In chapter 4, we saw (with the Harrod-Domar model) that full employment of the labor force and full utilization of productive capacity will take place only if natural and warranted growth rates coincide. Achieving this is very difficult, and discrepancies between these two rates would take the economy further away from equilibrium. In chapter 3, I discussed developing Asia's employment record: while some countries have done well and industrialization has led to the creation of employment (e.g., the newly industrialized economies), this is not the case in other countries (e.g., India, the Philippines). In Box 5.1, I argued that growth and structural transformation are related in a circular way: in general, countries become different as they grow, as they produce a different bundle of goods and services, using different inputs and new methods of production. And Marx and Keynes, despite coinciding in various aspects in their analyses of capitalist economies, reached different conclusions about the possibility of achieving full employment (Mattick [1969] provides an excellent comparative analysis of Marx and Keynes).

In this chapter, I will discuss further obstacles, both political and technical, to the attainment of full employment. Today's developing countries must consider the impact of fast structural transformation—which includes industrialization, substantial reallocation of labor, imbalances across sectors, and technological change (e.g., introduction of new products and services)—if they are to devise sensible policies aimed at eliminating unemployment and underemployment, reducing poverty, and generating more prosperous and inclusive societies (Asian Development Bank 2007b).