REALM Round 1

To access REALM round 2, click here 

Contact person
Dr Neil Rankin (neilrankin@sun.ac.za)

Description
This project, funded by the International Development Research Centre, Canada, brings together evidence from four African countries: Ghana, Madagascar, South Africa, and Tanzania to investigate two key questions:

1) How and where are jobs created that can be accessed by the poor?

2) What types of jobs create trajectories out of poverty, and what is constraining the growth of these jobs?

Collaborating institutions
African Micro-Economic Research Unit, University of the Witwatersrand;
University of Dar es Sal m, Tanzania;
Ghana Statistical Services;
National Institute of Statistics Madagascar (INSTAT);
Centre for the Study of African Economies, University of Oxford;
Lafayette College;
Cornel University;
University of Cape Town.

Research Outputs
Ghana
1) Manufacturing Firms in Ghana: Comparing the 1987 and 2003 Censuses - Anthony Krakah, Moses Awoonor-Williams, Nicholas Nsowah-Nuamah and Francis Teal. Presented at the 2009 CSAE Oxford conference. The conference paper can be found here.

This paper presents a comparison of the 1987 and 2003 censuses of manufacturing firms in Ghana. The study shows that the number of industrial firms increased from 8,000 in 1987 to 26,000 in 2003. However, the increases were predominantly amongst small-sized firms which more than tripled, and medium-sized firms that doubled.Large firms remained about the same in number but firms employing 500 persons and more actually contracted from 52 to 40.

With regards to wage levels in the manufacturing sector, the findings from the two censuses indicate that wages in large firms more than doubled for all categories of workers between 1987 and 2003. Average wage per employee per month in large firms rose from $53 in 1987 to $139 in 2003. It is also observed that wages and salaries of administrative, clerical and accounts staff are twice as much as what the production workers (up to the foreman level) receive. However, in spite of the remarkable increases in the number of medium-sized firms over the reference period, average wage per employee generally increased from $38 in 1987 toonly $50 in 2003 (i.e. 32%). The increases among these size class firms also varied across employment categories as production workers benefited by 13.0% compared to 33.0% amongst the administrative, clerical and accounts staff.

The paper discusses the implications of these changes in the size distribution of firms and the structure of wages.

2) Jobs in Ghana: What types of jobs have been created and where? - Moses Awoonor-Williams, Nicholas Nsowah-Nuamah and Francis Teal. Presented at the 2009 CSAE Oxford conference. The conference paper can be found here.

Jobs and skill creation have become a major preoccupation of African governments and Ghana is no exception. While poverty levels have fallen dramatically over the period from 1991 to 2005, GSS (2007), there has been an increasing concern with both the extent and quality of job creation. Recent reviews of the evidence of labour market developments in sub-Saharan Africa have pointed to a pattern by which job growth has been most rapid in urban self-employment not wage employment, Kingdon, Sandefur and Teal (2006) and Fox and Gail (2008). This apparent failure to create wage jobs relative to self-employment ones is of particular importance for the rising number of secondary school students who aspire not simply to any kind of job but a ?good? one.

This paper uses rounds three to five of the GLSS which cover the periods1991/92, 1998/99 and 2005/06. We will show that applying standard labour market definitions to the household surveys results in average unemployment rates of less than 3 per cent. These low rates are consistent with rates of joblessness (ie no economic activity) close to 20 per cent in urban areas and much higher than that for young workers. The implications of these findings are discussed for the links from job creation to poverty reduction.

3) Does doing an apprenticeship pay off? Evidence from Ghana - Courtney Monk, Justin Sandefur and Francis Teal. Published as a CSAE working paper.

In Ghana there is a highly developed apprenticeship system where young men and women undertake sector-specific privatetraining, which yields skills used primarily in the informal sector. In this paper we use a 2006 urban based household survey with detailed questions on the background, training and earnings of workers in both wage and self-employment to ask whether apprenticeship pays off. We show that apprenticeship is by far the most important institution providing training and is undertaken primarily by those with junior high school or lower levels of education. The summary statistics indicate that those who have done an apprenticeship earn much less than those who have not. This suggests that endogenous selection into the apprenticeship system is important, and we take several measures to address this issue. We find a significant amount of heterogeneity in the returns to apprenticeship across education. Our most conservative estimates imply that for currently employed people, who did apprenticeships but have no formal education, the training increases their earnings by 50%. However this declines as education levels rise. We argue that our results are consistent with those who enter apprenticeship with no education having higher ability than those who enter with more education.

Madagascar
1) The Demand for Hired Labor in Rural Madagascar - Jean Claude Randrianarisoa, Christopher B. Barrett and David Stifel. Presented at the 2009 CSAE Oxford conference. A version of this paper can be found here.

