditureon social and economicinftucture and services.Simplified and transparentinstitutionalproceduresand streamlined coordinationare essential to facilitatethe timely implementationof these types of interventions. - Utilizing local-level organizations, such as community organizations,NGOs, volunteerorganizations etc. in the identification and executionof interventions will assist in the better identificationof needs at the local level. Elabonadonof Findings Nuttlton andfood assistance intervenlions The major objectivesof food and nutrition assistance programs are to counteract the effects of income losses and reductionsin purchasingpower arising from price changesand the reduction or eliminationof subsidies.These programs aim primarily to provide food or food- purchasingpower to sustain nutritionand consumptionlevels for individualsand households facing the greatestrisk of deterioraton in living standardsbecauseof price changes.Food stamp and food coupon programs primarily target young children and pregnant and lactating mothers-the vulnerable groups. These groups generally are at greatest risk of increased malnutrition arising from changes in the availability and prices of food items. If targeted appropriately,food and nutritionprogramscan provide relief to selectedbeneficiaries. xiii Case studies demonstratethat some of these programs have accomplishedtheir goals. Examples from Jamaicaand Mexicoillustrate the difficultiesin detenniningthe exact level of incomebenefitthat these progrms will provide.Benefitsdepend on severalfactorsincludingthe types of food items that couponsor stamps can purchase, the extent to which the poor consume these food items, price levels of other consumptiongoods, and the size of the household.In Jamaica,food couponor stampprogams that did not take into accountdifferencesin household size were ineffectivein providingadequatecompensationfor reductionsin purchasingpower of urban poor households. Most nutntion and food assistanceprogramsreviewedwere designed specificallyto act as sectoral interventions. But someprogramshave also attemptedto facilitatenutritionand health education for target groups. Supplementation programs, for instance,aim to provide adequate food to those high nsk groups to counteractpotential reductionsin consumptionlevels and to guard against any deteriorationin nutritionallevels. Such programshave also encouragedpoo; children to attend school, while helping to improve their nutritionaland health status. Policy makers have consideredthese interventionsas importantincentivesto enroll children in school as attendanceoften involvessubstantialsacrificesfor poor householdswhere children work to augmentfamily incomes. Community participationis essentialfor food and nutritionprogramsto succeed.Thiscan be in cash contributionsas well as active work in the administrationof the program. In the ColombianHBI Program,for example,communityparticipation was encouragedat all levels of program activities and this helped to enhance both the effectivenessand sustainabilityof the progam. In several instances,the unpaid labor of mothersand other volunteershas been used in the administrationof foodprograms.The case of Madagascar demonstrates that the exclusiveuse of volunteerworkersto manageand administerthese programsmay lead to weaknessin program management and impair the sustainability of the program. This was so primarily because volunteerworkers were unable to provide their serviceswithout remuneration.Conversely,the case of the ColombianHBI illustrates the point that compensationfor work in these types of progams may lead to programsustainability. A substantial level of administrativecoordinationis necessary for targeted food and nutrition interventionsto succeed. Coordinationis necessary at various levels; first, between agenciesinvolvedin identifyingtarget groups and planned interventions and those agencieswho have the primary responsibilityto carry out these interventions;second,betweenthese agencies and those responsiblefor financingmust be established,third, with the beneficiarycommunities themselves. The case of Jamaicademonstrates the importanceof establishingan effectivedistnbution system to carry out food coupon and stamp programs. In this instance,the use of the public health system, which is extensive,enabled policy makers to select needy beneficiariesand to xiv screen out the relativelywealty segnents of the population.In Mexico,on the other hand, use of distributionoutlets located in specifiedurban areas limited the level of coverageprogram operatorscould attain. In this case, the milk coupon program effectively bypassedpoor urban familieswho did not live within communitieswhere the distributionoutlets were located. Employmentand IncomeIntententions Experience that somecompensatory to date in severalcountriesdemonstrates interventions have succeeded only in providing minimal and temporary assistance to the urban poor. Interventions such as severance payments and labor-intensivepublic works programs, with adequate targeting,may be effectiveways to providetemporaryrelief to the urban poor. The case of Ghana demonstratesthat cash severancepaymentsmay be the most effective kind of interventionto reach redeployedworkers. This type of payment did not adequately compensate those of the new poor, such as lower level civil servants and un-skilled personnel-those who may need compensationthe most. A major objectiveof redeploymentprogramsis to encouragelabor mobility in order to achieve a better match between supply and demand within labor markets. Redeployment programs which incorporatelabor retraining will be effective only to the extent that they are responsiveto the needs of the retrenchedworkersand the demandsof the labormarket.The case of Ghana illustratesthat trainingprogams provide littlebenefit unless they impartflexibleskills that will enable the redeployedto successfullyseek employmentin expandingsectors. As the importanceof the infonnal sector is highlighted,both as a sourceof employment for the poor as well as a source of growthfor the urban sector, it is essentialto impartpractical skills to displacedworkersthat will enable them to participateeffectivelywithin this sector. Labor-intensive public worksprogramsthat have proliferatedin adjustingcountriesmay be effectivein achievingtwo goals. First, they may rapidlyemploy displacedlabor and thereby immediatelyprovideincome. Second,they may rehabilitateor constructessentialelementsof a social and economicinfrastructure.If appropriatetargetingmechanismsare utilized,such as low wages and other hiringrequirements, these programsmay provide necessaryincometo the urban poor. The case of the ChileanProgramade EmpleoMinimoillustratesthis point. Whilethe short- term effect is very desirable,the characterof the safety nets means that longer terms goals are best achievedthrough other measures. public works projectsis to transfersome on-the- One of the objectivesof labor-intensive job training to participants to enable them to seek work elsewhere once the temporary employmentends.The experienceof countriesthis reviewhas examinedsuggeststhat thesetypes of interventionsprovide only a minimallevel of on-the-jobtraining.This is particularlytrue for those workers who are engaged in low-productivity jobs, who, in most cases, will be the urban xv for women because,in chronicpoor. This phenomenonhas particularlysignificantconsequences most cases, they work in these types of jobs. SocdalandEconomichnfwstuctueInterventions Structuraladjustment entailsreductionsin overallpublic expenditure. Reductionsin public spending on social and economic services may have significant negative impacts on human capitaldevelopmentwith consequenteffectson labor productivityand overalleconomicgrowth. In this context, several adjustingcountries,in conjunctionwith measuresaimed at reallocating and rationalizingpublic expenditure,have taken immediateactions aimed at stemming the potential deteriorationin standardsof living arising from cuts in public spending.A major goal of these measureshas been to improve social servicedelivery to the urban poor. These initiativeshave includedprovisionof essentialinputs such as textbooks,essential drugs, and other materialsas well as the rehabilitationand constuction of educationaland health facilities,water and sanitationinfrastructure,and the provisionof low-incomehousing. In the cases reviewed, policy makers have employed two kinds of compensatory interventions:demand-driven and supply-driven measures.Boliviaand Hondurashave attempted to use the former approach,solicitingrequests for the financingof interventionsfrom various types of interventions, including public and private agencies and NGOs. In most cases, beneficiarycommunities Experienceso far suggests helpedto identifyand carryout interventions. that beneficiary participation in project activities may lead to improved effectivenessand consequentlyto the sustainabilityof the intervention. Conversely, Ghana and S&oTome and Principe utilized a supply-driven approach. Experiencesuggests that this approachis less effective.First, since targeted beneficiariesplay a minimal role in identifyinginteventions, the effectivenesscf the interventionsto addresstheir needs is impairedand therefore benefitsare likely to be limited. Second, because of minimal beneficiaryparticipationin the design of such interventions,their sustainabilitymay be limited. This review examined different institutional arrangements to implement social and economicinterventions. They includethe establishmentof a SocialInvestmentFund, and the use of both existingofficial agenciesand NGOs. The experienceof Boliviaand Hondurasshow that less complicatedand transparentinstitutionalproceduresmay be necessaryto ensure the timely implementation of interventions.Conversely,the experienceof Ghana,Guinea-Bissau, and Chad demonstrates that complex institutional procedures may inpede the swift execution of interventions. The cases of Bolivia and Honduras also show that NGOs may serve as effective This is particularlyimportant alterative vehicles to cary out social and economicinterventions. where governmentalagencies,either because they lack the technicalcapacity or becauseof xvi inaccessibility to specificareas,can not effectivelycary out such interventions.NGOsmay have more experiencein workingwith communities that official agencieshave been unableto reach. Measuresto enhance access to social and econoraic infrastructureto the poor require effectivecoordinating mechanisms.This is particularlyso in instanceswherenumerousagencies are involved in carrying out such progms. The cases of Ghana, Sao Tome and Principe, and Chad demonstratethat institutionaland financialbottleneckscan block the successof these kinds of interventions.Here the lackof effectivecoordinatingmechanismsbetween implementing and donor agencies led to severe delays in carryingout compensatory interventions. Recommendations This review has examined the way in which changes in pnces, wages, and public expenditurehave resulted in consumptionand incomelossesand the reducedaccess of the urban poor to basic social and economicservices. It is importantfor policy-makers to direct their attentionto the implicationsof adjustment in the urban context. It is essentialto addressthese issueson both efficiencyand equitygrounds. The negative social and economic impacts linked to adjustment and economic reform can constran the productivecapacityof householdsand firms.Giventhe linkagesbetweenthe urban economy and macroeconomicperformance,this has significant repercussionsfor long-term sustainableeconomicgrowtihIt is also essentialto addressthe issue of equity as an end in itself There are also importantpolitical considerations.Macroeconomic policy initiativescan adverselyaffect certainpoliticallyvocalgroups,for examplethe "new poor." Policy-makers must therefore recognize the relevance of the political context within which structural adjustment programsare implemented. This has importantimplicationsfor the design, speed. and timingof the adjustmentpackage. It is also importantto effectively manage responsesto the adjustment process and forge alliancesthat will ensurethe sustainabilityof the program. This paper also indicatesthat compensatory interventionshave not sufficientlyaddressed the impacts of urban adjustment.While it essentialto mitigatethe short-termcosts associated with adjustment,structuralimpediments must also be overcometo ensure susainable economic growth.In order to achievethis, once stabilizationhas occurred,compensatory interventionsmust be reoriented to shift their focus from short-term objectives toward addressing longer term structuralproblems associatedwith poverty.This can be accomplishedby improvingthe human capital of the urban poor and increasingtheir labor productivity. Additionally,in the majorityof cases,the implementationof these interventions has been plagued by financial constraintsand institutionalbottlenecks.This has worked to severelylimit their effectivenessin addressingthe needs of intendedbeneficiaries. xvii It is not possible to recommend a particular institutional framework within which compensatory can be best implemented. irAterventions This depends on differencesin politicaland socioeconomiccontexts. However, in order to guarantee the efficiency and effectivenessof compensatory interventions, a numnberof issues are important. Greater involvement of community-levelorganizationsshould be encouragedboth in the design and implementation phases of compensatoryinterventionsin order to better respond to the felt needs of intended beneficiaries. It is essential to develop an institutional structure that incoiporates simplified procedures. In addition, coordinating mechanisms among all agencies involved must be streamlined. Intended beneficiaries must be properly identified, with the necessary data disaggregatedby gender and age. Finally a realistic assessment of the technical capacity of agencies involved in the implementationof interventionsmust be included. For this reason, institutional capacity building must be an integral part of the design of compensatory interventions. The performanceof structurl adjustmenthas been largely evaluatedby macroeconomic indicators. However, this review shows that under adjustment, the household is the unit of survival.Therefore, if one is to adequatelyaddressthe particularneeds of the urban poor, it is imperativeto intensifymicrolevelresearchfrom which policy can be formulated.In recognition of this, the World Bank through the Living StandardsMeasurementSurvey (LSMS) and the varous surveys initiated by the Social Dimensionsof AdjustmentUnit, has taken steps in this direction. In addition, it is important for policy makers to examineand assess the efficiencyand equity of the survival strategiesdeveloped by householdsand comnunities and the extent to whichpolicy can improvetheir effectiveness.In so doing,policy shouldsupportthose strategies which emphasizethe growth of employmentand productivity of the informal sector and the various community-based initiativesdevelopedto deal with rising food pnces and the reduction in access to services. Adjustmentpolicieshave also had differentialintrahousehold impactsand have provoked distinct responsesfrom differentmembersof the household.Of the variousinitiativesundertaken to compensate for losses incurred under adjustment, women are most frequentlyspecifcally targeted in their reproductiverole as mothers and carers in food and nutriuon interventions. The implementation of compensatory interventions often requires the extensive participationof womenat the