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HORN OF AFRICA REGIONAL ECONOMIC MEMORANDUM BACKGROUND PAPER 2 Jobs in the Horn of Africa: Synoptic Brief - Tom Farole, Jan von der Goltz, Tove Sahr, and Mariana Viollaz iv CONTENTS 1 Introduction ............................................................................................................................................. 1 2 An overview of the labor markets in the Horn of Africa ...... 3 3 Employment patterns ............................................................................................................... 9 4 Job outcomes ...................................................................................................................................... 15 5 A labor demand perspective .......................................................................................... 19 6 Labor market patterns and job outcomes in the border areas .................................................................................................................................................................... 21 7 Youth cohorts ....................................................................................................................................... 25 8 Policy recommendations .................................................................................................... 29 References ................................................................................................................................................ 31 v vi SECTION 1 | INTRODUCTION SECTION 1 Introduction This note provides an overview of labor markets the summary report on the most recent (2015/16) and job outcomes in the Horn of Africa. This Labor Force Survey (Government of the State of background note was prepared for the Horn Eritrea, 2018). Throughout this note, where no of Africa Regional Economic Memorandum.1 It separate source is indicated, statistics shown in provides an overview of issues related to jobs in Figures and Tables or cited in the text are based the five countries of the region, Djibouti, Eritrea, on the authors’ calculations from the databases Ethiopia, Kenya, and Somalia. It first discusses shown in Table 1. It is worth noting that data labor market characteristics, notably labor for Ethiopia as well as Eritrea and Kenya were force participation, unemployment and under- already quite dated at time of writing, and can employment, as well as demographics of the neither account, for instance, for continued labor force. Secondly, it compares employment manufacturing growth in Ethiopia and Kenya, nor patterns, focusing on the type and sector of for Ethiopia’s recent macroeconomic challenges. employment. Finally, it looks at the limited information available on jobs outcomes – notably, Statistics shown in this note are largely wage levels. It seeks to provides a relatively consistent with prior analyses of the succinct synoptic summary of the common underlying data, but sometimes diverge due trends among the five countries as well as some to the need to apply consistent methods to distinct features. With the exception of Eritrea, the all surveys. There are well-defined standard World Bank has recently analyzed jobs outcomes indicators to describe labor markets and job in all countries of the region (World Bank 2018b, outcomes. However, the ways indicators are 2019a, 2020a, forthcoming). This note references computed in an individual report depends on the these analyses, and the reader can consult them idiosyncrasies of available labor market data (for for additional detail. instance, categories used to record educational attainment or describe levels of formality), and The analysis draws upon the most recent sometimes, also on adjustments countries make representative employment data available for to indicator definitions (for instance, in the way each country, but data are dated in some cases. unpaid work in household activities is treated, Apart from Eritrea, the analysis presented in this or in cutoff ages for respondents considered note is based upon the most recent primary data ‘youth’). To facilitate comparisons, this report on employment available at time of writing. In the applies consistent definitions across the surveys case of Ethiopia, this is a 2013 Labor Force Survey; analyzed. Because of this approach, statistics in Djibouti, Kenya, and Somalia, data comes from shown here sometimes diverge from results household surveys (2017, 2015, 2017). For Eritrea, published in assessments of a single labor no suitable primary data were accessible. The market in the region, though they are always report therefore presents statistics published in consistent in approximate magnitude. 1 The note was prepared by Tom Farole, Jan von der Goltz, Tove Sahl, and Mariana Viollaz (Jobs Group). Ian Walker (Manager, Jobs Group) supervised the team. 1 JOBS IN THE HORN OF AFRICA: SYNOPTIC BRIEF Table 1: Data sources used basic features of the five countries. Of the five economies studied here, three are low-income Country Data source countries: Eritrea, Ethiopia, and Somalia.2 Both Eritrea and Ethiopia remain quite heavily reliant on Ethiopia 2013 Labor Force Survey agriculture. Starting from a very low base, Ethiopia Djibouti 2017 household data (GMD) has in recent years had significant success in raising productivity in the agriculture sector, and Kenya 2015 KIHBS in fostering some industrial development. Eritrea Somalia 2017 High Frequency Survey remains characterized by a highly regulated – Wave 2 economy and large state presence