This paper estimates structural labor demand equations separately for farm and non-farm enterprises in rural Madagascar.It adapts recent labor supply estimation methods that address the general unobservability of both wage rates ? due to widespread self-employment ? and employers? non-wage costs of hiring workers in order to fill a significant void in the existing literature. Labor demand in rural Madagascar appears strongly increasing in enterprise owners? educational attainment, in enterprises? capital stock, and in community-level public goods.Furthermore, labor demand appears wage inelastic, especially in the non-farm sector where government labor market policies, such as minimum wage laws, are more commonly enforced.

2) Firm diagnostics and constraints to growth of formal sector labor demand - Rachel Ravelosoa and David Stifel. - Work in progress.

South Africa
1) Firm Characteristics and Job Matching in South Africa: How to find the 1st job - Neil Rankin, Gareth Roberts and Volker Sch?nt>er. Presented at the 2008 DPRU conference andat the 2009 CSAE Oxford conference. The conference paper can be found here.

Job creation, particularly for unemployed youth, is a key policy objective in South Africa. But, whilst job creation would allow unemployed workers to enter employment, the actual allocation of vacant jobs is determined by the matching of job seekers and recruiting firms. Thus, which people finally get employed is not only a function of their skill and personal characteristics but also a matter of the process through which firms and job seekers are matched. Using the SAYPS data set and Gorter et al?s (1994) allocation model, we investigate the worker and firm characteristics that determine the probability of getting employed via a particular search/recruitment method. We look at three possible search/recruitment channels: formal, informal and networks.

Both firms and job seekers optimise their search strategies by using the method which yields the best possible outcome with the lowest costs. But, in a labour market characterised by an excess supply of workers, like the South African market, the choice of therecruitment method of the firm determines the probability of getting employed via certain search/recruitment channels. Our findings confirm that the number of matches in a particular channel is not determined by the supply of applicants but rather the demand side. Firm characteristics determine the probability of an individual being employed through a particular search/recruitment channel. Possible explanations include the ability of job seekers to transmit reliable signals about their productivity levels and the willingness of firms to engage in screening procedures to test these signals. When applicants have reliable signals in form of paper qualifications (degrees and certificates), their likelihood of being employed through formal channels increases.

The predominance of network channel employed shows that firms prefer the cheaper recruitment method which imposes little advertising and screening costs but still provides employers with a reasonable productivity signal via referrals. Not having access to such recruitment networks creates a systematic disadvantage to informal channel job seekers, i.e. unemployed who do not have the required educational background nor do they have access to recruitment channels. Our findings indicate that both employees who got employed via networks and through informal channels share the same observable individual characteristics. The main two factors that explain the difference between these two groups are firm size and having gone through an interview. Smaller firms seem to avoid the costs of screening by relying more on referrals. Larger firms on the other hand can allocate resource to this procedure.

2) Exporting, Labour demand and wages in South Africa - Neil Rankin, Gareth Roberts and Volker Sch?nt>er. Presented at the 2008 DPRU conference andat the 2009 CSAE Oxford conference. The conference paper can be found here.

For small economies, export led growth is the only viable policy strategy. In the context of South Africa, increased export growth must be a component of any growth strategy that seeks to address the high levels of unemployment and an unskilled labour force. However, the linkages between export behaviour and labour demand are complex and do not necessarily impact positively on unskilled labour demand. This paper investigates the direct linkages between export behaviour and labour market outcomes. We analyse the impact of export participation, intensity and destination on the demand for labour and subsequently wages paid. Our findings suggest that exporting has a significant impact on the labour market outcomes. Exporters to the rest of the world pay higher wages than domestic suppliers, while exporters to the SADC region pay lower wages. We hypothesise that this is related to the quality of products that are exported. Analysis of aggregate data suggests that South Africa exports high price (and thus high quality) products internationally but low price (and low quality) to the region.

3) Job sorting and search frictions in the labour market for young black South Africans - Gareth Roberts.Presented at the 2009 CSAE Oxford conference. The conference paper can be found here.

The unemployment rate among young people in South Africa is significantly higher than in other developing counties. This paper examines the determinants of this unemployment using a sample of young people aged 20 to 35 from Gauteng, Kwazulu-Natal, and Limpopo. It finds that young people have reservation wages that are higher than what they can expect to earn in firms with less than fifty employees. It also finds that work experience in these firms increases the probability of finding employment in firms with more than fifty employees.

Tanzania
1) Private Sector Development and Income Dynamics: A Panel Data Study of the Tanzanian Labour Market - Simon Quinn and Francis Teal. Published as a CSAE working paper.

