Productive and sustainable
employment in Africa: from
structural perspective
Yesuf AWEL & Michiko IIZUKA
UNU-MERIT
Dakar, Senegal
Nov. 2013
1
Introduction
• Definitions: Types of Employment
• Current Employment situation of Africa (SSA)
• Questions
– Why labour productivity in Africa (SSA?) is low compared
to other regions?
– Why smooth labour transition does not occur in SSA?
• High population still in Agriculture—low labour
productivity in Agriculture
• Some population is moving towards informal (service)
sector
• Possible explanations
– Agricultural Productivity
– Dutch Disease: Exchange rate overvaluation due to
resource boom (trade/macro economic policy)
• Summary and possible future research themes
2
Types of Employment
• Productive employment (Maintaining life standards)
– Employment yielding sufficient returns to permit workers
and their dependents a level of consumption above the
poverty line.
• Decent employment (Ensuring life quality)
– Employment with quality including absence of coercion
ensuring equity, security adequacy and dignity of work.
• Sustainable employment (Improving life prospects)
– Employment with reduced job vulnerability.
– Long term employment security: ensures skill
development—leading to increased productivity
Above are complementary yet different aspects of ideal
employment that needs to be supplied.
Does Africa have Productive, Decent and Sustainable
employment?
3
Sectoral Share of GDP and
Employment in Sub Saharan Africa
Sector
Value
added (%
of GDP)
2000
Value
added (%
of GDP)
2010
Employment Employment
(%)
(%)
2000
2011
Agriculture
16.0
12.2
66.4
61.8
Industry
(Manufactu
ring)
14.7
11.6
7.9
8.7
Service
53.5
58.4
25.7
29.5
Source: WDI, 2013 ; ILO(2013)
4
Labor Productivity SSA vs EA:
Low and stagnant labor productivity in SSA
Source: ILO, 2013
5
Employment distribution by status: SSA [1991-2012]:
According to ILO(2013) majority of employment is
vulnerable employment
Source: ILO, 2013
Vulnerable workers: increase of service sector
6
Sources of labour productivity
Increase in labour productivity is contributed by:
• Improvement in labour productivity (technology,
capability etc) itself;
increase in efficiency
• General increase in employment rate or increase in
working age population; increase in participation
• Shift of labour into more productive sector;
structural change
In general, change in labour productivity would
contribute more to the increase in productivity but
structural transformation has longer impact.
7
Agricultural Productivity [Cereal Yield (kg/ha)]
1960
1970
1990
1980
2000
2010
year
yld_cerealAf
yld_cerealLA
Source: WDI, 2013
yld_cerealEA
8
5
10
15
Food imports as percentage of merchandise imports
1960
1970
1980
1990
2000
2010
year
fm_EA
fm_Af
Source: WDI, 2013
fm_LA
9
Innovation: Escaping Low Productivity of
Agriculture
• Low productivity trap can be escaped by innovation:
technological development and institutional change.
• Induced technological development model (Hayami
and Ruttan, 1985)
– Technological development is induced by the relative
scarcity of factors of production (labour, land). If the
market prices of production factors reflects relative
scarcity, farmers will prefer technologies that economize
on the most scarce production factors.
• Type of technology involved: fertilizer, chemical inputs, tractors,
seed varieties (biotechnology) (there are also African paradox:
realities need to understand clearly to have right balance of
technological change)
10
800
600
400
land
1000
1200
Land expansion/Agricultural land
in million hectare
1960
1970
1980
1990
2000
2010
Year
Africa
South America
Source: FAOSTAT, 2013
Eastern Asia
11
0
100
200
300
400
Modern Input Use [Chemical Fertilizer in
Kilogram per hectare of arable land]
2000
2005
2010
2015
year
fertzr_consEA
fertzr_consAf
fertzr_consLA
Source: WDI, 2013
12
0
.05
.1
.15
Fertilizer Consumption in Africa in
proportion to EA and LA
2000
2005
2010
2015
year
fertzrAfEA
fertzrAfLA
Source: WDI, 2013
13
Source: Block, 2010
14
Heterogeneity among African regions
Source: Block, 2010
15
Agricultural productivity in Africa: Myths?
• Large scale is more productive than Small
holder
Not Necessarily
• Introduction of labour saving machine would
increase productivity
Not Necessarily
• Agricultural/rural life provides less sustainable
livelihood—worse employment
Yes
• Biotechnology is harmful for agriculture ????
Revisit the Myths:
Need to understand clearly what each implies in
Regional/local context
Need to approach in complementary or systemic
manner
16
Areas for future investigations in the
area of agriculture for employment
• Realities of African agriculture: how innovation
(technology/institutional change) can be
incorporated to improve productivity?
Requires systemic perspective?
-Improve labour productivity
• Under what conditions, increase in
productivity of agriculture lead to the
structural transformation ?
