Macroeconomic policies and sustainable employment yields in sub‐Saharan Africa

Abstract

The impact of macroeconomic policies on employment yields from output growth in sub-Saharan African countries is examined in this study. Data for 37 countries are used for the period 1991-2016 and sustainable employment yields are obtained by comparing employment elasticities for own-account (vulnerable) and employers (formal) groups. The two-stage least squares method is used to estimate employment elasticities for the panel datasets for three sub-periods (1991-1999, 2000-2009, 2010-2016), and the feasible generalised least squares method is used to estimate the effects of policies on employment elasticities based on a pooled dataset for the three sub-periods. Policy efforts are shown to be more effective if moved towards more flexible and targeted tax regimes, more rigid labour markets, and liberalised trade. On the other hand, investment and industrial policies do not appear to exert unidirectional effects on employment, especially given wide variations in government sizes and relative shares of domestic/foreign investment among the countries. There is also evidence that policy influences are more practicable with more formal employment groups. Patterns of macroeconomic policy directions are therefore critical to their effectiveness as labour market adjustment tools in the region.

Vulnerable employment in developing economies: The case of sub‐Saharan African countries

“…With this effect, our finding also indicates a state of capacity overload in rural employment. This finding is in line with Adegboye (2020), Anyanwu (2013), and Baah‐Boateng (2016) about the high absorptive capacity of urban sectors against rising labor inflows.…”

Macroeconomic Shocks and Employment in sub-Sharan Africa: Do Labour Market Institutions Matter?

“…This outcome is significant since it reveals that if domestic productivity can be shielded from external shocks, employment will not be significantly affected. This is however not the case for almost all SSA countries, given that macroeconomic environment is strongly linked to external sector in many of the countries (Adegboye, 2020;Boukar, 2021;Morsy et al, 2021). To ensure that our results are not driven by patterns of modern economic sectors in countries with large urban sector as in Harris and Todaro (1970), we include urban population rate as a control variable.…”

“…The negative effect of shock on employment is also intensified if a domestic price shock accompanies the external shock even when the tradables sector is dominant. For many SSA countries where the non-tradable sector is predominant in terms of labour demand (Adegboye, 2020) with strong binding constraints on capacity expansion by the tradables sector, external shocks tend to deliver negative effects on employment (Kaplan et al, 2011;Helm, 2020;Regis & Silva, 2021).…”

“…This is performed by weighting the estimates and correcting for both period heteroskedasticity and general correlation of observations within a given cross-section. These procedures are used to obtain a pooled OLS estimate with country-specific and time heteroscedasticity-robust standard errors (Adegboye, 2020). This method therefore adjusts for the presence of heteroskedasticity in the dataset.…”

“…It shows that variations in productivity do not necessarily generate strong wage responses. The low wage to pay linkage in SSA countries can be explained by noting that most employment in SSA countries is low-wage, low-productivity and often informal (Adegboye, 2020). This implies that there is often no need to adjust wages when output changes since wage rates are on the Harris-Todaro equilibrium level in most cases.…”