Building Stronger Labor Systems for the 2-Billion-Person Employment Challenge

The World Bank's report urges countries, especially low- and middle-income ones, to redesign labor market programs to better match local needs and economic realities. It emphasizes tailored investments, stronger delivery systems, and inclusive strategies to boost resilience, productivity, and job quality.

In a world where nearly two billion working-age individuals face economic insecurity, the World Bank’s latest paper provides a powerful roadmap for reform. Authored by Eliana Carranza, Matteo Morgandi, and Diana Sverdlin under the Labor and Skills Global Solutions Group, this research forms part of the flagship State of Social Protection Report 2025 and draws heavily on the ASPIRE (Atlas of Social Protection: Indicators of Resilience and Equity) data platform. The paper argues that tailored, well-funded, and institutionally supported labor market programs are vital not just for employment generation, but for long-term social resilience, inclusive growth, and economic transformation, especially in low- and middle-income countries (LMICs).

Employment Disparities Run Deep

While labor force participation seems steady across the globe, hovering around 60 percent, this apparent stability masks profound disparities across gender, age, and employment type. Men’s participation rates remain relatively consistent, but women’s involvement follows a distinct U-shaped curve, dropping in middle-income countries due to socio-economic barriers, only to rise again in high-income economies. Meanwhile, youth struggle across all countries. In low-income countries (LICs), over 80 percent of young workers resort to self-employment as a last resort, highlighting the lack of wage-paying jobs and formal employment pathways. Simultaneously, many high-income countries (HICs) are grappling with aging populations and shrinking workforces, while regions like sub-Saharan Africa face a youth population boom that existing job markets are ill-equipped to absorb.

Labor productivity, the foundation for wage growth and economic advancement, also reflects sharp inequalities. Workers in HICs produce 15 times more per hour than those in LICs. These gaps stem from limited access to education, skills training, technology, and capital. Structural transformation, the shift from rural, low-skilled labor to urban, high-skilled, and formal employment, is often incomplete or painfully slow in many countries. As a result, a majority of workers in LMICs are stuck in low-quality jobs, often without social security or the opportunity to move up the income ladder.

Programs Without Alignment Miss the Mark

The report classifies labor market programs into three main categories: Active Labor Market Programs (ALMPs), unemployment insurance, and Economic Inclusion (EI) programs. ALMPs offer job training, intermediation, and wage subsidies; unemployment insurance provides income protection during job loss; and EI programs aim to increase earnings for the poorest, often through a combination of cash, asset transfers, and coaching. However, spending on these programs is uneven and, more critically, often misaligned with labor market realities.

Despite the near-universal presence of some form of labor market intervention, funding remains extremely low. According to ASPIRE data, labor programs receive less than 5 percent of overall social protection budgets globally. No region exceeds 0.4 percent of GDP in spending. LICs often invest in wage subsidies, despite lacking sufficient wage-based employment opportunities. Conversely, self-employment support, which would better address their predominant labor structure, receives comparable or even less funding. Unemployment insurance, while useful in formal labor markets, is virtually absent in LICs and LMICs due to the dominance of informal work and weak administrative capacity.

COVID-19: A Real-Time Stress Test

The COVID-19 pandemic exposed the fragility and resilience of labor market systems. Countries with established delivery mechanisms, particularly HICs and upper-middle-income countries (UMICs), responded quickly by scaling up unemployment insurance, wage subsidies, and job retention schemes. This helped preserve existing employment relationships and aided quicker recovery. In contrast, LICs were largely constrained to pre-existing programs, often with narrow reach and limited flexibility.

UMICs led in creating new labor market programs during the pandemic, while HICs expanded their existing tools. LICs, constrained by funding and infrastructure, increased spending marginally, often channeling it into entrepreneurship support even though it was a supply-demand mismatch at a time when small businesses were shuttering due to lockdowns. The paper emphasizes that investing in strong delivery systems pays off during crises. Countries with adaptable systems were able to respond faster and more effectively, cushioning households and preserving job market stability.

A Blueprint for the Future of Work

The report calls for a shift toward cohesive, adaptable, and inclusive labor market systems. First, countries must tailor programs to their structural realities rather than emulating models from high-income economies. For LICs, this means focusing more on EI programs that support self-employment, asset accumulation, and livelihood diversification. In HICs, combining ALMPs with unemployment insurance can create a more flexible, comprehensive safety net.

Program design must address both demand- and supply-side constraints: from job seekers lacking skills and access to training, to employers unable to find qualified workers or afford hiring costs. Effective systems also require centralized registries, monitoring tools, and delivery platforms that streamline access, improve targeting, and allow for real-time course corrections.

Moreover, the green transition presents both a challenge and an opportunity. EI programs can help train and place workers in climate-resilient sectors, ensuring that environmental progress does not deepen labor market inequalities. Gender inclusion also remains critical. Programs that integrate psychosocial support, mentorship, and community childcare can help remove the barriers that keep women out of the workforce.

In closing, the report issues a stark warning: spending on labor market programs is far below what is needed. LICs currently spend just 0.15 percent of GDP, one-third of the OECD average. Without increased investment and smarter, context-driven strategies, labor market programs risk becoming a patchwork of well-intentioned but ineffective efforts. Yet, if well-designed and properly delivered, they can serve as the backbone of an inclusive economic future, empowering workers, building resilience, and ensuring prosperity reaches the billions still waiting for their chance.