Sub-Saharan African economies have stagnated compared to the rest of the world. In general, economic growth rates and investment are low and the growth of wage jobs has not kept up with a growing labour force. It is vital to understand why, so as to come up with a labour market policy that contributes to poverty reduction.

With the notable exceptions of Mauritius and Botswana, the economies of sub-Saharan countries have been characterised by low economic growth and investment throughout the 1990s. A significant proportion of the growing labour force is either unemployed or engaged in the informal sector (self-employed). Wages have also fallen on average for unskilled workers.

This has serious implications for those coming on to the labour market, including young people with secondary education. Falling wages also affect household consumption and poverty. A report from the Global Poverty Research Group at the University of Oxford, UK analyses the relationship between wages, labour demand and market institutions to point towards job creation policies that will contribute to poverty reduction in the region.

It is clear that the failure of job creation and investment to keep up with population growth has prevented significant poverty reduction in sub-Saharan Africa. The very inefficiency of African firms (compared to Asian firms, for example) has kept them out of export activities and therefore from offering the jobs that could help reduce poverty. But the researchers find that excess labour supply takes different forms across the region:

• Structural unemployment: individuals are not unemployed voluntarily. Rather, structural constraints prevent job creation. South Africa, though the largest economy in the region, has one of the highest unemployment rates in the world.
• Search unemployment: high unemployment can also be found in Ethiopia. However, in contrast to South Africa, Ethiopia’s unemployed tend to be young, well-educated and better-off: they are often waiting for openings in the high-wage public sector.
• Informal unemployment: the majority of sub-Saharan economies are dominated by a growing informal sector. Workers tend to be self-employed and do not earn enough to lift themselves out of poverty.

Job creation policies must respond to these patterns of unemployment across the continent. The researchers argue that large African firms with the potential to be involved in export industries are particularly important in this regard.

It is also important to:

• recognise that it is not enough to increase the supply of educated labour without stimulating demand for it
• encourage large formal firms involved in export industries to bring the unemployed and informally employed low-wage workers into a higher-wage sector
• improve the productivity and flexibility of such firms so they can employ more workers
• research into the rules, regulations and practices that currently hinder large African firms.

Source(s):
‘Patterns of labor demand in sub-Saharan Africa: a review paper’, Africa Region, Employment Issues – Regional Stocktaking Review, Global Poverty Research Group, University of Oxford, by Geeta Kingdon, Justin Sandefur and Francis Teal, February 2005 Full document.

Funded by: Economic and Social Research Council, UK

id21 Research Highlight: 17 February 2006

Further Information:
Francis Teal and Geeta Kingdon
Global Poverty Research Group
Centre for the Study of African Economies
Department of Economics
University of Oxford
Manor Road
Oxford OX1 3UQ
United Kingdom

Tel: +44 (0)1865 271084
Fax: +44 (0)1865 281447
Contact the contributor: francis.teal@economics.oxford.ac.uk, geeta.kingdon@economics.ox.ac.uk

Centre for the Study of African Economies, University of Oxford

Other related links:
'Unemployment in South Africa: self employment the solution?'

'Coping with market reforms: winners and losers among Ghanaian cocoa farmers'

'Does investing in education reduce poverty? Evidence from Ghana, Uganda and South Africa'

Vocational Skills Development in Sub-Saharan Africa, World Bank Resources

Rural Labour Markets and Poverty, IDS Research