Africa Development Bank Group

Youth, Jobs, and Structural Change: Confronting Africa’s “Employment Problem”

INTRODUCTION

Africa has enjoyed fifteen years of sustained economic growth. Per capita income for the region as a whole is rising steadily, and regional growth has exceeded the global average. During the last decade six of the world’s ten fastest-growing economies were in Sub-Saharan Africa. Yet, there are worrying signs that this growth turnaround has not resulted in robust growth of “good” jobs – those offering higher wages and better working conditions – especially for the young.

Driven by a delayed demographic transition, the share of youth (aged 15-24) in Africa – both north and south of the Sahara - has been rising over time and is now higher than in any other part of the world. This demographic bulge offers the possibility of a growth dividend, if – as in the case of East Asia – a rapidly growing work force can be combined with capital and technology. But it can also represent a major threat. Africa is not creating the number of jobs needed to absorb the 10-12 million young people entering its labor markets each year, and as recent events in North Africa have shown, lack of employment opportunities in the face of a rapidly growing, young labor force can undermine social cohesion and political stability.

This paper argues that Africa’s “employment problem” is in fact a symptom of its lack of structural change – the shift in resources from lower to higher productivity uses. Despite rapid growth, Africa has had very little structural change (Arbacha and Page, 2009). While many African economies have relatively low unemployment rates, including for the young, they also have large informal sectors, condemning many of their workers to vulnerable employment and working poverty. Indeed, there is some evidence that since 1990 structural change has moved in the wrong direction in Africa: labor has moved from higher to lower productivity employment (McMillan and Rodrik, 2011).

Seen from this perspective, employment policies cannot focus only on the supply side of the labor market. Indeed, while labor market reforms and active labor market policies can make a contribution to solving the employment problem, the greatest traction is likely to come from policies and public actions designed to accelerate the growth of sectors with high value added per worker: in short from a strategy for structural change.

The paper is organized in the following way. The next section summarizes recent evidence on employment in Africa. It argues that the youth employment problem is a subset of a larger employment problem arising from growing informalization of work and limited growth of good jobs. Section 3 sets out the nature of Africa’s “structural deficit”. It makes the case that the typical low income economy in Africa needs to accelerate the growth of agro-industry, manufacturing and tradable services to create higher productivity jobs.
Sections 4 and 5 turn to public policy. Because of the diversity of Africa’s economies and labor markets, public actions need to be tailored to individual country circumstances. Section 4 begins the discussion by examining potential labor market interventions. Section 5 then turns to policies to accelerate structural change and employment creation. Section 6 concludes.

Read the full paper at afdb.org » (PDF)