Youth and Employment in Sub-Saharan Africa

Working but Poor

Hiroyuki Hino, Gustav Ranis, Hiroyuki Hino, Gustav Ranis

• Publisher: Routledge
• Year: 2014
• eBook ISBN: 9781135127916
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

It is widely acknowledged that youth unemployment is one of the most critical challenges facing countries in Sub-Saharan Africa. This volume brings together an eminent group of international scholars to analyse the extent and complex nature of this joblessness, and offer a set of evidence-based policy choices that could contribute to solving the problem in the short- and long-run.

Part I reviews the existing literature on youth unemployment and underemployment in Sub-Saharan Africa from microeconomic and macroeconomic perspectives, while Part II goes on to present detailed country studies of Ethiopia, Ghana, Kenya and South Africa. These studies offer a deep understanding of the situation on the ground and consider country-specific solutions.

Throughout the book it is argued that the standard ILO definition of unemployment is too narrow to correctly portray employment situations in Sub-Saharan Africa. Several alternative measures of unemployment are presented, which show that joblessness is far more pervasive than commonly assumed in the literature.

This volume will be of interest to academics and policy makers involved in African development.

1 Introduction and summary

Hiroyuki Hino, William Lyakurwa and Samuel Mwakubo

1.1 Aim of this book

This book presents a collection of papers that together show the true extent and complex nature of joblessness among the youth in Sub-Saharan Africa. It also offers a set of evidence-based policy choices that could be expected to contribute to solving the problem in the short- and long-run. The book is composed of full reviews of the macroeconomic and microeconomic literature, and case studies of four major countries in Sub-Saharan Africa (Ethiopia, Ghana, Kenya and South Africa). The reviews provide a theoretical underpinning and broader perspectives drawn from recent and ongoing research projects, while the country studies offer much deeper understanding of the situation on the ground and country-specific solutions.

Throughout the reviews and the country studies, this book argues that the standard International Labour Organization (ILO) definition of unemployment is too narrow to portray correctly the employment situations in Sub-Saharan Africa. The book presents several broader measures of unemployment in each of the country studies—underemployment, vulnerable employment, the working poor, and less stringent conditions to qualify as unemployed—and concludes that joblessness is far more pervasive than commonly assumed in the literature. The book also shows that the essence of joblessness in Sub-Saharan Africa has to do with low productivity and low employability (human capital). Solutions will require a holistic approach combining macroeconomic strategies, interventions to raise productivity and quality of work, public health (especially during early childhood), and education, in addition to conventional labour market measures.

The book stresses that the effectiveness of programs and projects must be tested using randomized controlled trials or other vigorous methods. It reviews measures that have been adopted in Sub-Saharan Africa and elsewhere, and finds that many of them have proven less effective than intended. Finally, it contends that research is fundamental in finding innovative solutions, and suggests areas where further research is promising.

1.2 Challenge of youth and unemployment

It is widely acknowledged among policymakers and observers alike that youth unemployment in Africa is a critical challenge that must be addressed urgently by African countries and the global community. Young people account for the vast majority of Africa’s population, and this group is projected to expand at an alarming pace. Most young Africans are not gainfully employed. Chronic and pervasive youth unemployment causes social tension and even conflict. Yet young Africans are dynamic, talented and entrepreneurial. Thus African youth may be either a time bomb that could ignite social unrest and instability—or a reservoir for growth and economic and social transformation. This is the crux of Africa’s challenge.

Africa’s population is predominantly young, with more than 60 per cent aged under 24 years. It is also estimated that about 40 per cent of the total population are younger than 15. With this age structure and persistently high fertility rates, the proportion of the population under 24 is projected to rise to 75 per cent by 2015. The World Bank estimates that the population of the youth in Africa (ages 15–24) will double from 200 million at present to 400 million by 2045. It is projected that the number of young people in Sub-Sahara will match that in East Asia by 2035, and exceed that in South Asia by 2050. About three-quarters of the youth live in poverty (on under US$2 a day), and a large majority live in rural areas.

Almost all young men and women in Africa, particularly the poor, work in some fashion because poverty forces them to find ways of earning money or taking part in the family’s livelihood. But apart from a small educated elite, they rarely have jobs that earn a living wage under decent working conditions. A vast majority of the youth work long hours, usually under poor conditions, but most of them earn little. They have to find some work in order to survive. Even children work, often more than normal full-time hours. The African youth are caught in a poverty trap. They grow up malnourished and in poor health. A significant proportion do not complete even primary education. As a result, their ‘human capital’ remains underdeveloped, and their productivity is insufficient to earn a decent wage.

The social and economic costs arising from underutilization of Africa’s youth are substantial, not only exposing the disenfranchized youth to social exclusion, but also perpetuating poverty through intergenerational transfer of the inadequate development of human capital. As discussed in chapters 5 (Aryeetey et al.) and 6 (Munga et al.), the lack of employment opportunities could lead to social conflict, violence and juvenile delinquency. Young people are more likely to be recruited into armed groups in civil conflict or insurgency when they are jobless and poor, and see daunting prospects for themselves and their families. The increasing incidence of street hawking and illegal migration abroad are not only symptoms of labour market failures, but also reflect a sense of hopelessness and desperation.

