Publication: Allocating Subsidies for Private Investments to Maximize Jobs Impacts
Date
2020-06
ISSN
Published
2020-06
Author(s)
Abstract
This paper develops a general framework
to allocate subsidies to private investments in the presence
of jobs-linked externalities (JLEs). JLEs emerge when wages
exceed the opportunity cost of labor (labor externalities),
or when there are social gains from creating better jobs for
some classes of worker, such as women or youth (social
externalities). Like all externalities, JLEs create a gap
between private and social rates of return. Investments can
be socially profitable (once the corresponding JLEs are
internalized) but the private returns may be too low for the
firm to go ahead. JLEs help to explain why many developing
countries see insufficient investment in projects that would
reallocate labor towards better jobs. The concept of JLEs is
well established in economic literature, but there is a need
for better operational approaches to address them. Like
other externalities, JLEs can be corrected using a variety
of possible subsidies (such as: grants, subsidized
infrastructure, credit, training, technical assistance and
tax exemptions). But doing this efficiently and at scale
this requires mechanisms to (a) estimate the value of the
externality and (b) discover the amount of subsidy needed to
trigger the private investment. This paper shows that the
optimal way to allocate subsidies to offset JLEs is through
a competitive bidding process which selects projects based
on the estimated amount of JLEs per dollar of subsidy. The
bidding process provides an incentive to investors to reveal
the subsidy needed for a project to become privately viable.
The authors show that the proposed approach maximizes the
jobs impacts of a given amount of fiscal resources that has
been allotted to support better jobs outcomes.
Citation
“Robalino, David; Romero, Jose Manuel; Walker, Ian. 2020. Allocating Subsidies for Private Investments to Maximize Jobs Impacts; Allocating Subsidies for Private Investments to Maximize Jobs Impacts. Jobs Working Paper;No. 45. © World Bank, Washington, DC. http://openknowledge.worldbank.org/handle/10986/33868 License: CC BY 3.0 IGO.”