POVERTY AND LABOUR MARKET RESPONSE TO ECONOMIC REFORMS IN UGANDA. FRANCIS NATHAN OKURUT, SARAH SSEWANYANA, ASAF ADEBUA

Motivation of Study Expectations of economic reforms: More job creation; structural shift in labour to highly productive sectors; wage flexibility Scanty studies relating labour markets outcome to poverty in Uganda during the economic reform era The empirical evidence on the same else where in developing countries is mixed Explore the effects of economic reforms on labour market outcomes in Uganda

Objectives of the Study To examine how labour market outcomes due to economic reforms are linked to poverty To analyse the extent to which economic reforms have led to creation of employment opportunities in various sectors

Objectives of the Study cont’d To investigate the extent to which the factors influencing labour market employment choice changed during the reform period To examine the factors influencing wages in paid employment in private and public sectors What explains the wage differentials between these sectors?

Economic Reforms in Uganda Civil Service Reforms Privatization Financial Sector Reforms Trade Liberalization Education Reforms (e.g. UPE, Private scheme in State Universities) Decentralization (More districts; larger parliament)

Data UNHS data for 1992/93; 1999/00; 2002/03 All three surveys contain data on labour but the more comprehensive labour module was only in 2002/03 as per ILO standards Limitations: For comparability over time, analysis restricted to same geographical coverage (some districts such as Kitgum, Gulu, Kasese and Bundibugyo not covered in the 1999/00 survey round due to insecurity); data on wages collected from individuals only in paid employment; even some individuals in paid employment did not report their wages

Scope Analysis restricted to individuals aged 15 – 64 based on ILO standard for economically active population Analysis restricted to main economic activity status an individual was engaged in the last 12 months prior to the interview Wage/salary structure restricted to only those individuals reporting paid employment

Highlights of Study Period 1992 – 1999: High GDP growth rates (6.9% p.a.); fall in poverty (from 55.7% in 1992/93 to 33.8% in 1999/00) 1999 –2002: Reduced GDP growth rates (5.9% p.a.); increase in poverty (37.7% in 2002/03)

Labour force How has it evolved?

Labour force Labour force growth rate 3.4% p.a for

Fig. 1: Labour force for persons aged years by rural/urban Labour force con’t

Fig. 2: Labour force for persons aged years by educational attainment

Employment What happened?

Employment con’t Employment growth for period was 3.1% p.a. which was below labour force growth rate Job losses and job creation in reform period: Jobs created: 1.5 million ( ); 0.6 million ( ) Job losses mainly privatised public enterprises and retrenchment

Employment con’t Increase in self employment A majority of the employed population in Uganda is own account workers, so limited job creation in the “formal” sector. Gender dimension for own account workers: sharp decline for male employers (1992 – 1999), rise in female employers (26% over a 10-year period) mainly due to eased credit constraints though MFIs.

Employment cont’d Share of wage employment in total employment has not changed much under economic reforms. By 2002, was 15% of which 76.8% were employed in the private sector. Public sector employment declined nearly by 1.6 percent annually ( ).

Employment con’t Public sector employment declined by 4 percent during the period of poverty reduction, it rose by 4.8 percent between 1999 and The civil service reforms and voluntary retirement, privatization of the government parastatals/enterprises partly explain the decline in the period ( ).

Employment contd Increase in public sector employment (1999 – 02) due to the decentralization process, emergence of new authorities: creation of new districts, recruitment of teachers for UPE program and recruitment of health workers The private sector had a positive employment growth rate of about 4.3% p.a between 1992 and 2002 ; with a higher growth registered at a time when poverty was rising.

Employment contd Structural labour shifts away from agriculture (low productive activities) to services (non-tradables) and industry sectors. The shift in the employment structure across sectors is consistent with the structural transformation in the economy. Increased share of private sector in total employment Increased share of self employment in total employment Increased participation of females in the labour market

Employment contd A steady integration of females into the labour market: increased participation in the labour market; increased presence in self employment in non- agricultural activities; and increased share in professional occupations (e.g. increased by 13% ) Implication: Narrowing of gender gap in the level of participation in the labour market.

Employment sector choice How have the determinants changed?

Employment sector choice Education influences the allocation of individuals across employment states. The higher the education level the higher is an individual’s likelihood of being employed in the public or self-employment in non-agricultural activities relative to being not working. Implication: investment in human capital development is a key to moving the masses from agriculture to other sectors.

Employment sector choice con’t Local community characteristics also effect employment sector choice. The presence of banking facilities increases the likelihood to being self employed in non- agricultural sector or private sector, but reduces the chances of being self employed in agriculture. Presence of electricity, telephone and health facilities increased the likelihood of being employed in non-agricultural or private sector over time.

Employment sector choice contd Presence of feeder roads was significant in these two sectors, it became insignificant during Policy implication: infrastructural development is necessary for the successful implementation of economic reforms. Marginal effects for individuals community characteristics were increasing through the reform period with the exception of roads

Wages What has happened to the wage structure and distribution in wage employment?

Wages At the national level, mean real wages grew by 9.1% ( ); and declined by 1.7% ( ). But for , it grew by 6.2% A fall in the real wages in the private sector in 1999 – 2002 (when poverty was rising): increased labour supply to private sector due to public service reforms; de-regulation of labour market Private sector contributes over 70 percent of the wage employment Public sector wages have been increasing over time but highest rise was in Widening of public-private sector wage gap

Wage inequality Nationally, wage inequality has remained fairly constant, but increased in urban areas and among female wage employees. Wage inequalities have not only remained constant among public sector employees but are lower than in the private sector. Males’ wages grew faster than that of females, mainly because of their higher human capital accumulation. But inequality of wages in higher among female employees

Decomposition of wage inequality Wage inequality is driven mostly by the within-social groupings inequality relative to between-social grouping inequality. A widening gap was observed between economic sectors, private/public sector and educational attainment. Fig 3: Between group inequality

Returns to education The returns to education both in the private and public sector changed, suggesting that the labour market was somewhat responsive to the reforms. Since 1992 onwards there was a significant and substantial rise in the returns to education especially at higher levels, but marked decline after The only exception was post secondary education in the private sector

Emerging policy issues What do we make out of all this?

Emerging policy issues Labour employment is the main source of income to Ugandans. A better understanding of the changes in labour employment is important in the government’s poverty reduction efforts Private sector-led growth: Increasing employment opportunities in the private sector but declining real wages. This presents a challenge, given the higher contribution of this sector in wage employment. If trend continues, we are likely to see more poverty Need for government to provide further incentives to the private sector to create more employment opportunities with better pays

Emerging Policy Issues cont’d Increasing public sector employment with rising real wages has serious implications for government budget More caution has to be taken in creation of new districts and new authorities to control cost of public administration Education has a very clear influence on the allocation of individuals across employment choices and has a strong effect on the wage structure. Investment in human capital development is a key to moving the masses from agriculture to other sectors; Need for more public and private investment in education especially at higher levels Ensure that the education system graduates individuals with skills relevant to the development of the private sector.

Emerging Policy Issues cont’d Infrastructural development: Access to banking facilities, electricity, health facilities and feeder roads depicted positive and significant effects on the employment choice and wages. Infrastructural development is critical for the successful implementation of economic reforms There is a steady integration of females into the labour market but most of them remain employed in relatively low paying jobs

Emerging Policy Issues cont’d Geographical dimension in the employment growth. There is more concentration of private sector employment in the Central region relative to the other regions. The high growth in labour supply relative to labour demand calls for measures aimed at controlling the rapid population growth.

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