Therefore it is crucial that African governments pursue most vigorously policies and programs that (i) substantially enhance human capital—and hence productivity—of young Africans, particularly those disadvantaged, including women; (ii) create a large number of opportunities for the youth to be gainfully employed, by raising the competitiveness and productivity of the economy, particularly in smallholder agriculture and informal businesses; and (iii) harness the immense talents of the youth, not only for growth and development, but also to demonstrate African heritages in art, music and sports. Such policies and programs must be evidence-based. Their effectiveness must have been proven through randomized control trials and other rigorous research. This book offers a full menu of policy choices that meet this test, as detailed in each of the chapters that follow.

1.3 Gaps in the existing literature

There is a vast volume of literature on the subject of unemployment in Africa. It seems, however, that the literature has yet to capture the reality of joblessness on the ground—at least well enough to resonate with the feeling of ordinary Africans. It also seems that the literature has yet to provide a firm basis for the formulation of policies that are strong and effective enough to address decisively the joblessness among the youth in Africa. There may be two main reasons for this.

First, the literature has predominantly adopted the standard ILO definition of unemployment, which defines unemployment rather narrowly. The ILO defines a person as unemployed if (i) the person is of or above the minimum employment age and is actively looking for a job (as evidenced for example by registration at employment centres); (ii) the person is available for work; and (iii) the person has not worked during a given reference period. In most African countries, many individuals, particularly women, are discouraged from actively looking for a paid job due to social exclusion. And there are not many employment centres in non-urban areas.

But the fact is that, because most of them are poor, and because unemployment compensation and other public social protection schemes are largely absent, almost everyone has to work, even though he or she earns very little or has to work under very poor conditions. It is for these reasons that the standard ILO definition substantially understates the true extent of joblessness in Africa, particularly Sub-Saharan Africa. For example, unemployment is reported at 6 per cent in Ethiopia, 6.5 per cent in Ghana and 13 per cent in Kenya—but these figures do not resonate well with the reality (see Chapters 4–7).

Second, most of the earlier empirical studies on unemployment in Africa have keyed off from labour market theories designed to analyze the classical employment seen in economically developed economies. However, the unemployment dynamics in Africa differs qualitatively from that of the economically developed countries. In Chapter 2, Ranis and Gollin cite the Fei–Ranis model to explain that in an economically developing economy, the labour market is composed of two segments. One is the modern sector where wages adjust to clear the market but unemployment arises from search processes, information asymmetry, etc. The other is the traditional sector (e.g. subsistence agriculture) where all available able-bodied people work with limited land and capital even if there is not enough work to engage everyone fully. They are paid by the average product, rather than marginal product as in the case of classical employment. In this sector no-one is ‘unemployed,’ but everyone is ‘underemployed’ from not being engaged fully—some working less than full-time hours while others are working long hours with low productivity.

Although underemployment is far more prevalent than unemployment in Sub-Saharan Africa, there has been little rigorous empirical research geared to understanding the mechanisms of underemployment. Such mechanisms would centrally involve the communal land ownership, the informal social protection based on kinship, and the perpetual supply of a large pool of labour force with limited human capital.

African governments have undertaken a host of interventions that address aspects of underemployment (e.g. low productivity in subsistence farming, inadequate educational attainment). However, most of those interventions appear to have been less effective than intended. In Chapter 3, Bertrand and Crépon introduce a number of recent and ongoing projects that are based on rigorous research and appear to hold good prospects of ameliorating underemployment and unemployment in Sub-Saharan Africa.

Most recently, the World Bank, the African Development Bank, the ILO and other multilateral agencies have issued several major reports that have significantly advanced our understanding of joblessness in the world and in Africa in particular, and of what to do about it. Three of those reports are highlighted below.

World Development Report (2012): Gender Equality and Development (Chapter 5)

Chapter 5 of this report, which is on ‘Gender differences in employment and why they matter,’ contains discussions directly relevant to employment issues in Sub-Saharan Africa. The chapter focuses on productivity and earnings, and also gender differences in access to employment opportunities. The report argues that participation in market work is not just a simple decision on whether or not to join the labour force, but is about reallocating time across a number of activities, which can be difficult and costly, particularly for women. Despite significant progress in female labour participation, pervasive and persistent gender differences remain in productivity and earnings across different sectors and jobs. Although women’s earnings and productivity may be lower, women are not worse farmers, entrepreneurs and workers than men.

The report notes that men’s and women’s jobs differ, and it appears that women are concentrated in low-productivity jobs. They work in small farms and firms, and are disproportionately involved in unpaid family work and in the informal sector. The interaction of segregation with gender differences in time use, access to inputs and markets, on one hand, and institutional failures on the other hand, trap women in low-paying jobs and low-productivity businesses. Moving out of this trap would require measures that reduce women’s time constraints, increase women’s access to productive inputs, and deal with market and institutional failures.

The report further notes that the systematic gender differences in productivity and earnings could be explained by differences in characteristics of female and male workers, differences in the types of activities and jobs that women and men do, and also differences in the returns to both worker and job characteristics. Because education and work experience are valuable inputs into production, gender differences in education and work experience contribute to differences in productivity and earnings.

