Servicing Development: Productive Upgrading of Labor-Absorbing Services in Developing Economies

Manufacturing generates very little employment in the developing world. Urban jobs are predominantly informal, unproductive, and in services. It seems unlikely that manufacturing will be able to absorb the new increments to the labor force or create more productive jobs for those that are already stuck in petty services. Raising productivity in services has been traditionally difficult, but is now necessary to achieve long-term growth in the standard of living. We discuss and provide evidence for four broad strategies: (a) incentivizing large, productive firms to expand their employment; (b) enhancing productive capabilities of smaller firms through the provision of public inputs; (c) providing workers or firms technologies that explicitly complement low-skill labor; (d) vocational training with “wrap-around” services to enhance job seekers’ employability, job retention, and eventual promotion.