in production. Decades of conflict have given Somalia’s Eritrea Reported results from economy some features that are unusual for an 2015/16 Labor Force Survey (ELFS) – no access economy with a very low income level, including to raw data relatively high urbanization and reliance on the services sector. Djibouti and Kenya are both lower Source: World Bank. middle-income countries; Kenya has over the past 15 years seen robust growth across sectors, The economies of the region are diverse, including in manufacturing. Djibouti also has seen and labor markets reflect their structure. The a remarkable growth episode, and its income economies of the region have been characterized level is approaching the upper middle-income elsewhere in the REM (see especially HoA REM threshold. However, growth has been far less Background Paper 1 on the Economic Geography balanced, driven strongly by investments in the of the Horn). As background for the discussion of port and transport infrastructure, with few other jobs outcomes, it is worth recalling some of the strong developments. 2 This report occasionally makes statements as to whether jobs patters observed in the data are commonly observed in other countries of similar income levels; in these instances, it refers to the five countries together as “lower-income countries”. 2 SECTION 2 | AN OVERVIEW OF THE LABOR MARKETS IN THE HORN OF AFRICA SECTION 2 An overview of the labor markets in the Horn of Africa Population dynamics population growth, the labor force in the countries of the region is also experiencing a period of rapid With high population growth, about half of growth. Projected annual rates of increase over the population is of working age, and age the coming five years are at three percent or dependency ratios remain high despite recent higher in all countries except Djibouti (Table 2). declines. In all five countries, a little more than As many young workers join the labor force, there half of all residents are of working age, as is are important opportunities for development and typical of societies with high population growth poverty reduction. However, economies also face (Figure 1). Among the five countries, Djibouti the challenge of creating sufficient and good- and Somalia stand somewhat apart in that enough jobs for a large number of young workers they have, respectively, by far the largest and who are eager to contribute and hungry for a smallest share of working age population. This better life. We illustrate the scope of the challenge results from fertility rates of six births per woman further below. on average in Somalia compared to just under three in Djibouti (WDI). With the exception of Somalia, dependency ratios have fallen over the past 20 years. Yet, age dependency ratios remain elevated, with about 80 persons who are not of working age for every 100 working-age residents (Figure 2). High age dependency ratios imply that As many young workers join the labor welfare levels will be lower for an equal number force, there are important opportunities and quality of jobs. for development, but economies also face the challenge of creating sufficient Very large cohorts of young workers are entering and good-enough jobs the labor market each year. With overall high Table 2: Expected labor force growth Annual growth rate 2020-2025 Absolute annual increase 2020-2025 Djibouti 1.9% 5,000 Ethiopia 3.1% 1,832,000 Kenya 3.2% 793,000 Somalia 3.4% 161,000 Eritrea 3.0% 49,000 Source: World Bank staff calculations. 3 JOBS IN THE HORN OF AFRICA: SYNOPTIC BRIEF Figure 1: Share of working-age population and labor force participation rate 100% 91% 86% 83% 80% 77% 77% 80% 74% 70% 69% 73% 63% 60% 56% 60% 52% 49% 55% 49% 44% 40% 33% 19% 20% 0% Ethiopia Djibouti Kenya Somalia Eritrea Working-age population (%) Labor force participation (all, %) Labor force participation (men, %) Labor force participation (women, %) Source: World Bank staff calculations. Figure 2: Change in age dependency ratio since 2000 120 0 years of age per 100 working-age adults Number of children and adults over 65 -0,2 100 Average annual decline -0,4 (percentage points) 80 -0,6 -0,8 60 -1 40 -1,2 -1,4 20 -1,6 0 -1,8 Ethiopia Djibouti Kenya Somalia Eritrea Source: World Development Indicators. Note: reference years for Eritrea are 2000 and 2011. 2000 2019 Average annual decline (ppt) Labor force participation Barriers to women working account for low participation rates in Somalia. Lower labor force Labor force participation is high, with the participation in Somalia is largely due to the barriers exception of Djibouti and Somalia. Labor force women face in working. In Eritrea, Ethiopia, participation in Eritrea, Ethiopia, and Kenya is and Kenya, the gap between men and women quite high (67-86%; Figure 1), in line with what is in labor market participation varies from seven common in economies at a similar income level. to ten percentage points. This is a meaningful A far lower share of youth and adults are active difference, but still implies that about three in in Somalia (56%), and remarkably few in Djibouti four women of working age are active. By way (33%). (This report defines ‘youth’ as the age group of contrast, in Somalia the gap is 25 percentage between 15 and 24 years, compared to older adult points. Conversely, participation among men in workers of 25 to 65 years.) In both countries, there Somalia is reasonably similar to other countries is also a striking gap in the rate at which men and – eight percentage points below the level in women participate in the labor market. Kenya. Yet, participation