Working Paper 155 - Youth Jobs and Structural Change: Confronting Africa’s “Employment Problem”

Africa has enjoyed over a decade of sustainable growth where regional growth has exceeded the global average and per-capita income for the region is steadily increasing. During the past decade sub-Saharan Africa was home to six of the ten fastest growing economies in the world. However, there are signs that this growth turn-around has not resulted in robust growth of ‘good’ jobs particularly for the young whose share has been rising over time. The share of the youth in Africa is now higher than any other part of the world. This demographic transformation offers the possibility of a growth dividend, as in the case of Asia, if a rapidly growing work force can be combined with capital and technology. However, it can also present a major challenge. The continent is not creating the number of jobs required to absorb 10-12 million young people entering the labour market each year and as recent events in North Africa have shown, lack of employment opportunities in the face of rapidly growing young labour force can undermine social cohesion and political stability. According to a recent projection, Africa will have the largest workforce in the world by 2040, surpassing both China and India. The paper argues that sub-Saharan Africa does not face a severe employment problem but that of the absence of decent job opportunities. It argues thatAfrica’s employment problem is symptomatic of its lack of structural change –the shift in resources from lower to higher productivity uses. In spite of rapid growth, Africa has undergone very little structural transformation. While unemployment rates in most African countries are low, they also tend to have very large informal sectors, with a bulke of the employed langushing in vulnerable employment and working poverty. There is quite a bit of evidence that since 1990 structural change has moved in the wrong direction in Africa where labor has moved from higher to lower productivity employment. Youth unemployment rates in Africa compare favourably compared to regional and world averages. Worldwide there is a fairly regular relationship between the overall rate of unemployment and the rate of youth unemployment. However, at 1.9 the ratio of sub-Saharan Africa’s total unemployment to youth unemployment rate is below that which would be predicted from the region’s overall rate of unemployment. The global ratio of total unemployment to youth unemployment is higher (at 2.7). However, North Africa’s youth unemployment rate substantially exceeds its predicated value. The African Development Bank’s 2012 household and labour force survey with its coverage of 16 countries provides the most comprehensive picture to date of the performance of African labour markets. The survey finds considerable heterogeneity in Africa’s labour markets. These results confirm that neither overall nor youth unemployment rates in sub-Saharan Africa stand out globally, while variations across countries is significant. African countries with well-structured labour markets and a large formal sector tend to have higher unemployment rates. This is especially true in southern Africa where unemployment exceeds 15 percent in Botswana, Namibia, and South Africa. Unemployment is also high by international standards in North Africa – especially in Algeria and Tunisia. Unemployment is relatively low in lower income countries while the informal sector is large (Ethiopia, Ghana, Tanzania and Uganda). A third group comprises of countries with large informal sectors and unemployment rates in the range of five to 15 percent. In most African countries job search periods are longer for those with higher education levels and therefore tend to constitute a larger cohort of the unemployed. Except for Niger and South Africa, youth unemployment rates tend to be lowest among those with either no or basic education. In 6 of 14 countries for which data were available, the unemployment rate for those with tertiary education was the higher of all. In many African countries, self and informal employment accounts for a majority of young workers. With some country specific exceptions, less than 20 percent of Africa’s young workers find wage employment and over 70 percent of workers in Congo, DRC, Ethiopia, Ghana, Malawi, Mali, Rwanda, Senegal, and Uganda are either self-employed or find themselves in family work.The paper argues that the key to reducing unemployment and informality in all levels including the young is the rapid growth in good jobs as a result of substantial structural change. Industrialization can boost formal job creation through labour intensive growth. Nevertheless, critical changes in the labour market and in the education system will also be needed to increase the employment intensity of growth in the formal economy. In the short run a number of interventions can be undertaken to improve the employment prospects of new labour force entrants. Addressing open unemployment and helping the young find better jobs: Governments can target young workers in employment intensive activities, such as tourism and construction with programs that offer cash for work. Public works programs provide opportunities for young workers with low skills to acquire work experience and subsequently find more permanent work. Building relevant skills: Increased emphasis on post-primary education through education budgets, improving the quality of teachers and instruction in public schools are critical. In the long-term it is essential to restructure education systems to teach the skills needed to succeed in a global marketplace. Reform of labour legislatives and institutions: pertinent changes in labor regulations that set minimum wages determine social insurance contributions and protect job security need to be changed. In some countries high level of wages relative to productivity are deterrents to growth in outward-oriented manufacturing. In many countries procedures for laying-off workers for economic and technological reasons are complex and seldom used. Separating social insurance from formal job status and social contributions from formal sector wages should be an important long-term goal.