In this paper, we use a three-period panel of Tanzanian households to explore the determinants of earnings and earnings growth from 2004 to 2006. In doing so, we draw particular attention to the role of education and to the importance of heterogeneity between more and less formal occupations. Several important conclusions emerge. Education is found to have a significant convex effect upon earnings levels, but to have had no significant effect upon earnings growth (indeed, there is some suggestion that education may have had a negative impact). This suggests that recent Tanzanian growth may have reflected an ?unskill-biased technological change?, providing relative reward to informal skills rather than to formal education. Further, there are interesting insights into the age-earnings relationship: the relationship is found significantly to be concave in levels, yet age is not found significantly to have affected earnings growth. This suggests that the concave levels relationship is driven by workers? participation decisions, rather than by a concave earnings trajectory at the level of the individual worker. Finally, we find significant evidence of variation between formal and informal enterprises, and between sizes of enterprises within these different employment sectors.

2)Estimates of the Productivity Effect of Higher Education on the Tanzanian Labour Market- Godius Kahyarara. The paper can be found here.

This paper addresses the question of whether and to what extent the large changes in the supply of graduates in Tanzania since the 1990s have impacted on productivity. Since the 1990s productivity in Tanzania has experienced an upward trend. Since the increased productivity coincides with the growth in higher education enrolment, the paper investigates whether growth in the higher education sector has contributed to this upward trend. Using microeconomic data at the firm-level this paper finds a strong positive correlation between higher education and productivity.

3) Formal and informal employment in the Tanzanian labour market - Godius Kahyarara. The paper can be found here.

This paper set out to examines the formal-informal employment aspects of wages, working conditions and employment trends in the Tanzania labor market from the 1990s. To examine the dynamics of formal and informal employment in Tanzania labor market, this paper first estimate the microeconomic model of wage gap between the sectors, then use the estimated wage gap along with a range of individual and enterprise characteristics to assess the determinants of such gap. The trend analysis confirms that formal sector employment in Tanzania is very small and has declined on relative terms since the early 1990s. The trend analysis also reveals a dramatic growth of the informal jobs in Tanzania during the post 1990s. Using the dualism model, the paper shows that employment in the formal and informal sectors display features that are radically different in many respects. While the formal jobs are relatively well paid, with good fringe benefits, relatively pleasant working conditions, employment security, and clearly defined grievance procedures or work discipline regulations , it is quite opposite in the informal jobs. The informal jobs are much less desirable, and they are likely to be short term, unstable, poor working conditions, arbitrary work discipline, and few fringe benefits.

4) Job creatinon in the Tanzanian labour market: What jobs are being created, where? - Godius Kahyarara. The paper can be found here.

This study examines the process of job creation in Tanzania by addressing the question what types of jobs are being created and where?To address these questions the paper?s conceptual framework and strategies consider the interrelation between the number of jobs that can be created in a labor market segment, the quality of jobs in terms of human capacity requirement, productivity and remuneration. Furthermore, the paper estimates the incidence of working poor in the jobs created and provides a forecast of the potential future direction of jobs within a sub-sector or segment of the market.The specific method for capturing job creation used by the paper are estimates of the labour market, indexes of job creation and job destruction at sectoral level. Poverty dimension of the labour market in the form of working poor also form one of the estimation parameters. The paper findings are that job creation in Tanzania is mostly happening in traditional agricultural sector and urban informal sector as both employ over 90 percent of the working population. The absorption capacity in the formal sector jobs is very small and there are all indications that it will remain so even in the near future. Large proportion of jobs created is vulnerable jobs in which earnings are below 2 dollar a day which is below the working poverty line. This makes the paper conclude that working poor is a major problem in the Tanzania labour market 

Other Outputs, Conferences and Workshops
Many of the papers from this projectwere presented at the CSAE's Annual Conference in March 2009.

Ghana
Policy workshop - 17th September 2008, Accra, Ghana. Hosted by the Ghana StatisticalService and the University of Oxford.

Madagascar
Policy workshop - 19th-20th June 2008, Antananarivo, Madagascar. co-hosted by INSTAT and the World Bank.
Policy workshop - 20th January 2009, Antananarivo, Madagascar. co-hosted by INSTAT and the World Bank.

South Africa
Research and policy workshop "Firm level data analysis"- 19th-20th February 2008, Johannesburg, South Africa, co-hosted by Economic Research Southern Africa.
Two Masters Scholarships for 2009- Arabo Ewinyu and Bongani Daka

Tanzania
Policy brief - Academic versus Vocational Training: Maximising Tanzania s Educational System - Godius Kahyarara, University of Dar es Sal m
Policy workshop - "Economic development, labour markets and education" - 3rd December 2008, Dar es Sal m, Tanzania.
Policy workshop - "Improving labour markets in Africa" - 22nd July 2009, Dar es Sal m, Tanzania. A report can be found here.