Underemployment and Unemployment in the EAC

This section explores the evidence on why underemployment and unemployment exists in the EAC. This is the second of three steps to addressing the first of the four help desk queries Booth et al (2007) find that a) the East African economies have large informal sectors that are poorly integrated with the formal economy and large business. And b) that in Kenya, Tanzania and Uganda, policies for market- based development have been improving but too slowly for investment and employment needs to be met. Failure to attract sufficient private capital and expertise into agriculture to transform the livelihoods of the poor majority of the population is a critical challenge for all three countries.

The State of Africa (2013) report finds that a formal wage-paying job is the privilege of a tiny minority of East Africa’s working population (1.6 per cent of Uganda’s youth, 4 per cent of Burundi’s, 5 per cent of Tanzania’s and 6 per cent of Kenya’s working populations are formally employed)37, that the number of jobs being created is not keeping up with increased number of people looking for jobs and that the jobs that do exist are frequently informal and pay below the poverty line.

The World Economic Forum (2010)38 finds that in the EAC the quality of infrastructure, macroeconomic stability, and health and education indicators in the bloc are poor, as is technological readiness. Some of the key factors hampering business in the region include access to financing, corruption, high tax rates, and inadequate supply of infrastructure. A core area that the regional literature on unemployment and underemployment in the EAC focuses on, although of mixed quality, is youth employment.

This reflects the rapid population growth that these countries have seen in recent years with higher youth unemployment to adult unemployment. The African Economic Outlook report of 201239, which focuses on youth unemployment, highlights the mismatch between the skills demanded by firms and the education acquired by young people. In analysing Kenya, Tanzania, and Uganda, Haji40 identifies a range of causes41 (which are also consistent with other grey literature on the subject42):

 Lack of employability and skills despite vast improvements in literacy. It also highlights that training in East Africa is largely unrelated to the labour market.

 Inadequate employment creation resulting from numerous constraints in the business enabling environment.

 A lack of opportunities for young women reflecting discriminatory policies, structural barriers and cultural prejudices.

 A small formal labour market in the EAC.

 Discrimination i.e. negative attitudes towards inexperienced young workers.

However, there is no attempt to examine relative importance of these causes for unemployment and underemployment. A broader search on the causes of underemployment and unemployment in relation to East Africa yielded little regional-specific literature. There is of course a larger body of literature that analyses unemployment in developing countries and sub Saharan Africa as a whole but these are well summarised elsewhere (most notably with respect to the World Bank’s World Development Report (WDR) on Jobs, published last year) and are outside the scope of this study43. The literature found in this search tended not to fully separate causes of unemployment with those of underemployment, beyond highlighting the high rate of low wage, informal work prevalent in these countries. The literature found did not provide definitions of under and unemployment in each instance preventing exact comparability of the terms used.

Country level There is more literature at an individual EAC country level although most papers highlight that the quality of the data is poor as well as scarce. A full literature review of each country in the EAC was not possible in the scope of this work; therefore this review mainly concentrates on recent World Bank and AfDB publications in this area, which included a special focus on youth unemployment.

Kenya A literature review published in 2010 by Kenya’s National Economic and Social Council (NESC)44 identified the following causes behind unemployment/underemployment:

 Rapid population growth has led to a rise in informal sector employment (as growth in the formal sector could not keep up). In many cases people participating in the informal sector are underemployed given low remuneration. The increase in the youth population has also led to supply outstripping demand, particular in urban areas.

 There is a skills mismatch particularly for school leavers and graduates.

 Information problems in labour markets with an absence of active job placement bureaus and updated labour market information.

 Structural adjustment programmes led to cuts in government spending and public sector downsizing.

The World Bank’s economic update in 2012 includes a special focus on jobs in Kenya45. The economic update highlighted that unemployment is almost entirely an urban phenomenon, while underemployment is more widespread and more prevalent in rural areas. The overall unemployment rate for Kenyans aged 20-24 (rural and urban combined) is 8.1 percent compared to 13.2 percent for urban residents in the same age bracket. The low wage returns to primary education suggest that the quality of education is limited.

However, the World Bank’s enterprise survey suggested that other factors (such as access to finance, macroeconomic instability, transportation and electricity) were more binding constraints to enterprise growth. Such demand side constraints were considered more important with firms not hiring workers into modern wage jobs because their businesses are not growing. At the household level, and particular in the rural, informal economy enterprises, three main barriers were cited for why they struggle to grow (and provide employment); harassment by authorities, access to finance, and lack of skills.

Tanzania Youth unemployment is twice the national unemployment (4.7percent in 200647) rate and disproportionately affects urban youth and young women in particular. The African Economic Outlook for Tanzania suggests that one reason behind higher youth unemployment rates is that first-time job seekers, who are mainly young, face greater difficulty owing to lack of work experience and, often, limited access to job vacancy information48. Others reasons that younger workers have higher job turnover rates include a lack of skills and training and a lack of credit facilities for self-employment. At the same time the unemployment rate for those with secondary education and above has been consistently higher than the rate for those with lower levels of education49 indicating that there are still inadequate employment opportunities being created with jobs tending not to be high quality, formal sector jobs.

Uganda A special World Bank report into creating jobs in Uganda, published in 2013, forecasts that Uganda’s economic recovery will gain momentum in financial year 2014, achieving a rate of growth of 6.5 percent driven primarily by the services sector (approximately 8.5 percent), including communication and finance50. This is important as sectors that are integrated with the rest of the world are not limited by the domestic market. Modern services sectors are characterized by increasing returns when integration with regional and global economies, though the implementation of open trade policies and by increasing the level of competitiveness of strategic sectors, occurs51.

Rwanda Over 42 percent of the youth are either unemployed or underemployed in subsistence agriculture suggesting structural causes in terms of the composition of the economy55. The causes of youth unemployment in Rwanda include skills mismatch, with education provision misaligned with private sector needs, and demand which has not kept up with the number of new job seekers joining the labour market each year (approximately 200,000).

Burundi Overall there is a general lack of economic development resulting in less jobs being created than the increased numbers entering the labour market. Similar to other East African countries, youth unemployment is higher than the rest of the adult population (three times as much). Factors identified causing this, beyond a lack of formal private employment include; a contraction in the public service as the government seeks to control wages (and therefore will not hire those with little experience); a lack of vocation training; and a lack of enabling environment for entrepreneurship (e.g. a lack of finance and constraining regulations56.

Conclusion There were limited data on why underemployment and unemployment exists in the EAC. This lack of data was highlighted by the EAC Secretariat in the 4th EAC Development Strategy (2011/12 – 2015/16)57. The limited literature focused on unemployment and underemployment in the EAC as a group, or with comparative references, is of mixed quality.

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