A labour market policy for poverty reduction in sub-Saharan Africa

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-Saharancountries have been characterised by low economic growth and investmentthroughout the 1990s. A significant proportion of the growing labour force is eitherunemployed or engaged in the informal sector (self-employed). Wages have alsofallen on average for unskilled workers.

This has serious implications forthose coming on to the labour market, including young people with secondaryeducation. Falling wages also affect household consumption and poverty. A reportfrom the Global Poverty Research Group at the University of Oxford, UK analyses the relationship betweenwages, labour demand and market institutions to point towards job creationpolicies that will contribute to poverty reduction in the region.

It is clear that the failure of jobcreation and investment to keep up with population growth has preventedsignificant poverty reduction in sub-Saharan Africa. The very inefficiency of Africanfirms (compared to Asian firms, for example) has kept them out of exportactivities and therefore from offering the jobs that could help reduce poverty. But the researchersfind that excess labour supply takes different forms across the region:

• Structuralunemployment: individuals are not unemployed voluntarily. Rather, structuralconstraints prevent job creation. South Africa, though the largest economy inthe region, has one of the highest unemployment rates in the world.
• Searchunemployment: high unemployment can also be found in Ethiopia. However, in contrast to SouthAfrica, 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-Saharaneconomies are dominated by a growing informal sector. Workers tend to beself-employed and do not earn enough to lift themselves out of poverty.

Job creation policies must respondto these patterns of unemployment across the continent. The researchers arguethat large African firms with the potential to be involved in export industriesare particularly important in this regard.

It is also important to:

• recognise that it is notenough to increase the supply of educated labour without stimulating demand forit
• encourage large formalfirms involved in export industries to bring the unemployed and informallyemployed low-wage workers into a higher-wage sector
• improve the productivityand flexibility of such firms so they can employ more workers
• researchinto the rules, regulations and practices that currently hinder large Africanfirms.