Labor Markets in Sub Saharan Africa

Tabiya's current work focuses on creating digital public goods with youth employment partners in Sub Saharan Africa. Here we provide an overview of labor market dynamics in this context.

Labour markets in low- and middle- income countries are characterised by a dearth of quality formal jobs (Fields, 2011). This leads to high rates of formal unemployment in some countries, and in others, to large numbers of workers taking insecure jobs with very low pay. In either circumstance, many labour market participants in low and middle income countries struggle to earn decent, steady incomes despite being willing and able to work. This contributes to high rates of poverty and exploitative working arrangements without labour protections.

This challenge has been exacerbated by the 2008 Financial Crisis and the COVID-19 Economic Crisis, two catastrophic global recessions that destroyed economic value in many countries. Moreover, in Sub-Saharan Africa, demographic pressures, rising youth unemployment and the destruction of manufacturing jobs have exacerbated the unfavourable ratio of workers to formal jobs (McKenzie). From 2023-2033, 1.2 billion youth will become working age and 714 million youth will require job opportunities (World Bank, 2023).

Labour Market Frictions in Sub-Saharan Africa

One lever for addressing unemployment is helping firms to increase their hiring of workers from the large pool of available candidates. However, firms are often reluctant to expand hiring, and cite an inability to find suitable candidates. The World Bank reports that about 23% of firms cite workforce skills as a significant constraint to their operations. In some African and Latin American countries, this share rises to 40–60% (World Bank 2023). This is surprising when firms have large applicant pools available to them. Increasingly, academic research is showing that both firms and workers lack good information required to match worker skills to suitable jobs. This leads to workers searching for and applying for jobs inefficiently and firms being unable to find or observe the skills they need when hiring. These frictions reduce firm willingness to hire and reduce the wage offers firms are willing to make because of uncertainty of the quality of hired workers.

Features common to many Sub-Saharan Africa labour markets are suggestive of large frictions that may reduce hiring demand and misdirect job search. Large shares of jobseekers have limited formal work experience and very similar education qualifications. Young jobseekers are particularly likely to have few experiences they can use to demonstrate skills. These constraints limit the ability for jobseekers to signal competency to firms and limit the ability for firms to compare applicants and judge who is best suited for the role. Moreover, job search and migration costs are high, especially relative to incomes. As summarised in Caria & Orkin (2024), studies from Ethiopia, Jordan, South Africa and Uganda find that job search expenses among active jobseekers are at least 16% of total jobseeker expenditure. This reduces the ability for job seekers to search widely, find the jobs that demand their particular abilities and experiences and gain information about the nature of jobs available in the market. Finally, a number of studies document a high prevalence of inaccurate beliefs among jobseekers (Hensel et al. 2024, Abebe et al., 2021). This suggests job seekers lack information about their skills, comparative advantage and prospective earnings.

Spatial frictions exacerbate difficulties for the matching of firms and workers. Studies that document high job search costs in Sub-Saharan Africa show that reducing travel costs by providing for example, transport subsidies or improving travel quality (Donald & Grosset, 2022) can increase job search intensity in the short term (Franklin et al. 2015, Abebe et al., 2021) but cannot entirely overcome frictions arising from weak signalling ability, misdirected search and biased beliefs. Intuitively, this is because searching for more jobs may not translate into matches if effort is focused on applying for jobs that applicants are not well suited for. Consequently, job search subsidies tend to fail to translate increased search into improved employment outcomes.

Overcoming spatial Job fairs that bring together jobseekers with firms looking to recruit (Abebe et al., 2023) have been shown to provide information to both parties, leading to updated, more accurate, beliefs about the job market and pool of candidates. Online job search platforms can play a similar role in easing some costs of search and providing information about prospective employers and jobs for jobseekers (Wheeler et al., 2022., Field et al., 2023, Jones & Sen, 2022). However, a number of studies document no overall effect on employment from encouraging the use of online job platforms, and in some settings, a replication of off-platform negative bias towards socially marginalised groups (Chakravorty et al. 2023, Afridi et al 2023).

Bibliography:

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Abebe, G., Caria, S.A., Fafchamps, M., Falco, P., Franklin, S., Quinn, S. and Shilpi, F.J., 2023. Matching frictions and distorted beliefs: Evidence from a job fair experiment (No. 958). working paper.

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