The centrality of structural transformation

Comprehensive employment policy frameworks are particularly important in facilitating structural transformation. Structural transformation means production shifting towards higher value-added and higher productivity activities, often in combination with an increased share of higher skilled work.

This is not simply about manufacturing and industry but includes shifts across and within primary, secondary and tertiary sectors. Nonetheless, the traditional pathway of structural transformation from agriculture to manufacturing, and then to services has not been observed in many present developing countries, and instead these countries have seen earlier falls in the share of manufacturing employment compared to the current advanced economies, often termed as “premature deindustrialization”. Rather than to industry, developing countries have often experienced the reallocation of employment from agriculture to low-productivity services. The challenge to such a reallocation is that it may contribute little, or even negatively, to overall productivity growth or the generation of large-scale decent job opportunities.

What a country produces expands or limits the possibilities for decent and productive employment opportunities. The higher the domestic value added in production is, the greater the potential to upgrade domestic employment conditions (including wages, training, hours) as domestic productivity rises. Diversifying sources of output (production) leads to a diversification of domestic sources of employment. Rebalancing economies away from an over-reliance on low productivity sectors, in particular primary sectors, is essential for more resilient and sustainable domestic employment opportunities.

Sectoral policies

As a key pillar of employment policies, sectoral policies (or industrial policies) aim to achieve changes in the size and composition of different sectors in the economy. Understood progressively, they aim directly for a compositional shift in employment and output towards higher productivity sectors of the economy. The lack or slow pace of structural transformation has led to a greater appreciation of the need for the structural transformation process to be directed, shaped and governed in order to achieve the desired economic, social and labour market outcomes, including through sectoral policies.

The importance of structural transformation and policies to nurture them were also reaffirmed in the ILO Centenary Declaration, 2019, which calls upon Member States to promote full and promote full and productive employment and decent work through: (i) trade, industrial and sectoral policies that promote decent work, and enhance productivity, and (ii) investment in infrastructure and in strategic sectors to address the drivers of transformative change in the world of work.

Sectoral policies both expand employment and diversify production into sectors which are more skilled and more productive, with higher domestic value added, as well as support demand in these sectors. They should include measures to improve the quality of jobs. Key elements of sectoral policies include:

  1. Sustained employment growth through policies which advance structural transformation in a targeted manner.
  2. Employment growth not reliant on commodity prices and the export of a few key commodities.
  3. Prioritizing domestic linkages and domestic inputs d in all sectors, rather than just “industry” as traditionally considered.
  4. The promotion of environmental sustainability and a just transition towards carbon neutral economies.
  5.  Support to a balanced macroeconomic environment.