Job creation for youth in Africa: Assessing the potential of industries without smokestacks

Workers harvest roses for export to the European market inside a greenhouse at Maridadi Flowers Limited in Naivasha, 90 km (56 miles) west of Kenya's capital Nairobi, April 19, 2010. Kenya's horticulture industry has already lost $12 million to the volcano-induced European airspace closure and it will take several weeks to recover even if flights resume now, its association of exporters said on Monday. REUTERS/Thomas Mukoya (KENYA - Tags: TRANSPORT SOCIETY EMPLOYMENT BUSINESS) - GM1E64J1SUF01

In several African countries, employment growth has not followed the robust economic growth of recent years. A premature leveling-off of manufacturing and a weak structural transformation dynamic are confining African economies to low-productivity sectors and limiting the prospect of large-scale formal-sector job creation.

However, as documented by Newfarmer, Page, and Tarp (2018), there is emerging evidence that some industries—including tourism, agro-industry, horticulture, transport, and information technology-enabled services—are generating opportunities for job creation and more rapid structural transformation in Africa. These “industries without smokestacks” (IWOSS) present characteristics similar to manufacturing, such as being tradable, employing low and moderately skilled labor, having higher-than-average value added per worker, and exhibiting capacity for technological change and productivity growth.

In this paper, we assess the job creation potential of industries without smokestacks by estimating employment-to-output elasticities. The results indicate that IWOSS have an employment-to-output elasticity of 0.9, similar to that of manufacturing (0.8), but higher than the 0.6 estimated elasticity for the aggregate economy.

Taken at face value, these estimates suggest that there is great scope for IWOSS to be highly employment generating, and that policies supporting an environment conducive to their development could be effective at addressing Africa’s youth unemployment challenge.

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