communitylevel. Wherewomenare not remunerated,this can have significantconsequenc- s for the sustainabilityof the intervention. Finally, the review shows that children have been adverselyaffected by the changesin prices, wages,and the provisionof public services.The evidencepointsout that the participation of children in the labor market has increased.Also, in many contexts the nutritionalstatus of children,particularlythose under five years of age, has deterioratedand their access to public services,especiallyhealth and education,has declined. xviii For these reasons, compensatory interventions targeted towards children have primarily attempted to redress nutritional impacts and those associated with declining access to services. However, to be successful, such interventions need to take account of household dynamics and the increasing eco»<>mic contribution to the household that children make under conditions of adjustment. Despite the severe limitations of both qualitative and qualitative da� the evidence in this review shows that there are linkages between macroeconomic distortions and the process of impoverishment taking place in urban areas of the developing world. What is still need� however, is more reliable longitudinal data on many of the issues raised in this review. The World Bank's Urban Development Division is currently undertaking a collaborative research project on "Urban Poverty and Social Policy in the Context of Adjustment" in low-income communities in Budapest,. Lu� Metro Manila, and Guayaquil. It is hoped that the results of this research project will contribute primary data to reach more comprehensive conclusions concerning the issues raised in this review. TABLEOF CONTENTS EXECUTIVESUMMARY i Background to the Report iv The Analytical Framework for the Review vi Adjustment The UrbanImpactsof Structural viii Elaborationof Findings ix Prices ix Wages and Labor Market x Public Expenditure xi Appraisalof Compensatory Interventions xi Elaborationof Findings xii Nutritionand food assistanceinterventions xii Employmentand IncomeInterventions xiv Social and EconomicInfrastructureInterventions xv Recommendations xvi L ANALYSISOF THE URBANIMPACI' OF ECONOMICREFORM AND ADJUSTMENT I Frameworkfor Documenting the Urban Inpacts of Adjustment I The measurement/definition of urban poverty 9 The categorizationof the poor 11 The Impact of Price Changeson the Urban Poor 12 Key findings 13 The urban dimension 15 The householdlevel 16 The intrahousehold level 21 Wages and Employment 23 Key findings 23 The perfornance of the labor market 24 Public sectoremployment and adjustment 39 The urban dimension 42 The householdlevel 48 The intrahousehold level 51 Public Expenditure 57 Key findings 58 Changesin public infrastructure spending 58 The urban dimension 66 The householdlevel 71 The intrahouseholdlevel 74 Conclusions 75 IL APPRAISING URBAN COMPENSATORY INTERVENTIONS 77 Background 77 xx The Frameworkfor AppraisingUrban Compensatory Interventions 78 Constaints in the assessment 79 The Appraisalof Urban Compensatory Interventions 83 Nutntion and food assistanceinterventions 83 Major findings 85 Case Studies 87 Food stamp/coupon programs 88 Jamaica 88 Mexico 89 Honduras 90 Food supplementation progmms 91 Colombia 91 Madagascar 93 Venezuela 94 Targeted food subsidies 95 Mexico 95 Employment/Income GenerationInterventions 96 Major findings 97 Case Studies 98 Redeployment programs 98 Ghana 99 Madagascar 100 Hungary 100 Bolivia 101 Labor intensivepublic works nograms 102 Bolivia 103 Ghana 104 Chile 105 Credit schemes 107 Ghana 107 Social and EconomicInfiastructureInterventions 108 Major findings 109 Case Studies 110 Educationservices 111 Bolivia 111 S3o Tome and Principe 111 Ghana 112 Educationinfrastructure 113 Bolivia 113 Honduras 114 Health services 115 Ghana 115 Health infiastructure 116 xxi Bolivia 116 Honduras 116 Waterand sanitation 117 Sao Tome and Principe 117 Bolivia 117 Ghana 118 Housing 118 Bolivia 118 Ghana 119 Economicinfrastructure 120 Senegal 120 Bolivia 120 Summary 120 CONCLUSION 123 REFERENCES 126 ANNEX 1 139 TABLES Table 1. Variablesused to measurethe changes in prices, wages and public expendituresat the urban householdand intra-householdlevel 6 Table 2. Urban growthpatterns 8 Table 3. Altemativedefinitionsof poverty in Cote d?lvoire 11 Table 4. Dar es Salaam:The cost of 100 kcal from differentfood items in cents (marketpnces) 18 Table 5. Dar es Salawn:Minimumhouseholdfood expenditureconsumed per day in Tshs. (1977/78and 1987/88) 19 Table 6. Kingstonmetrpolitan area: Changes in minimumfood costs for a family of five vs. changesin minimumwages: 1979-1985 19 Table 7. Unemployment rates 25 Table 8. Thailand:Open unemployment rates by education:1984-1988 27 Table 9. Malaysia:Percentageof the total employedby age and education separatelyfor males and females,peninsular Malaysia,1975and 1987 27 xxii Table 10. Share of heads of householdheads in urban open unemployment, 1979-82(percentages) 28 Table 11;Central America:Labor force participationby sex (1950-1988) 29 Table 12. Kenya: Labor force participationby rates (percentof relevantpopulationgroup) 29 Table 13. Latin America:Informal sector employment(1979-1982) 31 Table 14. Caribbean:Legal migrationby countryof birth (1960-1987) 32 Table 15. Real wages indices (1980=100) 34 Table 16. Averageanmual growth rates of manufacturingvalue added and GDP, selectedadjustingcountries 35 Table 17. Growth in manufacturing output, exports and capacity utilization before and during the reform period, selectedAfricancountries 35 Table 18. The Philippines:Real averagesalaries in the public sector (in 1980pesos) 42 Table 19. The urban labor market in Latin Americain the 1970sand 1980s 44 and structurt of employment Table 20. Mexicourban unemployment in 1981-1985(in percentage) 45 Table 21. Bogota: Evolutionof the labor market in pe-centage(1974-1986) 46 Table 22. Cote d'Ivoire: Industrialcompositionby employmentStatus 46 Table 23. Santiago:Evolutionof the labor market (1973-1984) 47 Table 24. Montevideo:Evolutionof monthlyearningsper employedworker 47 Table 25. Santiago:Evolutionof wages and householdincomesin (1970-1986) 48 Table 26. Indio Guayas: Changesin the numberof economicallyactive within the household, 1978-88(in percent) 49 Table 27. Indio Guayas: Changesin the compositionof the household 1978 (in percent) 49 xxiii Table 28. Guadalajara:Social structureof households 1982-1985 50 Table 29. Guadalajara:Womenin the labor market, 1982-1985 51 Table 30. Guadalajara:Occupationsof female heads, 1982-1985 53 Table 31. Percentageof women among manufacturingemployees, developingcountries, 1975-87 54 Table 32. Female share of public serviceemployment.Selected developingcountries(percent) 56 Table 33. Welfareexpenditureas percentageof total expenditure and expenditureas percentageof GDP 59 Table 34. Per capita welfare expenditurein 1980 PPP Dollars 61 Table 35. Annual percentagechange in per capitaexpenditureon health and education, 1973-79and 1979-83(at constantprices) 63 Table 36. Countrieswith the most severe cuts in per capita GDP and health and education expenditures(annualpercentagechange) 64 Table 37. Outcomeindicators:Summaryof chargesfor the ten-countrysample 67 Table 38. Changesin outcomeindicators 68 Table 39. State, capital, and greater Sao Pauloregion: Percentageof children with low birth weight who died before first birdtday, 1979-1983 71 BOXES Box 1. Colombo:Adversitiesfaced by poor women under adjustment 18 Box 2. Mexico City: DofiaSoledad 21 Box 3. Madagascarexports high-qualitychildren'sclothingto Europe 37 Box 4. Reformingthe Africancivil service 39 Box 5. The challengesof public enterprisereform 41 Box 6. Pancho,the shoe shine boy 57 xxiv Box 7. The crisis of quality in Africaneducation 65 provision Box 8. Privateparticipationin infrastructure 72 compensatory Box 9. The institutionalframeworkof a multi-sectoral program-The economicmanagementand social action project 81 Box 10. The institutionalframeworkof a social investmentfund- The BolivianEmergencySocial Fund 82 Box 11. Mistargetingthe benefits of food stamps-The case of Sri Lanka 84 FIGURES Figure 1. Frameworkfor documentingthe urban impacts of adjustment. Domesticpolicy. 2 Figure 2. Trends in subsidies 14 Figure 3. Urban price movements:Selectedcountries 17 Figure 4. Indices of evolutionof employmentby sex. Women's participationin employment 30 Figure 5. Trends in economicservicesexpenditure.(As a percentage of total expenditure.)Selectedcountries 70 Figure 6. Trends in housing and communityexpenditure.(As a percentage of total expenditure.Selectedcountries 73 L ANALYSISOF TIE URBANIMACT OF ECONOMIC REFORMAND ADJUSTMENT The first part of this review outlines the framework used and identifies four major conceptual and definitionalconsiderationsthat are important to recognize at the outset. The review then documentsevidencerelatingto changesin prices,wages and employment, and public expenditurein developingcountriesexperiencingadjustmentand economicreforn. In each case it seeks to detennine the effect such changeshave had at urban, household,and intrahousehold levels from the availabledocumentation. hmework for Documendngthe Urban Impactsof Adjustnent In such a reviewa numberof questionsarise. One of the most difficultconcernsthe issue of causality.The crucialquestion is how to developan explanatoryframeworkthat can identify the nature of the linkages throughwhichchangesin the macroeconomic and policy environment affect individualsand households. At the macro level, it is difficultto separate the impacts of externaland internalshocks and policy mismanagement from the impacts of stabilizationand structuraladjustment.In the African context, for instance, prior to adjustment, there had been a serious decline in the provisionof public infrastructurein many countries,and no effectivemechanismsto sustain the provisionof economicand social services.Rapid inflationhas also producedeffectscomparable to a regressive tax, with the implicit taxation levied by means of the inefficient resource allocationwithin the parastatalsector also having regressiveeffects. In identifyingcausality,it is also difficultto isolatethe effectsof specific policy measureson particularincomegroups.In most cases, it is a combinationof measureswhich producesan impact simultaneously on both economyand society. At householdand intrahousehold levels, developinga methodology to assess the relative is also problematic.One reason is that these levelsrepresentthe effectsof differenti,iterventions results of multifaceted relationships between different macrc and micro level factors. The declininghealth status among low-incomeurban households,for example,may not occur solely because of cuts in public health expenditure,which tend to characterizestructuraladjustment loans (SALs). They may also result from other local factors, such as the quality of a family's housing, water and sanitation,or socio-culturalnorms. Nevertheless, in addressing these issues, this review has followed the work of both UNICEF and the World Jank's Social Dimensionsof AdjustmentUnit in identifyingthree causally interrelated levels: the macro, meso, and micro levels. As illustrated in Figure 1, it analyzes macroeconomicreforms in tenns of their impact at meso and micro levels, with the latter includingnot only a householdbut also an intrahousehold focus. 2 Fue policy. the urban impactsof adjusbnent Domestic 1. Frmework for documenting STRUCTUR/ INTRNL SHOCK !NSTUTIoN RIGIDITIES I ADJUS7 1= =RELAT TRADE EISC INSTIFTIONCAL PRCICES I POLICY REFORM I RONETARY ISITTORNA 1 IPOLICY PRICES LIC EXPEDTRE PBGESLO RAN LEVEL 7 , ~~~~~~I I HOUSEHOLD I - __ __ LOCAL FACTORS FACE EXTERNALSHOCKS SHOCKS 3 This review generally addresses five broad categories of macro adjustment policy intervention: * devaluation; * trade policy; * fiscal and monetarypolicy; * market reforms;and * other institutionalreforms. These policy interventions often combine to achieve major macro policy targets, such as economic growth, and internal and extemal balance. They also serve to improve efficiency, through resource reallocation,and equity, through povertyalleviation(World Bank, 1990a).It is importantto recognize,however,that the wider social and politicalcontextand changesin the internationalenviromnent also determinethe effectivenessof policy interventions. As a recent Bank study has found, there are many meso "channels ", or conduits, through whichrmcro economicreforms affect responsesand outcomesat the micro level. In the urban context, the most important are prices, wages, and public expenditure (World Bank, 1991a,9). It is useful, therefore,to highlightthe main characteristicsof each. * Pices. A range of policies has been designedto remove distortions(such as deregulationof the market for agriculturalproduce), to reduce government expenditure (such as reduction in subsidies on food, water, energy, and tansport), to shift resourcesfromnon-tradeables to tradeables,and to correct external imbalances (such as cunrencydevaluation)that impose upward pressure on domesticprices. It is importantto identifyhow far policies such as these affect the urban poor disproportionatelyin the short-term. * Wages.Sincethe urban poor dependessentiallyon their labor, rather than on owningassets, they are particularlyvulnerableto changesin the labormarket in the short-term.Under adjustment,restrictivemonetaryand fiscal policies affect the urban poor through contractionsin urban labor markets. Further, with the shift in urban investnent toward tradeablegoods, the demand for labor may have shifted within the urban labor market itself. * Economic andSocial Expenditine. Cuts in public expenditureusually are a necessay componentof adjustmentprograms,includingreductionsin public health and education spending as well as infrastructureinvestment.These sectorsall tend to be disproporionatelyimportantto the poor (World Bank, 1991a,9). It is importantto note that the channelsthe review de'scribes are not necessarilydiscrete. Policies aimed at changingprices, for example, have significantimpacts on the real value of 4 wages. This paper assesses the effects of each of these channels at the urban, household,and intrahouseholdlevel. At the urban level, the review considers specificallythe impactsthat disproportionately affect the social and economicarrangements in urban areas.For example,changesin the structure of incentives toward tradeable production under adjustment have affected the level of employmentand underemployment in such areas. At the householdlevel, it is importantto recognizethat they are not passive in the face of structural changes. Householdsdevelop a range of coping strategies. In response to price increases, for example, they may draw on their savings and shift their expenditures toward cheaper goods. Laid-offworkers in the formal sector may move into the urban informalsector or return to rural areas. Secondaryworkers,oftenwomen,may enter the laborforce, oftenin low wage, low productivityactivities,to supplementfallinghouseholdincome(World Bank, 1990b, 104). Developmentspecialists increasinglyrecognize that policies accompanyingadjustment often have differentimpacts and provoke distinctly differentresponses from differentmembers within households(Corniaet al, 1987, 1988; Elson, 1991). First, householdallocation of labor and of investmentin human capital is sensitive to budgetry constraints.This is true both in terms of currentlyavailableopportunitiesas well as opportunitiesthat peopleexpectto be within their reach in the future(Bardhan,1991,4). Hence, during adjustment, loss of income by a male breadwinneroften imposes severe budgetary