-Encourage structural transformation
17
Theoretical understanding of
Structural transformation 1
• Classical view 1
• Dual Sector Model (A.Lewis, 1954)
– Surplus labour in Agricultural (subsistence)
sector will move to manufacturing (capitalist)
sector because marginal labour productivity of
agriculture is low (surplus, cheap labour).
If Dual Sector Model is correct, the marginal cost of
labour should be cheaper, making it attractive for
more productive activities such as manufacturing.
18
Theoretical understanding of
Structural transformation 2
• Classical view 2
• Ricardian rent theory: diminishing returns to
increments of labour and capital applied to an
inelastic supply of land represented
fundamental constraint on economic growth.
– Pessimistic view of technological progress;
– In reality
• Real cost of agricultural production had declined in spite
of land resource constraint
• TFP of agriculture increase in economic growth
• Technological change released inelastic resource supplies.
But above is not happening in Africa
19
Theoretical discussion of
Structural transformation
• Current view
• Sustained and high level of economic growth are
highly associated with structural transformation
process through industrialization mainly to
manufacturing. (i.e. East/SE Asia and many
developed countries)
• Alternative views
• Service based development possible? (e.g India)
• Latin American scholars (Perez, Lederman, Maloney
etc in 2000s): focus on Knowledge
– Natural resource based development (NRBD) is possible
20
Possible explanations for structural
transition not occurring in SSA/Africa
• Rapid population growth eats up the increased
agricultural productivity (diminishing return of
labour)
• Absorption by manufacturing is inhibited by the
higher wage caused by
– High food cost in urban areas
– Natural resource boom (Dutch disease)
• Transition perhaps also inhibited by skill mismatch
– Education/training need to be aligned?
• Lack of investment in the countries to productive
sectors?
21
.5
1
1.5
2
2.5
3
Population Growth (annual growth rate)
1970
1980
1990
year
popgr_EA
popgr_Af
2000
2010
popgr_LA
Source: WDI, 2013
22
Comparison of Food prices
Sub Saharan Africa and East Asia
Wheat (US$/1KG)
Rice (US$/1KG)
1.2
1.2
1
1
0.8
0.8
0.6
0.6
0.4
0.2
0.4
0
0.2
0
1985 1990 1995 2000 2005
1985 1990 1995 2000 2005
Maize (US$/1KG)
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
1985
SSA
Source:Hirano, 2013 based on ILO data
1990
1995
2000
2005
EA developing countries
23
Comparison between Manufacturing
Average Wage and GDP/capita
Manufacturing Average Wage
Malaysia
China
Philippines
Thailand
Indoensia
Cambodia
Vietnam
Chec republic
Russia
S. Africa
Mauritious
Senegal
Kenya
Egypt
Uganda
Ghana
Tanzania
Ethiopia
Lethoto
Malawi
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
GDP/capita
Source: Hirano, 2013 based on most recent data available from UN statistics.
24
Dutch disease
• Phenomena whereby the currency is
overvalued due to export boom of natural
resources (usually minerals);
• The overvaluation would translate into
weakening competitiveness of exports and
domestic industries (this also means
drawing labour to the booming sector
contribute to higher wage; increase of
imports, such as food);
• Increase flow of money may lead to over
spending by government (if not invested
wisely).
25
African export commodity by type in ‘000 dollars
26
EXCHANGE RATE OVERVALUEATION
27
5
10
15
Food imports as percentage of merchandise imports
1960
1970
1980
1990
2000
2010
year
fm_EA
fm_Af
Source: WDI, 2013
fm_LA
28
Contribution to GDP growth (2002-2008)
SSAfrica N. Africa World
Productive
Agriculture
Mining, infrastructure
Manufacturing
Expenditure
Personal consumption
Government consumption
Fixed capital formation
Trade surplus
China* SE Asia*
16,4
25,4
7,0
7,8
44,0
8,5
4,0
8,1
16,3
9,4
27,4
11,8
11,3
26,8
60,6
15,9
20,3
2,0
42,9
11,9
26,6
13,2
54,6
17,6
25,7
-
30,0
12,1
48,2
15,5
53,4
9,9
25,5
9,7
Source: based on Hirano 2013, 2009 which made calculation from data obtained from UN statistics
Note: * is for 2002-2007
29
Summary
• So far, much of employment in SSA is in Agriculture
(subsistence) sector. But productivity of this sector
remains low, underemployment exist (labour surplus)
to be released into other sectors.
• Overall, there is growth in agricultural sector but
conventional structural transformation seems missing
[Agriculture  Industry Service]
• Service sector is growing: but limited knowledge on
what is happening especially on productivity and
employment dynamics.
• There are some rupture in translating recent
economic growth (observed in some SSA counties)
into transforming structurally allocating resources to
productive sector to create PRODUTIVE and
30
SUSTAINABLE EMPLOYMENT.
Possible areas for future research
• Understand why structural transformation is
not happening in Sub-Saharan Africa from
Agriculture to other sector
• Understand productivity and employment
dynamics in the service sector
• How to improve existing low productivity of
agriculture?
– Important for structural transformation
– Food security
31
THANK YOU!
32