Empirical explanation of Africa’s jobless growth: Drawing lessons for youth employment strategy Samuel G. Asfaha Employment Policy and Analysis Programme, ITC-ILO 19 February 2015

Scene setting

Rapid and sustained poverty reduction requires ‘inclusive growth’ that allows people to contribute to and benefit from the development process.

Questions that may help to check the inclusiveness of economic growth may include: - Are certain social groups being excluded from the growth and development process? - Which dimensions of poverty are leading or lagging? - Has economic growth been transformative, leading to more and better jobs?

Causes of employment challenges Demographic changes (population growth, ageing …) Urbanization (rural – urban migration) Globalization (competition, external shocks, …) Technological progress (cost of adjustment to technological shocks … ) Macroeconomic crises … Etc. 5

From a development perspective – both the number and quality of jobs do matter! With high rate of working poverty and poor working conditions (and inequality) – it does not make much sense to talk just about unemployment in developing countries! 6

Working poverty, 1991, 2000, ILO, 2010

Top 10 unequal countries No.Gini indexYear of Information 1Lesotho South Africa Botswana Sierra Leone Central African Republic Namibia Haiti Honduras Colombia Guatemala Source: CIA: the World Fact Book

Main presentation

This presentation is based on an on-going research by Asfaha and Edlira ◦ Research title: Explaining Africa’s jobless growth ◦ Status: Draft (third revision), ◦ Some of the findings may still be preliminary.

Africa Impressive growth in Africa since 2000 But, less conversion of growth into jobs – a situation of jobless growth …. With large cross-country variations UNECA report (2010) ◦ “Africa has been unable to create enough jobs to significantly reduce unemployment despite impressive growth before crisis”

Mean values of Macroeconomic and Structural Variables for the period , by income and geographic area Real Annual GDP growth Industry as % of GDP FDI as % GDP Trade Openess Labour Market Rigidity Index All BY REGION NORTH AFRICA CENTRAL AFRICA EAST AFRICA WEAST AFRICA SOUTH AFRICA BY INCOME LOW-INCOME ECONOMIES LOWER-MIDDLE INCOME ECONOMIES UPPER-MIDDLE-INCOME ECONOMIES Note: Authors calculation

Many empirical studies on employment intensity of growth following Okun’s seminal paper (1962) But, only limited studies on the determinants of the employment elasticity of growth.

Key concept: Employment elasticity of growth: A concept used to measure the percentage change in employment associated with a percentage change in economic growth. In its simplest form - a numerical measure of how employment varies with economic output (Kapsas 2005).

Calculating the employment elasticity growth and its determinants

Crivelli et. al. (2012) An unbalanced panel of 167 countries over the period 1991–2009 to assess the effect of structural and macroeconomic policies. Finding - employment elasticities are positively affected by structural policies related to labor and product market flexibility and reducing government size as well as macroeconomic policies aimed at increasing macroeconomic stability.

Regional studies Döpke (2001) or Mourre (2004) on Europe - ◦ both find that labour market flexibility as dominant determinant of the employment elasticities in European economies. ◦ In addition, Mourre (2004) finds that job intensity of growth predominated in the services sector; while Döpke (2001) emphasized the positive role of less exchange rate volatility.

Our study Unbalanced panel of 49 African countries over the period 2000–2012 Variables: demographic, macroeconomic policy variables, structural and institutional variables. Data from KILM and Opendataafrica

The research questions What factors may explain observable cross-country variations on employment elasticity of growth in Africa? Do demographic, macroeconomic, institutional and structural variables affect employment elasticity of growth for vulnerable groups (women and youth) differently?

Estimation Results Table 1. LONG-TERM ELASTICITIES, BY REGION, INCOME LEVEL, GENDER AND AGE TOTALMALEFEMALEYOUTH All BY REGION NORTH AFRICA CENTRAL AFRICA EAST AFRICA WEST AFRICA SOUTH AFRICA BY INCOME LOW-INCOME ECONOMIES LOWER-MIDDLE INCOME ECONOMIES UPPER-MIDDLE-INCOME ECONOMIES

The effect of Demographic variables on female employment elasticities of growth specificat ion 1 specificat ion 2 specificat ion 3 specificat ion 4 specificat ion 5 specificat ion 6 specificat ion 7 coef/t Population size0.116***0.106***0.101***0.104***0.180***0.096***0.036*** (8.752)(7.734)(8.097)(8.644)(13.089)(5.177)(3.713) Share of Urban Population0.009***0.010***0.005***-0.002** (8.561)(8.189)(2.734)(-2.435) Population density-0.064***-0.061***-0.035* (-4.257)(-4.341)(-1.956)(-1.004) Gender Gap in Labour Participation 0.012***0.011***0.003***0.002** (12.677)(10.936)(2.678)(2.173) Female Employment-to- population Ratio *** ( ) Exports of oil-0.014*** (-6.390) Reported cases of Malaria-0.004*** (-3.030) _cons-1.127***-0.451***-0.864*** ***-0.786*** (-8.906)(-3.536)(-7.967)(-0.242)( )(-3.081)(-0.030) Number of observations Adjusted R note: *** p<0.01, ** p<0.05, * p<0.1

The effect of Demographic variables on youth employment elasticities of growth specificat ion 1 specificat ion 2 specificat ion 3 specificat ion 4 specificat ion 5 specificat ion 6 specificat ion 7 coef/t Population size0.045***0.043***0.042***0.045***0.091***0.053***0.024** (5.764)(5.675)(5.558)(5.963)(11.423)(3.327)(2.481) Share of Urban Population0.002***0.003***0.003*-0.003*** (3.471)(3.284)(1.757)(-3.100) Population density-0.035***-0.061***-0.058***0.007 (-4.263)(-7.425)(-3.600)(0.651) Youth Employment-to- population Ratio ***-0.001*0.001**-0.003*** (-5.707)(-1.775)(2.011)(-5.616) Gender Gap in Youth Labour Participation 0.004*** (5.469) Exports of oil-0.008*** (-6.941) Reported cases of Malaria-0.003*** (-3.764) _cons-0.330*** ***-0.401***-0.365*0.332*** (-4.479)(-1.498)(-0.985)(-4.410)(-4.484)(-1.757)(3.059) Number of observations Adjusted R note: *** p<0.01, ** p<0.05, * p<0.1

Conclusion & policy insight

Selected references Crivelli E., D. Furcerri and J.Toujas – Bernate (2012), “Can policies affect employment intensity of Growth? A Cross Country Analysis”, IMF Working paper, August. Kapsos, S. (2005). “The Employment Intensity of Growth: Trends and Macroeconomic Determinants,” ILO Employment Strategy Papers 12 (Geneva: International Labour Organization). Mourre, G “Did the Pattern of Aggregate Employment Growth Change in the Euro Area in the Late 1990s?” European Central Bank Working Paper Series, 2004, No. 358 (Brussels: European Central Bank). Döpke, J. (2001). “The ‘Employment Intensity’ of Growth in Europe.” Kiel Working Paper No (Kiel: Kiel Institute for the World Economy).