constraintson low-incomeurban households.One result is the increasedparticipationof women and children in the labor market. Second, women'swork-in their triple role as producers, reproducers,and community managers(Moser, 1989)-tends to be more flexiblethan men's,both in respondingto economic growth and in accommodating household needs under adverse conditions.Under adjustment, macro level social indicators may not reflect the decreasedaccess of the urban poor to social servioes. In reality, the only way to alleviate these transitional costs may be for women to increase their labor within the household,the market, and the community. Third, resourcesin the householdare not equitablydistributed.Changesin income, food prices, and public expenditure,therefore,do not affectequallyall membersof the household.For example,with the decliningavailability of food at the householdlevel, due to price and output changes associatedwith adjustment,food distributionis often biased in favor of male members and income-eanmg adults. Women and children, therefore, tend to suffer disproportionately (Dwyerand Bruce, 1988;Haddad and Kanbur, 1989a,b). With the constaints in proving causality described earlier, the review uses both quantitativeand qualitativevariablesto documentchanges. Where such direct evidence exists, 5 as unemploymentresulting from retrenchmentin the civil service, it tries to show the direct linkage between the change in the policy environmentand the micro level outcome. In most cases, however,evidence is indirect,and the review points to association,such as the linkages between food price increases,and changesin householdnutritionand health status. The review focuses on several issues that do not lend themselves to quantitative assessment.Qualitativedata is used, therefore,to identify relationshipsbetween factors which increase or decreasehousehold impoverishment. Difficultyin obtainingsuch data has meant a relianceon researchon women in development(WID)issues. In the analysis, four further issues require consideration.First is the problem of the counterfactual.Recent World Bank research has used this as a means to compare adjustment lendingand non-adjustment lendingcountries.Studieshave concludedthat duringthe last decade the formerhave showna better growth record, with improvementsin socioeconomic indicators. Althoughit is importantto be as explicitas possibleabout the standardagainstwhichthe impact of structuraladjustment is measured,the necessarydata is not always available (World Bank, 1990c). In addition, as Stewart(1992) has noted, as importantthe counterfactualis, ultimately actual development,as much as performancecomparedwith some postulated counterfactual, is significant.This review thereforecovers a broad spectrumof adjustmentprocesses. Second, it is important to recognizedifferencesin perspectiveon this issue. The widely different views that the Bank and UNICEFexpress epitomizethis sharp division in points of view. UNICEF,in its 1987 publicationAdjustmentwitha Human Face, recorded in detail the social declineof countriesundergoingmacro-adjustment. This, in tum, promptedmore attention to policy development and research on the social costs of adjustnent. New research has challengedthis view and questionedthe qualityof the data that led to these conclusions. A recent studyby the WorldBank'sOperationsEvaluation Divisionassessedthe analyticalbase underlying UNICEF'sconclusionsand noted that ... "adjustmentprogrms may have deleteriouseffxts on health and nutrition,but the empiricalevidenceto date is not very convincingdue to confusion among levels, trends, and deviations from the trends and questionable data interpretations" (Behfman and Deolalika, 1989 in World Bank 1990c). In utilizing both Bank and non-Bank sources, a multidimensional view of the issues is presented,although the validityof all of the data cannotbe vouchedfor. Third, it is importantto identify regional and country differencesin the rate, magnitude, and characterof urban concentration. This reviewuses examplesfromdifferentcontinents. Urban growth rate patterns, as Table 2 shows, identify four categories.They are grouped 6 Table 1. Variables used to meaure the changesin prices, wagesand publicexpenditures ao theurban housedd andintra-usebold lend pRItcEs WAGES PULIG Ei?RUDitURE URBANLEVEL Key consumer prices Level and rate of urban Levels and trends Urban retail priee index In public unemployment expenditures an basic health care, Urban/rural terms of Level and rats of urban trade primary education, family under.employuent planning. transport, housing Labor force participation Price of economic and sociaL rates services The pattern of migration Urban prtmary enrolment over time The growth of secondary Extent of private provision cities of social services Degree of urban malnutrtilon over time Effectlveness of food ubsidy Efficiency of food subidy 1HOUSE-HOLD Effective demand for Household level wages LEVEL staples Effective household demand for Size and composition of services Householdreal income thehousehold Consumptionpattern qualitativechanpes In housing conditions DLetarypattern Expenditurepatterns Householdself-provisions INTRA-OCUSISIOLD. The distribution and LEVEL Labor forceparticipation Time allocationfor woman's consumption of resources of womenand children work Enrolmentrates of children by by household members Time allocation for gender NutritLonal status of women's work womenand children Health status of household members. Laborforceparticipation rates of household members Time allocation for women's work 7 according to, first, their period of most rapid urbanization,second, the percentage of urban population,and third cunent rates of urban growth.3 Analysis of urban growth discloses some basic differencesin urbanizationpatterns in developingcountries: Group I: Heavily urbanizedcountries, with high historical population concentrations, usually including'mega'cities,but decliningrates of urban growth.Most growthoccursbecause of natural increaserather than migration.This is typical in large Latin Americancountries. Group II: Recentlyurbanizingcountries,with abouthalf of the populationliving in urban areas. Populationpressuresin rural areas continueto push householdsto urban areas,but growth rates have peakedand are beginningto decline.This is typical in North Africanand some Asian countries. Group III: Primarily rural but rapidly urbanizing countries, experiencing very high urban growth, both in capital cities and secondary towns. Migration continues to be a source of demographicgrowth, althoughmale migrationhas s'iifted to householdmigration,leading to a movement toward natural increase as the majol fuel of growth. Typical in many African countries. Group IV: Large, mostly rural, heavily populatedcountrieswith severe pressureson the land. Population size and high growth rates have led to major urban concentrations as well as many secondarycities and towns. Urbangrowthrates have stabilizedat high levelsand are likely to continue into the next decade. Large Asian countriesfall into this category. Important differencesexist in the rate and magnitude of urban growth among these categories. Countries in the first category face enonnous demands for urban employment, infrastructure,and servicesduring a period of macroeconomic crisis. By contrast, cities in the second categoryhave experiencedmore recent urban growthand have not reached 'mega' city proportions.Relativelybalanced economicgrowth also has producedsecondarycenters linked to agriculture. This pattern is even more pronounced in the third category. The level of urbanizationin the fourthcategoryis likely to remain low as a percentageof total population. These differenceshave important implications.The scale and rate of urbanizationin a particularcountry,for example,may determinethe extentto whichpolicy makersview the urban dimensionof adjustmentas an importantpolicy issue, and consequently, what level of resources they support to address the problem. Further, the nature of the rural/urban linkages may determinethe type of coping strategiesthat urban low-incomehouseholdsdevelopto deal with the crisis. In Accra, Ghana, for example,the decreasein modern manufacturing employ- An Agendafor the 1990s (World 3. This sectiondraws heavilyfrom UrbanPolicy and EconomicDevelopment: Bank, 1991,21). 8 Table2. UVban gmnwth pabemns Percentage Averagerate of growth Per capita Size of Population(in 00'sft of urban go. (Yz Rura poL (°%) GNPLevel 1982 2000 p=1uiation 1980- 1995- 1980- 1995- Country 1988(USS) Urban Rurl Urban Rural 1985 2000 1985 2000 1985 2000 Group I Argentina 2,520 25,648 4,683 32,163 4,075 84.6 88.8 1.88 1.39 -0.87 -0.88 Mexico 1,760 55,276 24,099 82,285 24,248 69.6 77A 3.36 2.39 0.34 *0.07 Colombia 1,180 19,357 9,357 28,557 9,441 67.4 75.2 3.11 2.29 0.28 -0.07 Brazil 2,160 98,599 36,966 148,397 31,090 72.7 82.7 3.71 2.28 .1.27 -1.00 11 Group Algeia 2,360 9,251 12,448 16,845 16,403 42.6 50.7 3.71 3.85 2.51 1.25 Morocoo 830 9,910 12,210 17,488 13,878 44.8 55.8 4.28 3.42 1.40 0.50 Malaysia 1,940 5,905 9,543 10,509 10,361 38.2 50A 0.51 3.32 1.06 0.15 GroupIIl seneoal 650 2,343 4,101 4,301 5,366 36A 44.5 3.34 4.26 2.11 1.52 Ivoty Coast 770 4.302 5,950 10,118 8,429 42.0 54.6 0.63 5.24 2.54 2.26 Nigeria 290 29,556 65,643 68,893 90,256 31.0 43.3 6.07 5.33 2.22 2.02 Sudan 480 4,502 17,316 8,902 24,708 20.6 26.5 3.99 4.88 2.88 2.19 Keny 370 4,002 16,351 11,937 25,645 19.7 31.8 0.06 6.72 3.17 2.78 Zaire 170 11,248 19,464 22,875 26,474 36.6 46.4 0.41 4.73 2.29 1.80 GroupIV India 340 196,228 572,955 356,875 685,654 25.5 34.2 3.91 3.96 1.65 0.93 Indonesia 440 42,170 124,294 75,960 132,369 25.3 36.5 4.60 3.62 1.13 0.14 China 330 218,576 840,946 322,125 963,769 20.6 25.1 0.44 2.95 1.18 0.58 Noaes: a TheWorld Development World Bank, Indators,1990. (Dq8aTmn of hIional b. UnitedNations and Soci Afiars). Propects of Word Urbaniza Economic 1988(in WorldBank. 1991a. 20). ment has triggered a reverse migration to the rural areas. In other countries where urban householdshave a moretenuous attachmentto the rural areas, however,reversemigrtion to the rual areas is relativelyrare (Kanburet al, 1991, 30). Fourth, the issue of poverty deserves particular consideration.For this reason, it is important to clarify what is meant by the different definitions and measurementsof urban poverty, and to clarify the stereotypeof the urban poor. 9 The mesuuement/defliidon of urbanpovert 4 The urban poor are those living in cities at levels below some absolute threshold of poverty, that is, those unableto purchasesome minimummarketbasket of goods and services. This definition,however,does not capturevariationswithin the poor populationand thus ignores the relative depths of poverty. Other definitionssucceedbetter in depictingshadesof poverty,but they usually focuson individualaspects of it. The rest of this subsectionreviews these alternatives,stressing both the positive aspects and the limitationsof each. Each definition is, in fact, a proposedindicatorof welfare. Each cut-offpoint createsanother definitionof poverty. I. Per Capta Income. Household income, especially per capita income, is commonlyused as a welfare indicator.Two main problems are associated with its use. In theoreticalterms the incomesof a large portion of the urban populationin developingcountriesmay vary from year to year. The practical problem of using income to indicate welfare lies in trying to measure the incomesof peoplein self employment. 2. Household Consumption and Per Capita Consumption. Household consumptionexpenditureusually is an attractiveindicatorof poverty, given its soundtheoreticalbasis. The use of householdequivalencescales to adjust for householdsize, however,is usuallycontroversial; analystsoftenavoid this pitfall by using either total consumptionor per capita consumptiondata. 3. Per CapitaFood Consunption. Several advantagesare associated with this measure.First,the data requirements are fewer.This measurecan ignorenon- foodconsumption and circumventits associatedproblems,such as estimating the value of owner-occupiedhousing. Second, analysts can report food consumptionmore accuratelythan non-foodconsumption.Third, it is often easierto constructfood price indicesthan to make price comparisonsof non- food items. However,this very specific focus on food constitutesa serious weakness;it ignores entirelythe consumptionof non-foodnecessities. 4. Food Rado. This measures the proportionof the budget that the household spendson food. This measure is appealingbecausethere is no need to adjust Recent for householdsize or any otherdifferencein householdcharacteristics. research has shown, however,that one of the premises-that the food ratio is inverselyrelatedto the size of the householdbudget-may not alwayshold for the pooresthouseholdsin developingcountries(Thomas,1986in Glewwe 4. This section is based on Glewwe and Van De Gaag, 1988; the World Bank FY 89 Sector Review, Urban Development Operations. 10 and van de Gaag, 1988). This finding casts serious doubt on the use of this indicatoras a valid definitionof poverty. 5. Calodc Intake.This measureuses food consumptiondata to focus directlyon caloric intake. This approachis appealingbecause it has a certain objective foundationin nutritionalstudies (Jellifeand Jellife, 1979in Glewweand van de Gaag, 1988). Some have challenged the objectivity of this measure (Srinivasan,1981;Sen 1981, and Lipton, 1980in Glewweand van de Gaag, 1988). The data requirementsare large and the focus on calories omits the non-foodcomponentof economnic welfare. 6. MedicalData. These includeanthropometric measuresto assessthe incidence of stunting(low height to age) and wasting (lowweight to height),as well as medical tests. These measures are particularly important to determine the adverseeffectsof povertyon children.While it is easy to collect data related to height and weight from household surveys, other medical data may be difficultto obtain. The use of medicaldata also may be misleading,because although health is correlatedwith houselioldwelfare,it is not identicalto it. 7. Basic Needs. This definition does not measure the total consumptionof a household,but defines familiesas poor if they can not meet food, clothing. medical,educational,and other basic needs. This measure permitsthe use of several indicators to determine the basic needs of the poor. They include: access to public services as the literacy rate reflects it, prmary school enrollment;the averageeducationallevel of adult membersof the household; life expectancy at birth; access to piped water, floor area of dwelling; and clothingneeds. Combiningthe above indicatorswith medical data and food consumptioncan produce a useful way to measure the basic needs of the poor. Analystsgenerallydo not attempt,however,to aggregatethese various aspects into a single indicator, which complicates the classification of householdsas poor and non-poor.Another problemwith this approachis the subjectivityinvolved in determining adequate levels of complex elements such as health care, housing, and education. Ultimately,the choice of definition is important, since each does not identify the same groups as poor. As Table 3 illustrates, the magnitude of poverty can change with different definitions. Applicationof a number of definitions to the urban population of C6te dlvoire producedsignificantvariationin the relativepercentagesof poorand non-poor.In each definition implicitjudgments axemade as to which aspects of poverty are consideredimportant.Thus, the choice of a deflriitionitself can lead to formulationof differentpoverty reductionpolicies. 