World Development Report 2013: Jobs

This report addresses the critical role of jobs in the development process. About 50 per cent of workers in developing countries are in small-scale farming or self-employment, and these do not provide a regular or steady or stable income. Jobs are instrumental to achieving economic and social development. Besides contributing to wellbeing, jobs contribute to poverty reduction, productivity growth and social cohesion.

The report argues that technological progress expands the possibilities for emerging and even low-income countries to create jobs in higher-skilled production activities, as well as to link to international value chains in services and manufacturing. However, due to changes in technology and the organization of work, permanent jobs are becoming less common. Part-time and temporary wage employment is now a major feature of industrial countries. These countries are focusing on services and knowledge-intensive activities while other activities are outsourced to developing countries. Demography, urbanization, globalization, technological progress and macroeconomic crises are posing major challenges.

The report highlights that even though jobs tend to increase life satisfaction, there are jobs that affect people’s health and safety. In addition, some jobs have low earnings (below the poverty line) and hence create working poor. Moreover, work across the developing world is characterized by a high prevalence of informality. Fewer than half of women have jobs compared with almost four-fifths of men, and youth unemployment is generally high. The prospect for employment generation lies with the private sector—about nine out of ten jobs in the world are in the private sector.

The report adds that exchanges and relationships established through jobs can have broader effects on societies, including how they manage tensions between groups and collective decision-making. Some jobs contribute more than others to social cohesion. What matters is not necessarily whether people have a job, but whether the job and its characteristics can contribute to social cohesion. Jobs that influence social identity, build networks and improve transparency and fairness serve to reduce tensions. Thus jobs with the greatest developmental payoffs are those that make cities function better, link the economy with global value chains, protect the environment, enhance trust and civil networks, and reduce poverty.

The report addresses the question of whether countries should focus on growth strategies or job strategies; it is in favour of a growth strategy, but with a stipulation that this may not be sufficient. A job strategy may be more appropriate when potentially important spillovers from jobs are not realized, leading to tensions between living standards, productivity and social cohesion. Entrepreneurship should be fostered not only because markets tend to fail to nurture entrepreneurship, but also because at present the large numbers of unregistered self-employed in developing countries are viewed as subsistence entrepreneurs.

The report argues for adoption of a three-layered policy approach to creating jobs. The first approach is to create a policy environment that is conducive to growth by ensuring macroeconomic stability, an enabling business environment, human capital investments and the rule of the law. The second approach is for governments to ensure that labour policies do not hinder job creation but rather enhance development payoffs from jobs. The third and final approach is to remove market imperfections and institutional failures that prevent the private sector from creating more good jobs for development.

African Economic Outlook 2012: special theme: promoting youth employment

By African Development Bank, OECD, UNDP and United Nations Economic Commission for Africa

This report argues that the continent is facing a youth bulge, which can be positive or negative depending on how it is handled. It could be an opportunity for economic and social development, or a significant risk and threat to social cohesion and political stability. We should focus on youth employment because 60 per cent of Africa’s unemployed are young people, and youth unemployment rates are double those of adult unemployment in most African countries. The youth employment challenge has largely been underestimated because past reports on this subject focused on unemployment per se, and did not sufficiently acknowledge the discouraged, inactive, underemployed, vulnerably employed and the working poor.

The report notes that unemployment is, and will persist as, a major issue in Africa. It argues that youth employment is largely a problem of quality in low-income countries and of quantity in middle-income countries. Many of the jobs available in developing countries are of poor quality. Most of the younger workers in Africa are in family-based agriculture, services and sales, while 13 per cent are business owners. The report adds that, given the few prospects for expansion in the public sector, the answer lies with the private sector in creating new jobs. Attention should be focused on informal and rural sectors of the economy as these will be the sources of new employment.

The report addresses the causes of unemployment, which range from insufficient labour demand, inadequate skills, lack of knowledge about where to find a job, insufficient education, skills mismatch, demand–supply matching, labour market regulation, and attitudes of young people, amongst others. The report argues that most governments’ programs on promoting youth employment have not been successful. The most common have been those addressing labour supply and skills training.

The report recommends better coordination of government action, improved availability and quality of employment data, addressing bottlenecks constraining labour demand, and helping young people obtain the necessary skills. Other recommended actions include expanding education beyond primary schooling, more rigorous evaluation of programs, and more labour market information.

The above reports largely corroborate findings of this book, particularly as regards the imperative of covering unemployment issues more broadly than hitherto; acknowledgment of the dominance of informal sectors; and the centrality of raising productivity and human capital. Nevertheless, the apparent preference in favour of market principle in the recommendations of World Development Report 2013 must be interrogated in the specific context of Sub-Saharan Africa. African Economic Outlook approaches the subject basically as a labour market issue, and hence largely misses macroanalysis. ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of tables
• List of figures
• List of contributors
• Foreword by Akihiko Tanaka, President of JICA
• Preface
• Acknowledgement
• 1 Introduction and summary
• PART I Review of literature and global practices
• PART II Country studies
• Index