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Labor Markets, Growth and Poverty Diagnostics in Africa

Labor Markets, Growth and Poverty Diagnostics in Africa . Louise Fox & Melissa Sekkel Africa Poverty Reduction and Economic Management Office of the Director. Main Questions. How can the characteristics of the labor market act as a barrier to or an engine for growth?

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Labor Markets, Growth and Poverty Diagnostics in Africa

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  1. Labor Markets, Growth and Poverty Diagnostics in Africa Louise Fox & Melissa Sekkel Africa Poverty Reduction and Economic Management Office of the Director

  2. Main Questions • How can the characteristics of the labor market act as a barrier to or an engine for growth? • What is employment content of growth and its quality/characteristics important for its poverty impact? • What are the measurement difficulties in quantifying the link between growth, employment creation and poverty reduction?

  3. Quick Stylized View of AFR Labor Market • About 80% self-employed or in family business, with 50% in agriculture as main sector (share of value added much lower) • Anecdotal and limited time use data suggests frequent underemployment • Growing rapidly 2.5% per annum • 46% less than $1/day

  4. Measurement Issues • Not much work on theory of growth, labor market and poverty reduction in low income countries • Lewis, Fields • What concepts are we measuring? • Job, enterprise and household are one – what is LFPR? Can you measure? • What is supply and what is demand? • What is wage/income?

  5. Pro-poor Growth in Africa • Studied 6 high growth, poverty reduction countries where we had at least 2 data points. Key elements: • Sustained, balanced growth, including in agricultural sector – diversification, etc. • Aid one key driver (reward for good policies), exports in some countries • Economic growth high enough to absorb labor force over 6-10 year period despite public sector job restructuring

  6. Employment-Poverty Link • Using per capita consumption as proxy for labor income: • Agriculture poverty headcount fell in all countries • Non-Agricultural informal sector employment increased in all countries while poverty headcount fell • Employment in formal increased in some, was stagnant or fell in others, but in all countries except Burkina Faso, poverty rate fell

  7. Role of Labor Markets • In these high pro-poor growth countries no evidence of labor market as barrier or engine – was not the binding constraint • What does seems to be key? • Mobility - Labor moved easily from low productivity agriculture sector to higher productivity sectors, and to private sector • Expansion of informal sector • Income grew as fast or faster than other sectors

  8. Labor Characteristics Important for Pro-poor Growth • Labor regulation • Some rated below AFR average in “Doing Business” on labor market flexibility, some rated at average or above • Senegal, with high regulation, had best formal sector job expansion • Labor costs small – more important are costs of inputs and risk • Investigate: support for informal sector • Micro credit?

  9. Analytics • Need multi purpose household survey • Changes in labor force share, average income for households classified by sector of head by quintile • Changes in characteristics of total labor force, by gender by quintile, portfolio • Migration of head, of members, role of remittances • Women vs. men in informal sector

  10. Conclusions • High, balanced growth does raise all boats in Africa now – a recovery period • Informal sector not “dumping ground” for the labor force – it is clearly linked to growth in other sectors • Increased incomes fuel demand through consumption link • Supplier to agriculture and formal sector • Regulation: not a constraint yet - labor costs too low as a share of total mfr costs

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