11 Tab 3. Attenave deflirdonsof poveityin Me divolm Percentageof Population AccuratelyIdentified Definition Poor Non-Poor Total X2 Statistic (df.= 1) Per capita income 16.80 56.85 73.65 105.2754* Householdconsumption 17.67 57.84 75.51 102.2547* Per capita consumption 26.08 66.12 92.20 413.9545* Per capita food consumption 22.64 62.67 85.31 262.0501* Food ratio 14.23 54.24 68A7 30.8790* Heightfor age 8.70 49.47 58.17 0.2791 Weight for height 8.95 49.01 57.96 0.4649 Per capita floor area 13.26 53A8 63.74 32.9857 Adult Schoolattainment 13A1 53.69 67.10 31.9716 Nores: ,. One dnotes a the hypodesis asterisk of no coffeuion is rjectedby th chisque test at the I pervn lavel. 2 Thepower testto reject of the chi-square thehypotiesis defmitions is lowerfor the height-for-age-andweight-for4height sincetheyare based on only 199(as opposed to 667) households. Souse: Worl Ban 1989a.FY 89 SectorReviewof Bank Opeos. Reachig the Poortotgh Ufban Opaons. Another problemis that conventionaldefinitionssuch as thesetend to give a static view of poverty. In the light of the dynamicprocess of macro, sectoral,and micro level adjustments taking place in differentcountriestoday, such definitionsmay have limitedusefulness.For this reason, for the purpose of this review, the most useful definition is a categorization of the poor that the World Bank recently developed. Thecategorizationof he poor The urban poor are stereotypedbv their low income-eaning capacity,and their relative lack of access to economicand social in; xructure. Becauseof the limitedability of the formal sector in most developing countriesto absorblabor, manyeke out a living in the informalsector. The urban poor usually have low levels of educationalattainment,and poor nutritionalstatus. from inadequatesuppliesof water, electricity,public They also tend to suffer disproportionately housing, and transport. However, they are not a homogeneousgroup and one newly developed categorization distinguishesbetween the new poor, the borderline poor, and the chronic poor (World Bank, 1988a).The first two are a direct consequenceof macro adjustnent while the latterrelatesto the structuralcauses of poverty. Detaileddescriptionsof these categoriesfollow: 12 * The Newly Poor. People who are the direct victims of structuraladjustment. They may be retrenchedcivil servants or employees laid off by public and private enterprisesas a direct consequenceof structuraladjustmentmeasures. * Bonledine PoorPushed into Poveuty. Individualsand familieswhose incomes, thoughnot quite at povertylevel, are so low that price increasesresultingfrom structural adjustnent push them below the poverty line. They may include unskilledlaborersin urban industry. * TheChonic Poor.Those who were extremelypoor even before an adjustment programbegan and perhaps becameworseoff becauseof SALs. They include the bottom 10 to 20 percent of the populationin many developingcountries. Traditional projects seldom reach them because they usually have little politicalclout. Theyoften are too weak and too poor to contributethe energy and assets that traditionalprojects require. These elements, then, constitute the analytical frameworkfor the study. The following sections focus on how each of the three meso level channels-prices, wages, and public expenditure-affect the urban poor in countriesundergoingeconomicreform. The Impactof Pdce Changeson the UrbanPoor In a bid to remove distortionsin the economyand allocate resourcesmore efficiently,a series of measures are often undertakenby countriesimplementingadjustmentprograms.Three different measuresthat often result in changes in domesticmarketprices can be identified. First, to correct some of the urban biases in the previous govermment's pricing policies and provideincentives,producerprices to the farmerare increasedand the marketfor agricultural producederegulated.Bank evidencefrom Ghana,for example,shows that for the 1986-87minor crop, the cocoa producer price was raised by 65 percent to c 140,000/metric ton (exclusiveof bonus). With the payinentof bonusesin 1986-87and 1987-88,farmersincreasedtheir share of the world price from 23 percent in 1986-87 to 33 percent in 1987-88 (World Bank, 1990d). Similarlyin Cote d'Ivoire,in an attemptto restore incentivesin agriculturalproduction,producer prices were raised in line with world prices. Second, in order to reduce governmentexpenditureand remove price distortionsin the economy,subsidieson items such as food, electricity,water, and health care are capped or else completelyremoved under adjustment.This can result in increasesin the price of consumption items, particularlyfood and the introductionor increase ir ;-ser fees for infrastructureservices. A non-Bank study, Adjustment witha Human Face, outlines the trends in subsidyexpenditure in ten countriesfor the period 1980to 1985. As Figure 2 below shows,based on the evidence of ten countries,it appears that there has been a decline both in terms of per capita expenditure and as a percentageof total governmentexpenditure.It is importantto note, however,that in 13 order to access the impactof a givensubsidyexpenditureon the poor, additionalfactorsaffecting food prices and the degreeand aim of targetingand efficiencyof the subsidyprogrammust be taken into account (Corniaet al, 1987). Third, as part of the general thrust to shift resourcesfrom non-tradeablesto tradeables, the devaluationof the local currencyvis-a-visthose of other countriesis required.This ultimately imposesupwardpressure on domesticprices. The following sectionsdiscuss the impacts and responses to food price changes at the urban,household,and intrahousehold levels.Foodexpenditurecomprisesa significant proportion of the budget of the urban poor, representing,for instance,69.5 percent in Ghana, 70.5 percent in El Salvadorof householdincome(World Bank, 1990e).The level and quality of food intake can affect the nutritionalstatusof the poor, with possibleknock-oneffectsfor laborproductivity. Further impacts,relatingto changesin the price of economicand social services,are discussed later in the paper. Key findings Pricechangesserve largereconomicgoals as well as longer-termpovertyreductiongoals. However, in the interim, the urban poor generallybear the brunt of increasesin the price of consumptionitems, particularlyfood. In response,householdsand communitieshave developed a range of strategiesaimed at maximizingtheir low and declining level of resources.Evidence from cities as diverse as Manila, Dar es Salaam, Guayaquil, Mexico City, and Guadalajara indicatethat householdsmodifiedtheirconsumptionand dietarypatternsand adjustedhousehold expenditre, in many instances, in the direction of cheap and less nutritious substitutes.The cultivationof stapleson "family plots" has also been intensified.In addition,the participationof both women and children in the labor market has increased. At the community level, local authoritiesactively encouragecommunitiesto bulk purchasestaple food items. In assessingthese strategiesover time, three main liniitationshave been identified.First, though some of these strategies,such as the increaseduse of child labor,may serve to maintain consumptionlevels in the shortrun, they are of limitedor negativevalueto poor households. The effectsof other responses,such as changesin the dietarypattern and the reductionin the number of meals per day, have both immediateand longer term negative consequences.The various communityinitiativescan prove to be positiveparticularlyin the short and mediumterm. To the extent that they rely on the unpaid laborof women,however,the long run sustainability of these programsis questionable. tuqops., t -lg 0861 U! · �l-o861 ·satP!KI"' pooJ uo sa.tn1n,uadu a�\OJ fl!"' a.t • l.861' uawpuy-da.may :,_., SNL "8L CflL Ml�llll 08ll ...qupeituea-----�---tsa..:::=:-=-!:':-�-�-�-�o :::..·.:.:.:.:.::.:.::.::.:.:. · ... �·--- ........,..,............... .__...., _______-..____ I, ...-. ...............••······ 9!11111 ', �, I ----- ', ,, ---- -..... l!qlUI% ' ' ', C ......... ' \ ...., ', \ , ', , , I ' ','', '\\' ' \ ' . ,,, ' '\, ,, \ nme \\ \ \ *' 08ll .,..___________...,.________ o � -- ....-.... I ········ ... . .. ...·······- .. . ··'� ···.... ... "..... . ..... .,,· · ..... \ •••••• J!!,t ,___ ....... 11.._ -, ............ \ ......... ..... bow\ . .___ \ , oi (lalfUIII P1Jt:S33',_ ' ' " \ ..... , \ ,, ,, \ I oc ', \ ',\ I , V---- SC " OS tl 15 Intrahouseholddynamics also highlight additional important problems. Women and children can constitute a high risk group where they lack equal access to food and resources. However,womenare not merely"victims"of skewedintrahousehold distribution. The household gender divisionof laborallocatesthe responsibilities of budgetingand maintenance of household welfareto them. Theyare thereforepivotalin operationalizing livelihoodstrategies.Increasingly, womenhave had to juggle their reproductive,productive,and communitymanagingroles to meet the needs and requirements of householdmembers. The uban dimension Pricingpolicychanges,workingthroughthe rural/urban terms of tradeand the urbanretail price index, directlyaffect the urban poor (both the borderlincand chronicpoor) who tend to be net consumersrather thanproducersof foodand spenda disproportionate amountof their income on food items. In C6te d'Ivoire, the rural-urbanterms of trade rose from 88.5 in 1982 to 100 in 1984 (Addison and Demery, 1986 in Kakwani, 1990) and between 1980 and 1984, per capita disposableincomedeclinedby an estimated10.8percent per year in the urban sector,compared with a decreaseof 1.2 percent per year in the rural sector.However,this policy of changingthe terms of trade in favor of agriculturereduced total poverty and can thereforebe viewed as a necessary part of the process of improving the overall equity between the urban and rural populations,as well as providing a better basis for growth (Kakwani, 1990, 36-7). Figure 3 shows the urban prce increasesoccurrng in Sr Lanka, Ghana, and Zambia during the period 1975-1987.In Sao Paulo and Rio de Janeiro,Brazil, the price increaseshave been astronomical. However,it is also importantto note that moreefficienttargetingof subsidies under adjustmentcan help the urban poor. In Mexico,Morocco,and Venezuela,more targeted and efficientfood subsidiesare part of the adjustmentprogramand, unlike the earliersubsidies, are aimed to reach a larger percentageof the urban poor. However,the politicalimplicationsof such a shift in targeting shouldnot be underestimated. One response to rsing food prces has been an introduction or increase in urban agriculture, in some instanceswith governmentsupport. In Brazil, the state of Sao Paulo has embarkedon a programto encouragevegetablegardening.It is estinated that 135 gardenshave been establishedbenefitingeight thousandpeople. Moreover,the state governmenthas signed agreementswith 320 cities and towns to provide seeds for local projects (Macedo, 1988).The governmentof BurkinaFaso also has a policy to encourageurban farming. There are also importantpoliticalimplications of rising foodprices. In Latin Americaand sub-SaharanAfnca, urban populationshave vehementlyprotested the increasingcost of basic food items. For example,in Sio Paulo and Lima food riots have occurred,whilein March 1989, riots in the streets of Caracasresulted in the death of over two hundred people. In recognition 16 of the potential political costs, the Algerian authoritiesrecently opted for a decreasein the size of bread loaves rather than increasethe price. The householdlevel The rising urban rural terms of trade is associated with the inadequacyof wages from both formaland informalsectoremployment to meet basic householdfoodrequirements.Female- headedhouseholdsmay even be moreseverelyaffected.(see Box 1.) Householdshave responded by adjustingtheir demand,changingdietary and consumptionpatterns, and developinga range of livelihoodstrategies. A numberof non-Bankstudies illustrate this. In Dar es Salaam, low-incomegroups have been hard hit by rising food prices. Table 4 shows that though maze is the cheapestconnnodity,it has expenencedthe highest increasesince 1977-78.Given the fact that there were no supply constraints,this suggests that as food prices have increasedthe middle incomegroup has switchedto cheaperbasic staples thus pushingtheir price up. Ultimately,it is poor householdsthat are faced with a high level of food price inflation. As shown in Table 5, the minimum wage is not even enough to support a one person householdwith food, covenng only 48 percentof what is required.The pictureis relativelybetter for the high-income groups. Net eamings of Shillings 8000 can support 95 percent of the minimumfood requirements of a two personhouseholdand 62 percentof the standardhousehold of six. Both income groups have resorted to additional income earning activity to make ends meet. In a samplesurveyof 134 low-incomehouseholds,58 percentof the womensaid that they had been forced to reduce the numberof meals taken from 3 to 2 per day, and 61 percent said that they had reduced their consumptionof protein rich foods like meat and fish (Tibaijuka, 1988). In Sierra L*one, the floating of the leone and the removal of the subsidy on rice, the staple commodity,led to a 300 percent increase in prices betweenJune 1986 and March 1987. The opportunitiesfor diversificationappear limitedsince other foodslike cassava,legumes,and sorghum are scarce. Households have therefore had to make quantitative and qualitative adjustments to their diets. A severely reduced meal for a family of five costs approximately Sierra Leonean leones (SLL) 34 per day comparedwith the minimumgovernmentwage of Le 250/month, providing evidence of the dietary adaptations urban families have had to make (Longhurstet al, 1988, 27). In Ghana, domesticprice increaseswere fueled by the shortagesdue to the drought. In the mid-1980s,the estimatedmarket cost of the minimum diet in urban areas was C 168 per person daily. Assuminga family of five and 80 percent of the budget expenditureon food, this required a total of C 31,500 per month, at a time when the minimum wage was under C 1,000/monthand the upper level civil service salaries were C 2,000/month.Evidence from a household survey in Nima-Maamobi (Accra'smajor low incomearea) showedthat food 17 rgumre 3. Urban price movements. Selectedcountries. Urban Prices, (1975-100) 3500 3000 - 200 0./ 2000 1500 1000 500 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 years Series I Ghana - Series 2 Sri Lanka Series 3 Zambia Sources: Zambita. Evans 1989.2; Sri Lanka Cornia et al 1988,26; Ghana. Cornla et al 1988, 97 18 Box 1. Colombo:Advenlties faced by poor womenunder adjustment K Leelawathie, aged 46, hasthree childrenand lives in a temporatystructurein a shanty area of Colombo. She worksas a daily workeron constructionsites. She is paid Rs. 60 per day and there are often long periods of unemployment. The household had been able to survive due to assistance from family and from state subsidies, which supplementedher meager income. But with the reduction in the rice and fuel subsidies and increasing inflation,the familysunk lower into the mire of poverty, compellingher childrento drop out of schooland take up employment."Wecould not live more thana few days on food and kerosenestampcards. The prices of food and keroseneincreasedso much". Source: (C Secrar _nanweWth 1989) purchasedwas only 30 percent of the World Bank estimate of an acceptablediet (UNICEF, 1988a). Tble 4. Dares Salau Ibe cost of 100 kealfmm different food ItemsIn cents(maiket prices) Food Items 1977/88 1982/83 1987/88 Percentchange 1977178 1987/88 Maize 6 25 80 1233 Rice 10 40 130 1200 Irish (potatoes 110 130 600 445 Sugar (refined) 80 250 600 650 Mixed Beans 30 70 200 567 L.A. andMaro.W., 1988(In Tibjuka. 