Labour Market Flexibility, Wages and Incomes in Sub‐Saharan Africa in the 1990s

Abstract

This paper provides an overview of how African labour markets have performed in the 1990s. It is argued that the failure of African labour markets to create good paying jobs has resulted in excess labour supply in the form of either open unemployment or a growing self-employment sector. One explanation for this outcome is a lack of labour market 'flexibility' keeping formal sector wages above their equilibrium level and restricting job creation. We identify three attributes of labour market flexibility. First, whether real wages decline over time; secondly, the tendency for wages to adjust in the face of unemployment; and thirdly, the extent of wage differentials between sectors and/or firms of various size. Recent research shows that real wages in Africa during the 1990s may have been more downwardly flexible than previously thought and have been surprisingly responsive to unemployment rates, yet large wage differentials between formal and informal sector firms remain. This third sense of the term 'inflexibility' can explain a common factor across diverse African economies -the high income divide between those working in large firms and those not. Those working in the thriving selfemployment sector in Ghana have something in common with the unemployed in South Africa -both have very low income opportunities relative to those in large firms.

Employment, Unemployment, and Underemployment in Africa

“…Söderbom et al (2002) show that when observable and unobservable aspects of human capital are controlled for, wages are much higher in larger firms. Kingdon et al (2006) conclude that non-competitive theories such as efficiency wages and bargaining models explain this effect better than human capital theory. In the formal manufacturing sector, Fox and Oviedo (2008) show that wage premia do not reflect productivity differences.…”

“…Table 3 presents changes over the 1990s or early 2000s in sectoral employment patterns for Tanzania, Uganda, and Nigeria, drawing on the work of Francis Teal and his collaborators (Kingdon et al 2006;Haywood and Teal 2009). During this time, in all three countries, the share of the labourforce in wage employment (closely related to formal sector employment) declined, due mainly to sharp drops in the shares of public sector employment, including state-owned enterprises.…”

GDP Structure and Economic Performance in Sub-Saharan Countries

“…Low number of workforce in industry and low level of industrial development on one hand, and very high level of employment in agriculture on the other hand remain essential problems of the region (Tiff en, 2003;Kingdon, Sandefur and Teal, 2006). Underdeveloped infrastructure (Ajakiye and Ncube, 2010) and low level of development in industrial and service sectors are factors dragging Sub-Saharan economy down.…”

Learning by Doing: Skills and Jobs in Urban Ghana

“…We propose that practical and general mathematics skills, such as those that people can learn through the repetition of tasks involving money, may be important, not only in that they can be acquired at work but also because they may be important determinants of socioeconomic outcomes. The importance of understanding whether practical and general mathematics skills are actually learned on the job is quite useful within the Ghanaian context, especially given the relatively low levels of formal educational attainment and because the pattern of job creation during the past two decades has meant that individuals are increasingly turning towards self-employment that involves the handling of money, particularly in urban areas (Fox & Gaal, 2008;Kingdon, Sandefur, & Teal, 2006: Nsowah-Nuamah, Teal, & Awoonor-Williams, 2010. A large proportion of the Ghanaian workforce may be acquiring practical skills while at work that are simply not captured in typical skills measurement.…”