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?  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?

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

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?

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

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

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

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?

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

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