1988p35). Source.Msambidbaka In Jamaica, there is also increasingconcern about the ability of urban poor households to purchase adequate food to meet their basic requirements.The devaluationof the Jamaican dollar (1978-79and 1983-85)has had significantimpacton the cost of living, due to the import- dependentnature of the Jamaican economy,even for basic food stuffs. There have been price increases for both food (householdsspend approximately55 percent of income on food) and other basic commodities and semrices.This puts increasing pressure on the budget of the household. Table 6 gives greater insight into the problems experiencedby the urban poor in Jamaica.Over the years, there has been an increasingdivergencebetweenthe cost of basic meals and the weekly minimum wage. There is no relationshipbetween the minimumwage and even the most basic level of subsistence(Davies and Anderson,1989, 226-7). 19 Tabte5. Dw es Sa=: per day in Tsbs (197717$ foodexpendiue consumed Minimum bousebold and 1987/18) Low Income High Income Manzese MsasanitOysterbay Household No. of No. of Size Resp 77/78 87/88 Resp 77/78 87/88 I 11 33.75 88.75 1 80 2 12 34A0 120.55 18 108.30 280 3 20 45.90 145.90 36 136.10 312 4 58 50.80 161.70 57 168.42 386.15 5 62 48.90 218.75 65 196.92 398.60 6 32 75.60 249A0 40 238.75 428.00 7 6 100.00 461.10 15 242.85 452.00 8 11 64A5 292.30 9 255.55 558.00 9 3 100.00 430.00 5 290.00 600.00 10 10 99.00 353.30 4 325.00 - Soure. Msanbihaks, L.A. and Mao, W 1988 (in Tibaijuka, 1988, 36). ama: Cangesin minimum food costsfor a fanily of five vs. chnges In dninum Table 6. Kingstonmeotpolitam wage: 1979-1985 Weekly Cost as Cost of Basic Minimum Percentage Set of Meals Wage of Minimum Period (is) (J$) Wage June 1979 2427 26.40 91.90 September1983 65.31 30.00 217.70 December1983 77.00 30.00 256.70 August 1984 101.46 40.00 276.20 July 1985 128.43 52.00 274.00 Source.Minstry of Health NaAiaionad Diettics DivisWi (Daviesand Anders. 1989.p. 227). In Guayaquil,Ecuador,in 1988,informalsector eamingscovered only 35 percentof the value of the family food basket, while formalearningsaccountedfor 65 percent. In tracing the impacts of price increases on the consumptionand dietary pattems of households during the There has also been a shift period 1987-88,Moser notes a decline in milk and fish consumption. 20 from potatoes to plantains and fiom drinking fresh fruit juice to powdered fuit drink or water (Moser, 1992). Benerianotes that in MexicoCity,austeritypolicieshave altered the budgetsof practically all Mexicanhouseholds. The phenomenalincreasesin the price of foodand other consumeritems have led to drastic budget adjustments. In the sample of 55 householdsin 1988, 69.4 percent bought less food, clothing,and shoes and spent moreon other daily expenseslike transportthan in the pre-1982period. Poor familieshad eliminatedmeat from their diet and other productssuch as milk unless they were subsidized. Many migrants were unable to fulfill their promises of remittances(Beneria, 1989). Data on foodconsumptionand nutrientintakein the Foodand NutritionResearchInstitute (FNRI) surveys conducted in Metro Manila in 1984 and 1985 show decreases in food consumptionand correspondingdecreasesin nutrient intake for the area as a whole, but more particularly for depressed areas. For the Metro Marila sample, the most affected groups were householdsheadedby transportand communication,workers,craftsmen,productionworkers,and the unemployed. In contrast, households he- led by professionals, technical workers, entrepreneurs, and skilledworkersshowedimprovements in foodconsumption and nutrientintake (World Bank, 19901). However, changes in food expenditure do not necessarily imply changes in nutrient consumption.Though householdsmay substitutefor cheaper foods, nutritionalvalue may not be compromised.For example, in Morocco,the 50 percent increase in the price of soft wheat (a subsidized commodity) led to a 12 percent decline in its consumption and a switch to the nutritionallyrich but relatively inferiorhard wheat (Laraki 1989, 50). The increasingdivergencebetween household income and the cost of basic food items can also lead to greater dependenceon and use of the officialaid network,even when this entails a certain social stigma (such as being certified in a condition of extreme poverty) and if qualifyingfor public assistanceentails substantialopportunitycosts (such as transport costs and fees for certificates).In Chile, public income transfers through, for example, school feeding programs and supplemental feeding became vexy important for the survival of low-income householdsduring the years of recession and adjustment(Racznynski,1987). Another strategy involves changes in the purchasinghabits by the household.In Chile, for example,familiestended to abandonthe monthlywholesalepurchaseof nonperishable food items, and were forced to purchasethese in smallerquantitiesat the neighborhoodstore oftenat higher prices (Raczynskiand Serrano, 1985).In MexicoCity, low-incomehouseholdsnot only tended to shop in cheaper miarkets,but also to shop more regularly (Beneria, 1989, 26). Householdsalso use extended family networks to procure loans and sell or pawn jewelry and other assets. 21 Therehave also been a numberof communitylevel initiativesto combatrising foodprices through the wholesalepurchaseof food items. In Sao Paulo, communitiesand local authorities have encouragedhouseholdsto makegreater use of the central wholesalemarkets, whereprices were as much as 40 percent lower than retail outlets. Governmentreports show, however, that this strategywas more accessible to the lower middleincomegroups,with the pooresthouseholds facing difficultiesdue to their location(Macedo, 1988). Theintmrahowehold level Increasing evidenceshows that the householdis a site of conflictas well as cooperation, and of inequality as well as mutuality, with conflict and inequality being structured along genderedlines (Elson, 1991;Bruce, 1989).This does not mean that womenare passive victims, but that they do not alwaysenjoythe samedecisionmaking poweras men,with their bargaining power often much weaker. Evidence from a variety of studies shows that women play an active role in decision making about the reproductionand maintenanceof human resources and typically bear the responsibility for budgetingand householdmanagement. The problem is that often they do not have access to and control of all the resourcesthey require to dischargethese responsibilities. This relative powerlessnesscan cause women stress and anxiety (see Box 2). This structure tends to constrainthe extent to which total householdexpenditurecan be reallocatedin responseto increasesin food prices. Ultimatelyit is womenwho most fiequently devise survival strategies when household incomes fall and prices rise. Since in most circumstancs they are more likelythan men to spendtheir incomeson meetinghouseholdneeds, control of such resourcesensures the well-beingof householdmembers. However,expenditureadjustmentscan be embeddedin conflictand violence.In the sub- sampleof thirty householdsin Guayaquil,18percent of the womenreportedthat there had been Box 2. MexicoCiy: DoiiaSoledad "He gives me the gasto(housekeeping allowance)all right, but I must see that everythingis fine,that nothing is lacking,good food for him...... He usuallywants beer and promisesto pay later. He never does. On Thursday I am without a cent and I have to ask my comadritato completethe week (borrow from a womanfriend).Hecollects hismoneyon Saturdayand that day I get my gasto,and startreturningwhat I owe. You know,to managethe gasto is a difficultjob, pricesare going up and we mustbuy food, no matterwhat. And if somethinggoes wrong,or he gets angry at me, he may even cut off the allowance!" and Roldan Source:Bnamia 198?,(in Elson1991). 22 a decrease in domestic violence. These were mainly women eaming a reliable income, who co;mmanded more respect from their male partners as associatedwith theiz increased economic independence. Twenty seven percent said nothing had changed, while48 percent said that there had been an increase.The latter attributedthis intrahouseholdconflictto the lack of sufficient cash to meet householdrequirements(Moser, 1992). In Guadalajara, Mexico,however,a relativelydifferentscenariowas playedout. The crisis had forced male heads to surrendera larger portion of their wages to the "gasto" (household budget). In 1982they contributed54.69 percent of total householdincome (74 percent of their wages) but in 1985, although their share of total domestic income had been reduced to 44.34 percent, this represented86.70 percent of their individualwages (Gonzalesde la Rocha, 1988, 219). Budgetaryconstraintscan have senous implicationsfor women'stime when it results in more time and energy expendedbargainhunting. In additionwomen may become increasingly involvedin productiveworkoutside the home to makeends meet, the consequencesof whichare more filly discussed later. The use of lower quality food may also entail longer preparation times, as does increasedinvolvementin household self provisioning. Individualfood securitycan also be threatenedif an individual'sclaimon food resources is insufficient to meet the needs for growth, work, and the maintenanceof essential bodily functions. This is determinednot only by the level of food securityin the household,but also by relationshipsbetween householdmembers (World Bank, 1990a).Within the household,the distributionof consumption tends to favor malesand income-earning adults(WorldBank, 1990b). Therefore, in societies characterizedby male bias, there may be serious health and nutrition consequences for females. Preliminaryevidence from Chile suggests that women in poor households experience more than commensuratedeclines in food intake during periods of declining food availability(Raczynski_nd Serrano, 1985). Within the household,children are another high risk group. Inadequatefood intake can have negative impacts on their nutritional status. A recent study to determinethe relationship between real cereal prices, average calorie intake, and the infant mortalityrate, concludedthat though the short run response is not noticeable,there may be long rtm consequences. There may, therefore, be social costs associated with higher food prices (Horton, Kerr, and Diakosawas, 1988). In the Philippines,the nutritional problem particularly among preschool children has generated concern.In 1985 the prevalenceof malnutritionwas 14 percent,a 4 percent increase from the 1982level.When disaggregated, malnutritionamongpreschoolersbased on weight-for- height was higher in urban areas (18 percent) than in rural areas (11 percent). Moreover,while the prevalencedeclinedin rural areas from 13 percent in 1984 to 11 percent in 1985, it rose in urban areas from 14 percent in 1984 to 18 percent in 1985 (World Bank, 1988b). 23 WagesandEmploymene An essential componentof structural adjustmnent is a shift in the compositionof the nationaloutput fromnon-tradeables towardthe productionoftradeables.This is usuallyfacilitated by an increasein the relativeprice of these two categoriesof goodsthroughcunrency devaluation as well as through the reductionof importtariffs and aggressiveexport promotionpolicies. In Mexico, for example,the initial devaluationof the peso in 1982 was followedby continuous depreciationof the currencythroughoutthe 1980swith the exchangerate of the Mexicanpeso increasingfrom 23 pesosto $1 US in the summerof 1982to 2,500 pesos in the summerof 1989 (Beneria, 1992).In additionto exchangerate devaluation,the average importtariff was reduced from about 100 percent in 1982to 35 percentby 1987,and during this period 70 percent of the importswere liberlized (Olave, 1988). This shift in the pattern of production requires a corresponding shift in factors of production toward certain sectors, where the sectoral composition of labor use is altered accordingly.This raises a number of important issues concerningthe nature and extent of reallocationbetweendifferentlabormarkets.In principle,the requirement is for labor to flow to those labor markets that serve the productionof tradeables(Kanburet al, 1991). The followingsectionsdetail the importantsectoralchangesin the labor marketand their implicationsfor the urban sector and low-incomeurban households. Key ffidings The evidencepresentedin the followingsectionssuggeststhat by and large, the desired shift in labor resourcesfrom non-tradeablesto tradeablesis taking place. Asian countrieshave been relativelysuccessfulin increasingmanufacturing employment,while in Latin Americaand Africa the shift into tradeables is largely due to a shift back into agriculture and out of govemmentemployment. Changesin sectoralwages have also facilitatedthis shift. However, in the process, there has been an increase in the unemploymentrate in such countries as Argentina,Bolivia, Brazil, Chile, Cdte d'Ivoire, Ghana, Kenya, and Malaysia,to name a few. Other importantquantitativechangesin the labor market include increasesin underemployment and in the labor force participationrate, particularlyamong women. In many of the countries sueyed, these trends have been accompaniedby an overall decline in real wages. However,the varyingdegreesof regulationand controlof laborin the economydid not seem to stronglydeterminethe perfonnanceof the labormarket.Rather,labormarketinstitutions appearto be symptomsof underlyingpolitical-economic forceswhich makeadjustmentdifficult and the institutions are unfairly blamed. In certain contexts, for examplethe Caribbean,the Philippines and Egypt, international migration provided an important safety valve for the 5. This sectiondraws heavilyfrom Kanbur et al. 1991and a seriesof backgroundissues papers. 24 unemployedand others coping with falling real wages.The restructuringof the public sector in many instanceshas meant widespreadretrenchmentand capping of wages. These labor markettrends have had serious implicationsfor the urban sector. Primarily, contractionof manufacturing and industrialproduction and the public sector in some situations has led to the impoverishment of the urban working class and the creationof the "new poor" a highly visible and politicallyvocal group. The chronic poor have been more indirectlyaffected by the increasingconcentration of retrenchedformal sector labor into the informalsector which itself has served to depressearnings in the latter. The growthof export oriented industries and their location in secondary cities has impacted on the urban spatial environment. In Latin America,for example,the decline in the growth of primarycities has been accompaniedby the growth of secondarycities such as Bella Union, Artiga, Maldonado,and Punta del Este. In the face of labor market changes,the household is the unit of survival. For example, studiesin Guayaquil,MexicoCity,and Guadalajaraindicatethat householdsize and composition have changed and adaptationsmade in the domesticlife cycle in order to counteractthe impact of increasedunemployment,underemployment, and falling nonminaland real wages. There has also been increaseddependenceon remittancesfrom abroad. Many of these strategiesthat have become importantfor the new poor have long constituteda way of life for the chronic poor. When one examines the intrahouseholddimension of labor market changes, specific gender issues are important. Womenhave been both victimsand "beneficiaries"in the process. Their concentrationin the non-tradeablesectors such as servicesand commerce,has meantthat they have suffered disproportionately.However,in those contextswherethere has been a spread of export-orientedindustries,this has provided increasedopportunitiesfor waged employment. In many instances,women'sparticipationin productivework has not been complemented by men engaging more actively in reproductiveduties. This has resulted in increasedpressure on women in balancingtheir time, with elder siblings,usually females,taking up the slack.The lack of parental care also has importantimplicationsin termsof delinquencyand the health and nutritionof young children.Attainingan increasedeconomicrole withinthe householdprimarily fulfills women's practicalneeds, 6 but ther is the possibilitythat if this enhances her visibility and bargainingpower vis-a-visher male counterpart,more strategicgender needs can be met. of the labor nmket The perfomnance There are a number of quantitative adjustmentsin the labor market under adjustment. First, as Table 7 indicates, most countries in the World Bank studies show an increase in unemploymentrates during the period of adjustmnent.Chile exhibitsthe most dramaticperform- 6. See Moser, 1990for a definitionand discussionof practicaland strategicgenderneeds. 