DUALISTIC NATURE OF EMPLOYMENT IN SOMALIA • Somalia has very low labor force participation, likely driven by the limited viability of agricultural and low non-agricultural labor demand. • There is also evidence of a dual labor market: i) a small pool of good jobs, typically accessed by the better educated, and ii) a larger, but still limited, pool of low-quality, low-pay jobs that individuals do out of necessity. These better jobs are often within the government, international organizations, or NGOs. • Policies should focus on increasing human capital and overall labor demand. Somalia’s labor market displays some unique addition, there is limited demand for non-agricultural traits for its level of income. Somalia has extremely labor. This is demonstrated by the fact that low labor force participation (LFP), especially when unemployment is larger than underemployment in compared to other low-income country peers Somalia, which is again the opposite of what normally (Figure 1). LFP is also low across all demographic occurs in low-income countries.² Further, over half of groups, especially among women and the nomadic the individuals who are inactive and want to work population. The only groups with higher LFP are but do not actively search for work cite a lack of men and those with tertiary education; however, opportunities as the reason. they account for only 4 percent of the working-age population. Interestingly, there is no difference in These factors combine to create a dual labor market. LFP across poverty status (Figure 2). There are several Regression analysis and qualitative work suggest two potential causes for the extremely low LFP. Firstly, types of individual work: i) those who can access a small Somalia has limited agricultural employment (around pool of good jobs, typically with tertiary education or 30 percent of all employment), which often absorbs social connections, and ii) a larger pool, but still limited, a large share of labor in low-income countries.¹ In of low-quality, low-pay jobs which individuals, such Figure 1: International Comparison Figure 2: Labor Force Participation, 2022 3 of Labor Force Participation 70% 60% % of Working-Age 100% 50% 80% 40% LFP (15-64) 60% 30% 20% 40% 10% 20% 0% 0% Tertiary All None Incomplete Primary Primary Secondary Poor No Yes Rural Urban Nomadic Male Female Non-Poor 2.0 3.0 4.0 5.0 GDP per capita (log) LICs MENA Note: Orange marker is Somalia; Blue markers with purple outlines are both All Location Sex Education Poverty Remit- LICs and MENA countries. tances ¹ Merotto, D., et al, 2018. ² Merotto, D., et al, 2018. ³ Somalia’s data point is from 2022, while the rest are from 2019. 1 POLICY BRIEF: DUALISTIC NATURE OF EMPLOYMENT IN SOMALIA as female IDPs, take out of necessity. Individuals with considered better quality wage jobs. However, these other sources of income, such as remittances or another two employers account for three-quarters of all wage earner in the household, less often participate in employment (Figure 3 and Figure 4). Lower-quality the labor force. These better-quality wage jobs can be employment is mostly found in retail trade (17 classified based on whether they are entitled to paid percent), other services (17 percent), construction leave or if they have a written contract. The scarcity of (15 percent), and transport (15 percent), with 54 these better jobs is demonstrated by the fact that they percent employed by private non-agricultural entities account for only 14 percent of all employment and 1 and 23 percent by other households. percent of the working-age population. Policies should aim to increase labor demand The better-quality jobs are better paid and and improve human capital through better typically within the government, international educational outcomes. To improve labor market organizations, or NGOs. Over three-quarters outcomes, labor demand and supply must be of these jobs are occupied by men, and they are improved. On labor demand, establishing a conducive largely concentrated in urban areas and are largely business environment and supporting infrastructure individuals from the richest urban households. Over will help the growth of the private sector, which in half of the employees in these better jobs have turn can provide greater employment opportunities. at least completed secondary education, despite Policies that aim to increase overall economic growth only 14 percent of the working-age population would also need to support this. The government can having this level of education. Further, households also consider using large-scale urban public works as with a member working in one of these better jobs a demand shock for low-skilled labor. Additionally, have a lower poverty rate (32 percent) compared for labor supply, social norms such as attitudes to the national average. Over one-third are in the towards women working and inter-clan dynamics add social sectors, and around one-quarter are in the additional frictions to the labor market. The education administrative services sub-sector. These jobs are system should be expanded in the medium term to the best paid, with the largest median monthly and increase enrollment. This must be done inclusively hourly wages. Further, although they account for a to ensure that marginalized groups can accumulate small share of overall employment, over half of all human capital. This could also be incentivized through international organization jobs (66 percent) and NGO conditional cash transfers or through subsidizing jobs (50 percent) are considered better-wage jobs. In school fees for marginalized groups such as the comparison, 29 percent of all government jobs are poor and IDPs. Household enterprises also continue better-quality wage jobs. In contrast, only 5 percent to offer an important source of employment in of jobs with private non-agricultural employers Somalia, so policies that improve access to credit and and less than 1 percent with other households are customers may be beneficial. Figure 3: Share of Wage Employment by Sector Figure 4: Share of Employment and Share of Jobs that 40% are Better-Quality Wage Jobs by Employer Share of Wage Employment 35% 30% International org. or a foreign embassy 25% NGO, non-profit institution, or mosque 20% 15% Other household(s)/individual (ex: domestic 10% worker) 5% Private non-agricultural entity 0% Mining & Utilities Construction Other Services Agriculture Manufacturing Admin Trade Transport Food ICT, Finance Social Private agricultural entity Government or state-owned enterprise (federal, state, local) 0% 50% 100% Non-Formal Formal Better-Quality Share of Employment 2