25 Table7. Unemployment Rate Count r 1970 1971 1972 1911 1974 975 lt9'4 19t? 1X93 1979 1t90 19it 1902 195 1934 ... ;.. ..... .. ... .. .. .. ... ... .. .. ................... .. 195$ 1904 1967 193 ............ ..... 1989 ...... . .... Argentina - - . . 4.2 3.1 4.3 Dolivia 1.1 3.3 2.5 2.5 4.9 - - - - 3.3 4.t 4.6 6.1 - - s.2 5.4 6.1 Irarli - - - . - - - - 1.5 4.2 7.5 3.2 4.4 - - - - S.? 4.2 .911.S Chitl - 4.8 4.4 6.5 7.t 43 10. '6.9 17.4 .7 7.1 5.$ 5.6 ..* Costs RIt 17.9 11.0 15.0 25.0 - - - - - 26.2 21.4 19.0 15.6 10.9 - 42 4.6 4.5 4.9 5.9 8.3 7.2 - - Cota d olr- - 9.6 9.0 - 4.9 5.9 - - - - - 5.6 5.5 - 3gypt 2.4 1.8 - - . P - 1.S 4.1 2.3 2.3 - - 2.0 2.5 Ghana 3.1 1 4 4.6 5.2 5.4 - - - - - ;.7 4.6 6.0 - - - - - - - - 6. - ^eny^- - - - - - - - - - - - Koret - 4. - . _ - - - - 4.5 *.S 4.5 4.0 _ _ 4.1 4.1 3.9 3.0 3.2 . 6.9 - . falaysLe 7.6 3.8 3.2 4.5 4.3 tha!tn - - - 6.7 - - - 6.5 5.7 5.7 5.0 4.1 5.3 4.0 3.e S.t 1.S - - - 4.7 5.5 4.5 7.6 - - 0.6 0.8 0.3 0.5 8.2 - 0.7 0.9 0.9 0.9 3.. - 1.9 2.) 1.7 9. 5.3 SofUre SA Dta re fom coanwtr Studiesfor Kmyas, Bolivia.chit (R data as fot as possible. data).Caste %Ii., NWd Argentia, Data log Cott 4'1wolve ato md "* fs h.aUs"es ar tIabamfoe sia"g Census). fao fry Chigh agrtcultursl toon the 98 Ccus NW fr" fields (10). Dot fortoot demnd surve. Data feg Mrca*t *e! Lx.. Riveo"e (1989). Lm on" (Pepuatin (198S).sad for 190's frm Dcto for Halbicel fot 1970'c Weeld Bank tomatm Rruts, are frm Won$ axr for amaf acturlns vIth the _ceptlm of 19 Only MA sain frem Pringisl Alch is frei Stb )aiaa teoanato Piam 1936-90. Oat* for bwma 31184, 65/04, ldme at e fots r ThaIL8a er frm 07135 aad 1989. StSrc 129h2d MUd 1941*0 , (ln riabur et al, 1990). 26 ance, with unemploymentlevelsof over 10 percentin all the years from 1976until 1987,peaking at 22 percent in 1982. Diagnosisof the compositionof the unemployedconfirms the "luxury unemployment' hypothesis,wherebythose unemployedare generallysecondaryhouseholdworkers(that is, not householdheads),and youthswho are often moreeducated.Egypt representsan extremeexample of this phenomenon.A surveyof two cities revealedthat 90 percentof the unemployedwere new entrants to the labor force of which 80 percent had intermediatelevel of educationor above. In Thailand,the high formal/infonnal wage differentialmakes it worthwhilefor the better educated to wait for an openingin the formalsectorratherthan work in the informalsector.Consequently, as shown in Table 8, the unemployment rate among die educated,particularlyamong those with vocational training and university graduates, is high. However, the situation has improved tremendouslysince 1988 (Sussangam, 1990). Likewisein Malaysia,the educated unemployed phenomenon has shifted over time from unemployedhigh school graduates to unemployed college graduates,as illustratedin Table 9 (Mazundar,1991).Similartrendshave been observed in Ecuador and the Philippines. Studies in Costa Rica and Bolivia reveal another feature of the compositionof the unemployed,namely an increase in the share of household heads unemployed.This is also suppor#-dby non-Bankevidencefrom PREALAC,as shown in Table 10. Given the peculiarity of unemployment m the developingworld, weak labor demandmanifestsitself in other ways. In many contexts, underemployment has increased, participation rates have changed, and infonnalizationof labor relationshas expanded. Underemployment can be broadly defined as the gap between desired and actual work time at prevailing wages. According to Bank studies conducted in Costa Rica, Bolivia, and Argentina, the rate of underemploymenthas generally moved in the same direction as the unemployment rate. In the case of the Philippines,adjustmentaffectedthe poor mainly through an increase in underemployment. This has a greatereffect on those workersthat have the least specificskills,and thereforeare the first to becomeunderemployed when the unemployment rate increases.In the Philippinecontext, the increasein underemployment had a greaterimpacton the share of total income of the lowest two quintiles,whereas it was not found to be significantfor the highest 60 percent (World Bank, 1988b). There have also been changes in the labor force participation rates. Bank studies conducted in Costa Rica and Argentinaconcludedthat the added-workereffect predominated, particularlyduring the 1980s.Of note is the phenomenalincrease in the femaleparticipationrate during this period. In Malaysiaincreasesin the female participationrates in urban areas have been recordedduring the adjustmentperiod, with those between nineteenand twenty-fiveyears increasedto more than 65 percent by 1987, from approximately45 percent in 1970. As the graphs and tables below indicate, the pattemnin Malaysiais consistentwith that found in a host of other Latin Americanand Africancountries,as data at both nationaland urban level indicates (see Tables 11, 12, and Figure 4). 27 Tabe 8. Thailand:Open unemployment gates by educabon,1984-1988 1984 1986 1988 Primaryand Below 0.42% 0.56% 0.38% Secondary 3.19% 3.55% 2.47% Vocational 10.22% 10.85% 5.31% University 4.19%M/ 4.58% 2.87% TeacherTraining 3.19% 3.96% 1.62% Total 0.97% 1.26% 0.83% July-SepWebe(in S_angam 1990). Sounre: NSO. LaberFae Suwveys Table 9. Maaysia Pettentage of the total employed by age and education sepantely for males and females, peninsular Malaysa, 1975 and 1987 Age-Group Education Males Females (Years) 1975 1987 1975 1987 15-19 0 1-6 13.9 4.6 13 1 5A 7-9 15.6 14.5 14.9 13.9 10-11 11.8 10.0 15.3 16A 12-13 - - - 14+ 20-24 0 - - 1-6 8.2 4.6 9.8 3.1 7-9 . 9.9 11.2 10.0 7.8 10-11 9.0 12.5 12.2 20.3 12-13 2.4 3.1 1.2 7.4 14+ - 2.2 - 3.2 Total 70.6 62.7 78.3 77.5 Sowrce:(in Marniar, 1991). 28 Table10.S:ae of hesb of housebolds in mumbn openunemptoyment, 1979482 (penentages) Country 1979 1982 Colombia 16.6 15.4 CostaRica 14.9 26.8 Chile 24.5 27.1 Panama 27.0 30.5 Peru 21.7 29.4 Venezuela 18.7 28.9 Sxceb: bsedonhos PREALc swveys (in 1985). ILO. Standinghas associatedthis trend in femaleparticipation with the increasingcas*alization of the work contractand the deregulationof the labor market under adjustment.He also argues that the growingjob insecurityhas led to the "feminization"of manyjobs traditionallyheld by men (Standing,1989). Another importantquantitativeaspectof labor marketadjustmentis the shift from formal to informal employment.In the absence of unemploymentbenefits and the dim prospect of finding alternativeformalemployment,retrenchedformalsectoremployeestend to becomeself- employed. Likewise, output, and thus employment, often shifts from large formal sector companiesto smaller informalsector ones. Non-Bankevidencefrom PREALACgives adequate evidence of the increasing relative importance of the informal sector in a variety of Latin Americancountries(see Table 13). VariousBank studiesshow that informalization has been less well documentedin Africa. In Cote d'lvoire there has been a shift between formal and informal establishments in manufacturing, and a similar shift is said to have occurredin Kenya.There is a similartrend in Asia such as in Malaysia,where the rise in employeesas a proportionof the labor force was reversedduring the short recession.In Korea,the trend towardan increasedemploymentshare in large companiesin manufacturingceasedin the early 1980s(Kanbur et al, 1991, 16). Many of the unemployedhave resortedto the informalsector. By and large, it has not functionedas an effective mechanismagainst the contractionof the modem sector. The results of a study by Humphrey and Hirata tend to confirm this. Though the findings relate to a particularsetting-the industrialworkers in Sao Paulo-they have a more general application. They show that strong assumptionsare often made about intersectoralmobility,in terms of both workers'willingnessto change sectors and the chances of finding work in a new sector. While the very poor may move from one activity to another accordingto circumstances and need, 29 Tabk 11. CenbtlAumedca: Laborfone padicipadon by sex (1930-1988) Year CostaRica El Salvador Guatemala Honduras Nicaragua Male Female Male Female Male Female Male Female Male Female 1950 85.9 17.3 85.2 23.1 85.3 21.7 84.9 29.6 79.2 20.8 1960 80.2 17.5 81.8 23.6 82.4 20.5 84.2 23.9 79.6 26.0 1970 73.9 20.9 78.8 29.5 76.6 20.5 78.4 22.5 69.8 26.7 1977 76.6 32.4 68.8 28.6 1980 73.5 24.3 76.9 33.9 75A 22.7 74.9 25.8 68A 29.5 1985 78.8 27.7 76.2 34.7 74.6 23.9 73.7 27.6 68.0 31.3 1987 78.7 29.4 75.8 35.7 74.2 24.5 73A 28.1 67.9 32.1 1988 78.7 30.2 75.6 36.0 74.1 24.6 73.3 28.S 67.9 32.5 Sor.ce:Gacia and Gomaiz (1989)(m Edward& Roben 1990). Tabe 12. Kenya labor foae palicipaton ates (penett of uelevaat group) population bkal Female ASe t977-78 1986 1977-78 198 15-19 23.9 19.6 23.0 31.8 20-24 80.3 73.7 37.9 53.7 25-29 93A 94.5 47.4 69A 30-34 97.1 98.8 44.2 64.2 35-39 98.8 96.4 40.1 61.2 40-44 98.6 99.5 39.1 59.9 45-49 97.9 97.4 47.8 60.2 50-54 89.6 95.3 44.1 53.4 55-59 90.8 84.8 34.5 48.1 60-64 87.1 74.0 30.8 47.5 TOTAL 83.9 82.2 38.8 55.8 Somr: CBS, LaborFore Survey,1977-1978 BasicReport,finmTable6.1. page78 and Table5.1, page41. Urbn LaborForceSurvey,1986, Tabk 7-1, page44 (hinudesactiveand passivejob seach). Rwual LaborFoce Survey.198849 (preliminauy results).(in Mi;m 1990). people (particularlymen) used to a stablejob and wagedemploymentmay have muchnarrower options (Humphreyand Hirata, 1990, 25). The result, in many instai-ces,can be relatively prolongedperiodsof unemployment amongmalehouseholdheads as shownin the unemployment data illustratedabove. 30 Fgwe 4. Indices of evolution of enployment by sex. Women's participation in employment. INDICES OF EVOLUTION OF EMPLOYMENT BY SEX 130 127 s2t ~ ~~ W MEN 124 121 112 109 106 103 1976197i7 j78 li7919801981 1982 1983 1984 185 198 6 BETWEEN 1976AND 1986 WOMES PARTICIPATION IN EP LOYMENT 30 29 ---.--. 28 27 24 ~23_ z22 21: h 20 1976 n771978 1979 1980 1981 1982 1933 1941985196 IN PERCENAGtES SowuceUNICEF(1987) - 31 Table 13. Laid Amdesc Infonnal sector employment (1979-1982) Counby 1979 1982 Argentina 22.4 22.7 Colombia 28.7 30.8 Costa Rica 16.6 16.8 Chile 33.6 32.6 Peru 41.0 43.0 Venezuela 13.5 14A PapaNo.S9.p. 88) Sorce:PRAEAC(WEPWocking An altemativeparticularlyfavoredby retrenchedfomal sector workers in recent years is internationalmigration.In some contexts, this has accountedfor the relatively low level of unemployment, giventhe scale of contractionin the public and privatesectors under adjustment. Migration"takes some of the heat off' the domesticlabor market. In the case of Egypt, the scale of migratoryflows acceleratedin the 1980s,and by 1985 there were approximately1.2 million Egyptians working in other Arab countries, implyinga domesticallyavailablelabor forceroughly9-10 percentbelowthe potentialupper bound (Assaad and Commander,1990, 12). In the Philippines,externalmigrationremainedhigh throughoutthe 1980s because Filipinos were attracted by better job opportunitiesabroad. In fact, the total numberof contractedworkersincreasedquite dramaticallyafter the crisis of 1983-85,rising by 22.9 per cent between 1986 and 1988.This migrationhas affectedthe market for skilled labor as well as that for domestichelp. Though international migrationhas a long historyin the Caribbean,the flow accelerated from 1976, and has since renained consistentlyhigh. More than one million legal migrants entered the United States between 1976 and 1986. If illegal migration is added to this figure-400,000 Haitians, 225,000 Dominicans,250,000 Jamaicans-it becomes clear how stronglylabor flows have integratedthe United States and the Caribbean(Antrobuset al, 1990), (see Table 14). It is notjust the unemployedand the poor who migrate,but also skilledlabor. In Jamaica, for example, between 1976and 1985 professionalsand managersaccountedfor 9.7 percent of all Janaican migrants to the United States and Canada, while crafts people and operatives represented 12 percent;these groups representa significantloss of educatedand skilled labor power. In the health sector, for example, over the 1975-85period the numberof doctors and nurses who migratedrepresented78 and 95 percent of those trained in these professionsduring that period. 32 Tabb14. CaibbeamL1a ImmigmIlon by country of biun (1960-1987) 1976-80 1981-83 1984-86 1987 1960-87 All Countries 2,557,033 1,750,494 1,715,620 601,516 12,148,019 Catibbean 608,127 244,673 290,718 115,637 2,141,526 CaribbeanShare of Total Migrants (23.9%) (14.0%) (16.9%) (19.9%) (17.6%) Bahannas - 1,628 1,602 556 3,786 Barbados 13,070 6,204 4,797 1,665 43,303 Cuba 290,886 28,045 64,047 28,916 787,637 Dominican Republic 80,965 57,729 73,109 24,858 398,584 Guyana 33,211 25,782 27,310 11,384 119,201 Haiti 41,786 23,886 32,670 14,819 178,759 Jamaica 80,550 61,815 58,340 23.148 357,649 Trinidad-Tobago 28,498 11,287 8,622 3,543 110,193 OECS: Antigua 4,131 6,171 2,722 874 15,867 Dominica 3,399 1,836 1,546 740 8,703 Grenada 5,377 3,340 2,959 1,098 15,162 Montserrat 1,007 503 - - 2,442 St Kitts-Nevis 4,474 4,679 2,990 589 14,692 St Lucia 3,642 1,981 1,485 496 8,909 St. Vincent-Gtenadines 3,122 2,285 2,023 746 9,789 Other 14,009 7,502 6,496 2,205 66,850 Soure: Robert Pat, binroductin: The Policy ChaIlengcp" in RI Pwao. ed., Migratin and Devlpment in te Canbben: The Urexplored Connection (Bou1der. Wesiview, 1985). Table 1.3; 1984-1987 update nd revisns on aOrlier yeas drawn from U.S. Dqeuart of Jusfe 1988 Stadscl Yearbook of Immigration and traliation Seavi (Washington. D.C.: Goveamne Print Office Table 3 (in Anntbus et aL 1990). Besides the quantitative changes in the labor market, interestingtrends in real wages emerge(see Table 15).As the followingtable illustrates,the Asian countries,Malaysia and Korea in this case, show a fairly steady increase in real wages, with brief interuptions during the recessi3n,though it has been stressedthat this was importantto allow productivityto stay ahead of real wage growth and ensure declining unit costs. The severe-adjustment countries,such as Ghana and Bolivia, show dramaticfluctuations,with real wage declines far greater than the fall in gross domesticproduct (GDP). Real wages in Ghana, for example, plummetedin the mid- 1980s and recovered in 1986. In Bolivia and Chile the decline continued unabatedto a large extent In "moderateadjusters"such as Costa Rica and Brazil,gains have been made over the period, albeit less marked than in the Asian countries.In the less successfuladjustingcountries such as Egypt and Argentina, there has been a steady decline but not of the magnitude experienced by severe adjustment countries. This evidence on real wages, therefore, casts 33 considerabledoubton theoreticalconcernsabout real wagerigidity and labormarketinflexibility as a hindranceto adjustment.The declineshave been dramatic,and often far greaterthan the fall in GDP (Kanburet al, 1991). Sectoral employment shifts are an essential component of the structural adjustment program,particularlybetweentradeablesand non-tradeables. The recentstudiesconductedby the Bank show that the Asian countries were relatively successful in increasing manufacturing employmentduring structuraladjustment.In Latin Amenicaand Africa, by contrast, there has been some of the desired shift into tradeables,but it was largely due to a shift back into agricultureandout of government employment. The manufacturing sectorseemsto have suffered in the years of crisis and not to have recoveredduring adjustment(Kanbur at al, 1991, 30). Other Bank studies have attempted to analyze the impact of adjustmenton industry (World Bank, 1990g).As Table 16 illustrates,adjustmentlending has generallybeen successful in fostering industrial production and capacity utilizationto recover from the crisis period immediatelyprecedingadjustment. Several African countries have resumed industrial growth, especially in manufactured exports in the three years followingadjustment(see Table 17). Much of the increasein exports rpresets the recovery of previous export markets (for example, cocoa products from C6te d'Jvoireand Nigeria to Europe)or in some cases an advantagevis-a-visneighboringcountries gained through devaluation(such as textiles from Ghanaand Nigeria to neighborsin the CFA franczone). The low utilizationfigurespriorto adjustmentreflectrestrictedforeignexchangeavailable for imported inputs and the increase in utilization is attributable, in a large part, to the combinationof increased funding and more liberalized access to foreign exchange during adjustment(World Bank, 1990g).The averageutilizationrate in Nigerianindustryincreasedby about one-thirdto 40 percent, mainly in consumergoods industries.However,as the more in- depth study in Ghana illustrates,there may be differentialimpacts in the subsectors(Steel and Webster, 1990). The short term impact may not always be positive. In the Philippines,manufacturing output growthfell by 23 percent from 1984to 1986,havingaveraged6 percentper year between 1972and 1982. In Hungary,weak demandand competitionfrom importscausedmanufacturing value added to fall by 1.9 percent in 1988, after rising by 3.7 percent in 1987 (World Bank, 1990g). The evidenceis not clear as to whetherindustrialgrowth fares better over time following adjustnent policy reforms comparedwith the pre-crisisperiod. One positiveexampleis Turkey, where manufacturingexports grew at 41 percent per year over 1980-85,rising from 6 to 15 percent of gross nationalproduct (GNP)and from 34 to 75 percent of export earnings. *(4asAas pleq..w.q 901aa.q,.) debase l61 8 10 11nqut $sI1evage pos 1.. *S w, 5 'seal 0 9 u , 1"aj up aci.19 pMs(lSU* inin PM *I a- $ ,p583 8.5 *e jA, "Wo 'Arm t01zn vat wusgSo ""s.q 83 ease3 *a1ash85 . 8.5*5 "I "5 I , * j" 1 e9 @1dpi.ue s*jesPM '001259136391914ft"t £WWRA 3 11J3sW ttI82.6lt P-- PU31U xet *e@12s1%035* o8l.UOd5 Jl 46-1646 sol PW 5A-Ms 31*Q 94 1 *35w.sq 10 5254 (631 s O8"S"m u; ;. n so.t pn.;u .oa owl g t s' ci ;wg a ww *su'pu .sa. onVAP ser pn. dia"wiosma 0 q *asssms. (W Isu el psouwltv *Ise. ."I was 'esvlalise 'I P -4wAq1.5 '8." *115* * iq *;q;sted s4 .p, . . Ma93aea itIl 1 a.Tg.e. essAlad gV sct to tso Ott ggs to o to to as O is as go g easAlad 1 6,1@61 ac6 Oct 331 sit l6i 66 366So 6 of o a6 66 03 it .14 @6 66 to1 63 **soup~ 3go ii *u tog 1A 9is so 031 is1 96 to so to so.6 9 69 191 its to *9 19 Cs 46 001 96 cis - 60 St so 04, 36. 41 got 601 got cog Vol - t 96 IS Sol Vol set M; * 13 go6o3etgt41 961 61 931 sqi 3 :ad- 11w of u sot u~ 94 go - * Toa IV':dd $so off3 - got-33 - -6 $ CA a -44 a ~4 a 44 - *1*IT* *e3, 69 96 331 a * - - - - 694, to - aiVs; 36403 l 1l i6 OCI 94 6 to466 60 4 4 4 3e- 46 A 66 1 to 1 1 S 14 is IS so aR IT sS1u .. *9 J- - 101 33 *t $S t S1 ... 491 s01 sit got 4lt as to3 -a - 39 96 IS 4go3 - -4 115W10 D to Go 6Os Is 4 VA O6 s 9t *91 -hI -o vt Outlay 6661 41 - $ I geQIS 1 **i --- *K 93t1t Soft tOO 631 t ot 16461 too 1 *1 1 4os1 441 £ 9441 1 *1 vio1 6461 -41 lif3 1644t 424a0*b. (*O- -ou-) =PR ta x gt 1jqwj 35 Table 16. Average annual growth rates of m ufact g ae added and GDP, seleted adjisting countries (pret per annum) 19781901 1962*1963 134.95 GOP MNau GOP Mbau GDP mae 4 2 ^ 4 .2 .4 cow divehe .4 0 0 is ' Ghana d2 22 *3 *Zz 13 a ICap 2 3 .3 .4 4 3 u .2 a 2 3A 2 3 Za*bia 3 6 1 1 s 0 .2 2 0 3 0chu 7 6 .6 -10 4 Cokmbia 3 6 2 1 7 6 uaicz .9 410 5 16 I S MM 10 S .5 .4 .2 2 7 1 4 3 4 7 Kam 2 3 *7 l 12 PliUppima 3 3 1 1 .5 2~aAand 4 6 4 1 4 7 3 6 2 3 4 S I1 2 2 1 3 4 rakm 6 9 6 a 7 duqy S 9 I * 5 4 Rqima gwsu.i imae lgkmd avm eu (d@.ude in the now. ubh avaslable dat fo anltam ubpsdna.t 7be *sonb amsm is gqima CDP wrmood unUaaufacuua valua.dd dapudin ups.uhic ajqate is hftaq iid. at we in nu~ omim latu a pidamac (nteth thanvalar.did) pfth te ma lute 1166 SumJam. R. 1Tybout. IndaUW Pahatms andSnuctmi AMjutmen SameS"13 Pam. WOWl Btan Cman" EmamnODeanmeal. TidedUoAs OM"nia drabpipe. Jaauuor169.Tsbi 1. (iu Industry Paper Series No. 31) Table17.Growthin manufacturing output,evcporsandcapacity utirizationbeforeand duringreformperiod, selectedAfrica countries O"upu Eapin Capaciy Usihadse Batum Outin aDetn Oftin dafte OM"in casCirmirs 1.1 (143) 0. (8484) .4.9 12. - OM=n .17.1 (8N.6M 150o (57) .10 515 19 32 ?4iui .'7* (8245) U. (54.6) 4SA. 15.1 30 57 .3I (8244) 4.o (5S)A. 7. 4 Sow=m TNWogid 3a" Su.aam FiemCtc to Su&iablem V.C-WONi GeM.!' Wuashinpd DanL1690. p.II?. 36 Through the introductionof greater competitive forces and the opening up of export opportunities,adjustment policies are meant to yield a more efficient, dynamic structure of productionby forcing inefficientcompaniesto lower costs or cease production.However,since the industrial structure in many developingcountnes tends to be characterizedby inefficient businessesoperatingunder heavy protection,negativeresults can be expectedin the early years of adjustment.In Santiago,Chile, for example,the move towarda more neutraltrade regime led to the demiseof industrybecausecompaniescould not competeunprotectedwith imports(Portes, 1989, 35). In many instancesas well it is difficult for local businesses to be fully efficient and competitivein an environment comprisedof weak credit systems,high energy,transportation and communicationcosts, and inflexiblelabor codes. This was the case, for example, in Senegal. Here, interestingquestionswere raised as to the phasing of the liberalizationexercise, and the criteria used to determnnewhichindustriesshouldremainprotected.It was notedthat in Senegal the most inefficientindustriesholdingpoliticallyguaranteed monopoliesandtax exemptionswere untouched (Weissman,1990). Policy changes such as these do tend to be beneficial to exporters, producers and proessors of local inputs, and industriesthat are relatively intensivein the use of local inputs and labor (see Box 3). It is useful to examinethe sectoral wage data in conjunctionwith sectoral employment figures. Simple theory suggeststhat the adjustmentpolicies should lead to the relative increase in wages in tradeablesto facilitatelabormovement.However,employmentshifts may also cause shifts in relative wages. Structuraladjustment is associated with the sheddingof labor in the fonnal sector and crowding into othcrs, for example, the informalsector. Crowdingin these sectors may also depressrelativewages.Thus relative wages in non-tradeable sectors with easy entry (such as commerceand services)may have been depressedboth directlydue to exchange rate changesand indirectlydue to either directiondue to opposingeffects.Furthermore, changes in labor forcecompositionwithinsectorscan obscuretrends.Sectorslosinglabormay experience increasesin aggregatewages due to the loss of workerswith the lowest levels of human capital and seniority (Kanbur et al, 1991, 32). It is also importantto examinethe changes in relative prices betweeneconomic sectors, between formal and informalsectors and between tradeablesand non-tradeables. While relative changesgenerallysupportedthe objectiveof structuraladjustment,this is not necessarilythe case in all countriesand all sectors. With regard to tradeablesand non-tradeables,the Argentirne study found that the failed adjustmenttendedto arrest the increasein the price of non-tradeables to tradeables.In CostaRica relative wages in importablesand non-tradeablesfell in the 1980-82recession but recovered faster during the ensuing period of adjustment.The movementin govenmment wages is left for later discussion. 37 Box 3. Madagascar expods high-qualty clothig to Eumpe childmn'ns traditional Madagascae's skills in embroideryandthe competitive edge providedby devaluationhaveenabled a Malagasywoman to penetratethe Europeanmarket for high-qualitychildren'sclothing. Fromthe mid-eightiesa young interiordecoratorworkedto create a niche in the upper end of the children's clothing market in Europe. Her ability to compete in internationalmarkets, especiallyagainst Philippine exporters,was enhancedby Madagascae's major devaluationin 1987.Her business mushroomed on export orders and within two years, she was employing300 women. Virtuallyall the primaryinputsare producedlocally,includingcloth manufacturedfrom domesticcotton. In the absenceof adequatecardboard packing,she adaptedtraditional basketswovenfromnaturalfibersto protect the clothesin shipment.After becomingpresidentof the garmentexportersassociation,she negotiatedwith Air Madagascarto reduce air freightsto Europe, which had been much higher than those from Europe to Madagascar. The government helped by making exports more profitableand by simplifyingprocedures.The local entrepreneurresponded by adaptingavailableskillsand materials market.In this to a specializedinternational case the capabilitiesexisted and lacked only a favorable environment and marketing acumen to add considerablevalue. Adapedpfrm Box S.3. &bSwha Ar.4: FromCrisisto Sustamnable Sowrce: Growth.World ank. 1989b. In Ghana, relativewages rose in miningand agriculture,sectors figuringprominentlyin the EconomicRecoveryProgram,while in Egypt, they rose relativelyin agricultureand private manufacturing.In Kenya, the relative wage changes are not clearly interpretable.Finally, in Boliviathe relativewages fell in commerce,due to crowdingand manufacturing becauseof tariff cuts (Kanbur et al, 1991). The crowdingeffect discussedearlier seemsto have been importantin CostaRica, Chile, and Brazil in the early 1980s,where the informalsector performedrelativelyworse. In Korea also, the earningsgap betweenthe formaland the infomal sectorswidenedduringthe recession, probably because of retrenched formal sector employees moving into the informal sector, depressing the wages in the latter. In contrast to this, in Bolivia and Brazil, hyperinflation combined with the wage freezes implementedin the 1980s led to an improvement of informal wages relative to fonral wages. Therehas been muchdiscussionaboutthe effect of labormarketinstitutions such as wage indexation,unionism,legislationon benefits, and job securityon labor market flexibility.This is important,since as Nelsonhas argued,successfuladjustmentin the long run not only requires investorconfidencein the government'sability to fulfill its promises,but also the confidenceof the labor movement(Nelson, 1990). 38 The range of Bank studiesprovidesan interestingcontrastin terms of the alleged effects of labor maiket institutionscausing rigidities in the labor market. In the case of Kenya, for instance,though the institutionsexist they were largely ineffectiveand their force tendedto be weakenedby the existenceof a highly elastic labor supply. In Argentina,Brazil, and Costa Rica the institutionsremain strong, whereas in Chile and Bolivia they have been weakened and/or dismantled.In the Asian countriessuch as Korea and Malaysiaunion power, in particular,has been limitedand controlledby the authorities. Variationin the degreesof regulationand control of labor in the economy,however,did not appearto stronglyinfluencethe performance of labor marketadjustment,as contrastingcases of Costa Rica and Bolivia show. The relatively successful adjustmentin Costa Rica and the problematicone in Bolivia suggeststhat dismantlinglaborinstitutionsis neither necessary(Costa Rica) nor sufficient(Bolivia) for successfuladjustnent. Another comparisonis between Brazil and Costa Rica. In Brazil, such political-economic tensionsthat exist are such that there is no consensuson what causescontinual inflationarytendencies. Althoughwage indexationis often blamedfor the high level of inflation,it is morea symptomof the defensiveability of one of the groups engaged in the underlyingconflict. In Costa Rica, by contrast, a high degree of social consensusallowed a union-backed presidentto undertakevery austeremeasures,in which wage indexationacually helpedthe process.It seems,therefore,that labormarketinstitutionsare often a synptom of underlyingpolitical-economic forces that make adjustmentdifficult, so that they are often unfairly blamed (Kanburet al, 1991,40). Gender differencescan also constituteanother rigidityin the system.The extentto which women and men are affecteddifferentlyas the structureof incentiveschangesdepends largely on two factors.The first is their relativeposition in the tradeableversus non-tradeablesectors. Female-controlled resourcesare usually distributedbetween sectorsvery differentlyfrom male- controlledresources.Second is their differingcapacityto shift from the non-tradeablesectorsto tradeables.WNomen's unequalhouseholdresponsibilities and relativelack of access to productive inputs and services,such as credit and training,constraintheir entry into the labor market. The importantconsequenceof these differencesis that women and men usually have systematically djjerent capacitiesto be mobileand systematically different requirements to be mobile (Collier, 1990). In the case of Ghana,for example,womensufferedmore from structuraladjustmentsince they tend to concentratein commerceand serviceswithin the infonnal sector that have tended to absorb excess labor retrenchedfrom formal sector employment.In addition, if female labor is skewed away from the export sector as it is in many developingcountries,then the labor mobility into that sector which structuraladjustment requires will place a higher requirement upon women than men. In such a case structuraladjustmentwill be doubly impairedsince those whose mobility is most required would be those who are the least mobile (Collier, 1990, 17). Therefore,the failureto recognizethe male and female distributionof resources,particularlyof labor and the differentialconstraints on women and men, can threaten the performanceand sustainabilityof the adjustmentprogram. 39 Box 4. Refonuingthe Afican civil senvice Civil servicereformis high on the agenda of many Africangovemments,such as Central AfricanRepublic, Ghana,The Gambia,and Guinea. In the past the civil servicein these countrieshave expandedrapidlyand servedin part as welfaresystemsin a period of economicdecline. Morerecently, under adjustment,hiring fmeezes have helpedto contain the wage bill but the situatio,n The capping of is still largely unsustainable. wages and promotions of staff have demotivatedworkers whose morale was already low. Generally productivitywas low, disciplinelargelylacking,and overallthere waslittle accountability. A numberof steps have been takento tackle the situation. Primarily, a staff censushas beenconductedto eliminatefromthe payrollthe departedstaff (ghosts),overage employeesand unwarrantedpromotionsand allowancesto determinepreciselythe numbersand deployment of civil servants.In The Gambia more than 20 percent of the civil service was identifiedas superfluous followingsuch a census and was subsequentlyretrenched. Secondly, staff auditshavebeenconducted to matchstaff requirements to actuallystaffing,therebyestablishing appropriatestaffing structuresand identifyingsurplusstaff. To ensure that the most competentstaff were retained,Guinearequiredall civil servantsto be tested.As a result 14,000staff were placedon administrative leave pending retrenchment. Ghanacarried out a systematic job inspection programthat ultimatelyremoved 24,000 civil servantsfrom the payroll over two years. T'hirdly,personnelinformationsystemshave beendeveloped to provideup-to-datedata on staff numbersand their distribution units among administrative by category. occupational Fourthly,basic in-servicetraining is being designedin the contextof a comprehensive civil servicehuman resourceplan and clearlylinked to plannedcareerdevelopment. In The Gambiaand Ghana, the staff audits were undertakenby selected officials,who were first given intensivetraining in staff inspectionand job analysistechniques. of the civil servicerequiredchangesin the statutoryand legal framework.To this Fiflhly,the rehabilitation end, in The Gambia,there was a revision of the pay and benefit structureand related reward systems. The implementation of civil servicereformsis a long and politicallydifficultprocess.Securingacceptanceof the reforrnsby ensuringtransparencyand fairnessis importantfor their success;so too is assistingretrenched staff to find productivework in the private sector. Somme:Adaptedfrom Box2.7,Sub-WSa ica: Fm Cris to Suftaibk Deelopmen Wod Bank 198b. Labor market adjustmenthas also affectedincome distribution. In Africa the Bank studies have not focusedon this issue, while in manyinstanceslittle or no baseline data existed. in Latin America,in contrast,there has been considerable preoccupation with incomedistribution duringthe period of adjustment.In Brazilthere was a deteriorationin incomedistributionduring 1981-85followedby a slight recovery.In Chile, the pattern was similar but more exaggerated, with a sharp worseningin 1974-76accompanying the start of adjustment,deterioratingagain in 1979-84.Sincethen it has improvedslightly, but to a level worse than at any time in the period 1960-74. The slim data for Bolivia suggests a possibleimprovementbetween 1982-85(when 40 infonnal sectorwages roserelativelyduringthe hyperinflation) but by 1988distributionwas back to the 1982levels. In Asia, it can be inferredthat in Malaysiaincome distributionimprovedsince resourceswereput into agricultute,whilein Koreaand Thailandthe situationprobablyworsened due to the focus on heavy industryin the former and the lack of attention to the problem of urban primacy in the latter (Kanbar et al, 1991,47). Pubdicsector employment and adjsnten In exercising fiscal disciplineand trimmingexpenditure,policy-makersusually move to increase the efficiency of the civil service (see Boxes 4 and 5). Labor policies feature prominentlyin public sector reform since substantiallayoffs,particularlyin the lower echelons, cut costs consideravly.The resultingsavings in the wage bill are intended**) provide resources to motivatethe remainingwork force. This pattem has occurred in many developingcountries. In 1985in Tanzaniaup to two-thirdsof the lower levels of the civil servicewere deemed to be -excess capacity"and made redundant(Tibaijuka 1988). In both Bolivia and Chile there was substantiallabor shedding from the public sector, equivalent to 25 percent of the public sector labor force in Bolivia,and 3 percentof the total labor force in Chile (Kanburet al, 1991). In Ghana, in a two-yearperiod, the infamouslyoverst-ffedCOCOBODlost 54,013names from the staff list; 25,000 "ghosts" (nonexistentworkers),and a further 9,013 staff were retrenched. Early SALs in Turkey required that excess labor be identified and eliminated, consequently, 30,000 workers were laid off from public enterprises in the four-yearperiod, 1979-82. Staff reductionsof a significantnature have also taken place in Niger, Togo, Panama, Jamaica,and C6te d'Ivoire(Nellis, 1990). In other instances,insteadof a sheddingof laborthere has been a reductionin the growth of employment. In Thailand,followinga period of governmentemployment growthof 10percent per year from the .nid-1970sto about 1984, under adjustmentthere was a drastic cutback to 2 percent per year, a limit that is still in existence for most parts of the civil servicetoday. Somecountrieshave been less successfulin maintaininga low employment growthlevel, since in many cases the calculatedpolitical nsks were assessedas too high. Retrenchedpublic sector workers can constitute a formidablepolitical force. In Kenya, for example, where the public sector accountsfor over fifty percentof modmrnsectoremploymentand a wage bill which constitutes approximately70 percent of govermment expenditure,employmentgrowth in the public sector hoveredaround4 percent in the early 1980sand acceleratedto 4.7 percentper year in 1987-88(Milne, 1990). There is little evidenceof the govenmment'scommitmentto reducing the growth of public sector jobs. In Egypt the measurestaken were largely inadequate,and -s a result governmentemployment has continuedto growat over 4 percent in recentyears (Assaad and Commander, 1990). Given the relative importanceof the public sector as an employerof the better educated, the decline in demand has increasedthe level of educated unemployment. This is compounded 41 Box 5. The challengesof public enteqse lefonn Though public enterprisereform has long constitutedpart of the adjustmentpackage in many developing countries,progresshas been slow. In the Philippines,for example,there has been little success in meeting the objectiveswith respect to the rationalizationof public enterprises.By mid-1990,only 26 percent of targeted public corporationshad been effectivelyprivatized(32 out of 122)and only 48 percentof targets had beenabolished.There has also been some backtracking; 23 corporations originallyidentifiedfor privatizationwere later reclassifiedand retained. Technicaland legal problemshavedoggedthe privatization program.In addition,bureaucraticinterestshave becomeentrenchedsince the management of public enterprisesbrings perks and patronageopportunities. The process of privatizationin Senegalhas also been plaguedby a range of difficulties.This includesthe of ownershipof divestedfirms, difficultyof reconciling fear of concentration reluctanceto sell to foreigners, market valuewith book valueand problemsof findingan appropriateand transparentsales mechanismin the absenceof an equities market Consequently, progresshas been much slowerthan anticipated. The experiencesof The Philippinesand Senegalaccuratelyreflectthe reality in many developingcountries. An importantlesson emergingout of this, is that far greater attentionmust be paid to the logisticsof the processand that policymakersshouldbe acutelyawareof the socioeconomic and politicalcontextof reform. by two factors, first, the skill mix required by the public sector is very different from that required by the private sector, and second, educationsystemstend to be bureaucraticand slow to respondto the changingneeds of the market.Thus in Egypt, in 1986,about 80 percentof the unemployedwere new entrantsto the labor force, mainlygraduatesin the queue for government jobs. This is a particularproblem for females, since they have few options outside the civil service(Kanbur et al, 1991). Government wages seemto have fallenuniversally duringadjustment, due to the pressures on governmentexpenditures.In some cases, "wage freezes" have also been instituted,as for example in Indonesiabetween 1982 and 1985,and in Trinidadin 1987-90.In Egypt, the trend has been unequivocally downward, with real wages for govenment employeesin 1987amounting to less than half the 1973-74levels. In Ghana, thoughthere have been pay increasesintendedto improveefficiencywithin the govemment, the pay structurein relationto neighbonngcountnes suggeststhe need for furtherincreases,particularlyfor educatedworkers.As Table 18 shows,the real average salary for all sectors of the public service in the Philippines declined during adjustment.Similartrends have been observedin Malaysiaand Kenya. The evidencepresentedindicatesthat the labor market by and large has performedwell vis-a-visthe objectivesset. There have not been prolongedperiods of unemployment, exceptin the case of Chile. This is not surprising since in the absence of unemployment insurance schemes,unemploymentis not an option particularlyfor householdheads. Instead, households have been forced to pursue other strategies includingincreasingtheir participationin the labor market, internationalmigration,and casual work. The decline in real wages does not vindicate 42 Table18. lie RealavengesaaMIn the Philippines: public (in 1980pesos) sector Production Social Govemment related development Defense Education Services 1982 13,351 10,187 3,920 11,692 19,168 1983 12,341 10,456 3,880 10Q683 46,989a 1984 7,107 7,498 (10258)b 8,035 11,460 1985 6,956 7,498 8,965 7,219 10,680 1986 5,184 6,037 3,178 6,841 8,094 Nones: a The 1983 real salay inGovermu Servicesmust be taken withcauion: accordingto the originalsowce, oal compensation jwuped moe than ten times in theMinistryof Finane between182 amd1983(whichsemed unacceptable) whileemplymen pacticly stagnated. b. Withregardto the 1984real salary in Defense. the esigil es showthat totalcorensationjunped alnost fivetimes between1983 an 1984,to notaby dectne theafter, wie en.ptoyment did not rveal majorchages. Source:MISSING (in WorldBank, 198Sb,p.144). the theoretical concerns about real wage rigidity and labor market inflexibilityhindering the adjustment process. Sectoralemployment shiftshave generallybeen in the desireddirection-that is, towardtradeables. However,in many instances,this has meantan increasein agricultureand a decline in manufacturingwith relativewage movementssupportingthis shift in employment. The decline in relative govemmentwages is one factor causing the relative decline in wages in non-tradeable sectors. The performanceof the labor market at this aggregated level bears implicationsfor urban areas and households.These are discussedbelow. e mrbandiwmeion Manyof the sectoraltrendsoutlinedaboveare echoedin the urbanareas. Prmarily, there has been an increase in the rate of urban unemploymentrecorded by a variety of non-Bank sources.In Latin America,open unemployment increasedfrom an unweightedaverageof about 6 percent of the urban economicallyactive populationin 1974, to 14 percent in 1984. In that year, urban unemployment reached the highest level recordedin Colombia,Peru, Honduras,and Venezuela(ECLAC,1986).The relevantdata is presentedin the right-handcolumnof Table 19. Additionalevidence compiled by PREALACfrom available householddata corroboratesthis. This is illustratedin Table 10. Bank evidence from the Philippinesalso shows an increase in urban unemployment(World Bank, 1988b). Though unemployment across countriesare is measureddifferentlyand thus comparisons not warranted,the fact that unemployment rates (howevermeasured)increasedsignificantlyin country after country indicatesa significanttrend. 43 In the absence of unemploymnent benefits, those urban poor made redundant by the contraction of industryand who cannot find alternativeemploymentin the formal sector are forcedto earn their livelihoodfrom other sources.Consequently, the laborforceengaged in low productivity and sparsely enumerated activities in the informal sector has increased, with underemploymentalso rising. In Montevideo, for example, during the crisis years, self employmentand underemployment increasedby about one third, and the informalsector as a whole employed70 percent more peoplein 1985 than ten years earlier (Portes, 1989). Table 19 shows the scale of informalemploymentfor various countriesin Latin America. This trend is also reportedin MexicoCity, Monterrey,and Guadalajarain Mexico.As Table 20 shows, the rise of the proportionof the self-employedand non-renumerated family workers in total employmentin 1985 comparedto 1982 is an indicator of this process in the urban sectors (Lustig, 1990). In recentyears,therefore,informalemployment in the industrialsectorhas expanded.This process of productivedecentralization is evident in Bogota,Colombia,wherethe contractionof regular employmenthas been accompaniedby the proliferationof micro-enterprises to which production and services are now subcontracted.As illustratedin Table 21, between 1980 and 1983 the informal employmentin industry expanded rapidly from 48 percent to 61 percent (Portes, 1989). A similar trend has been observed in Montevideo.An analysis of LSMS data reveal a similar pattern in urban Cote d'lvoire. This move toward the informal sector is also observedby Lorch (1989),who uses Banquedes DonneesFinanciers(BdDF)data to suggesta movementof companiesfrom the formalto the informalsector (Blundellet al, 1990)(see Table 22). In other instances, there has been growth in the "traditional sectorse of informal emnployment, for examplestreet vendingand domesticservice.Table 23, showingthe evolution of the labor market in Santiago,is indicativeof this. Changesin the pattern of urban employmenthave been accompaniedby adjustmentsin real wages. Devaluationand deregulationof the market, describedearlier, impose an upward pressure on prices (of both finishedproductsand inputs),resultingin a deteriorationof the real wage. In Mexicoduring the 1981-88period, the urban real minimumwage decreasedby 46.4 percent. The strategy of dismissingregular employees and decentralizing activities into micro- enterprisesand sweatshopshas also had a negative effect; the excess supply of labor on the market,coupled with the relativelylower wages paid to those involvedin informalproduction, work to drive the formal wage down. In both Montevideoand Bogota, wherethis strategy is comnon, wages have fallen significantly. The macrochangesin incomedistributionoutlinedaboveare echoedin otherurban areas, but the availabledata relate only to Latin America.Table 24 shows that the averagereal wages 44 Table 19. The uorbn labor market in Latin Americain the 1970 and 1980 u#tlbSin I I~~~~~~~~~om 14 uut Ud IAhwrmr hm uwi___ _Mr 11"99 m _____ Uu 1970 111 196 19S {'"~~~~~~S tln (S) {%1) 1976 195 195 1976 190 I35 IS) M% IS) (S) Argermn 32.1 24.6 1N.0 fSJ 32. 1eiwla - - - - - 125.3 4,9 2.- U - Biala 18.3 13.9 4 - - 112.1 7.9I 7.S .f7 38.2 126 Colot bb 21.0 17.7 56.6 40.9 32.1 6.6 7.2 7.1 110.0 5.3 CostsRke 20.4 30.4 79.5 49.8 56.2 102.3 106 9.7 I.hie 112.2. 512 4.7 14.3 21.0 17.S 67.5 72.1 14.9 5.4 6.0 4.7 Enudo, 22.2 17.6 60.5 5.7 5D.3 S2.5 t.2 16.3 11.7 ' 1.0 ESSalado ;u.alemto. - . - - 100.6 *SA 9BS "._ I.4 _ _ 2. - - - - - 7. 31111ll _ - 74 3 4 pg d l3nduras - - 112.3 09.0 _ _ -- meako 22.9 23.6 IllS 71.7 6 - - - 6 11 Nirataa 50.9 49.4 4.6 6.6 4.5 5.0 - - 33116.1 63.6 l'nam 16.0 16.6 126.0 - - - - 13 rapUa M.o 55. 55.6 163 _ - 300.6 99.3 133.5 9.0 9.6 I.S 1Pnr @1.4 35.6 107.3 53.3 . - - 10.0 6.7 4.1 Unaguay 7.44 - - 375.S 94.1 1 - 323.0 1 64 I". 16.44 Veruuueb 24.9 26.3 7J.9 6*.8 52. 57.9 91.7 32.7 7. 33.1 4344 5.7 10.72 1.6 41,6 13.3 CalinAmerica Suuu,m:W e. (I%9) Garaand MwA 121.6 6.5' 69 30.9' m **m. (3WSJ labko19.22. lad ECLA(1IWI. tab 4. *. I?.. a pmrwelamiap 4A* .4k mtn.gpImu4 'saualeal"hePa .a