among women is far less 4 SECTION 2 | AN OVERVIEW OF THE LABOR MARKETS IN THE HORN OF AFRICA aligned, at 26 percentage points below the level Outside of ports and logistics, the private sector in Kenya. Cultural barriers to women being active is a small employer and dominated by services.” are the most compelling explanation for this gap. In addition to a limited number of good private Thus, “entrenched social norms often prescribe sector jobs, public jobs provided incomes that heavier domestic responsibilities to women and large households with inactive workers depend largely relegate their roles to the private sphere upon. (World Bank, 2018b). […] Women’s economic opportunities are also inhibited more directly by social norms, such Education levels among the workforce as needing to have their husband’s signature to do business, though this is slowly changing with Educational achievement of the workforce men’s absences from home...” (WB 2020a, p.10). remains limited, but young workers have much better access to education than older In Djibouti, cultural barriers to women combine cohorts. In all countries of the region, education with a job-poor growth pattern to account for levels remain low: the median worker has no exceptionally low participation rates. In Djibouti, more than primary education. However, two the gap between women and men is larger still distinctions must be made. Firstly, education levels than in Somalia, at 30 percentage points. Women vary significantly among the five countries. A far are less than half as likely to be active than men. higher share of workers has more than primary At the same time, however, participation among education in Djibouti (41%) and Kenya (46%) than men is also remarkably low (49%). In addition to among workers in Eritrea3 (31%), Ethiopia (15%), cultural norms that make it difficult for women to and Somali (20%). Secondly, there has been very participate, low activity rates have been ascribed important progress in raising education levels. to a capital-intensive development pattern that Thus, with the exception of Somalia (where gains has yielded high growth, but without creating are sizeable but lower), young workers in each many jobs. Thus, “the job creation potential of country are less than half as likely as their elders to ports, transport and logistics sectors is becoming have no education (Figure 3). In all five countries, more limited as port services are increasingly more than two in five young workers have at least automated and rely less on unskilled labor. completed primary school. Figure 3: Educational attainment among the working age population by age group 3% 5% 11% 9% 5% 5% 6% 6% 100% 16% 8% 9% 80% 18% 37% 25% 12% 29% 48% 14% 60% 57% 60% 26% 40% 73% 58% 59% 47% 10% 44% 43% 20% 25% 20% 3% 11% 0% Youth Non-Youth Youth Non-Youth Youth Non-Youth Youth Non-Youth Ethiopia Djibouti Kenya Somalia No education Primary (including incomplete) Secondary (including incomplete) Tertiary (including incomplete) Source: World Bank staff calculations. 3 A breakdown of educational achievement in Eritrea is not available using the same categories shown in Figure 3. 5 JOBS IN THE HORN OF AFRICA: SYNOPTIC BRIEF Gains in education represent an opportunity for lower-income economies. Except for Djibouti, development, but limited access to good jobs unemployment narrowly defined is low in the and skills mismatches may frustrate well-trained region. Among older workers, between two young workers. At a time of rapid labor force and four percent are unemployed, as is typical growth, it is good news that workers entering of lower-income economies in which work is the job market bring with them greater skill levels quite immediately tied to household survival. than is common among older workers. However, Unemployment is slightly higher among young a challenge lies in satisfying the aspirations young workers, at between four and seven percent in workers rightly have for a job that makes use the four countries excluding Djibouti (Figure 4). of their skills. Currently, mismatches between Unemployment tends to be concentrated among workers’ skills and what is required for their jobs urban, young, and better-trained workers – groups arise by no means only due to a lack of training. that are more likely to be able to afford a period Thus, while in Kenya, 40% of workers reported of idleness while queueing for jobs. This pattern is that they felt underqualified for their job, 30% particularly pronounced in Ethiopia, where more believed they were overqualified (World Bank than one in five urban workers are unemployed 2019b). Similarly, in Somalia, “over 50 percent of (22%), compared to five to six percent in Eritrea, firms in Mogadishu indicate their employees have Kenya, and Somalia. Youth unemployment in [various] skills … that are above what is required for urban Ethiopia is very significant, at 30%, and it is their business needs” (World Bank 2020a, p.15). also elevated in urban Kenya, at 17%. Speeding the school to work transition is thus a legitimate policy Unemployment concern in the two countries. However, it is also worth recalling that young urban workers account With the exception of Djibouti and urban for only two percent and seven percent of the Ethiopia, unemployment is low, as is typical of labor force in Ethiopia and Kenya, respectively. Figure 4: Unemployment and share of youth not in employment, education, or training (NEET) 0.60 0.49 0.50 0.46 0.45 0.40 0.32 0.30 0.30 0.20 0.18 0.17 0.13 0.08 0.10 0.10 0.07 0.04 0.07 0.05 0.04 0.04 0.03 0.02 0.00 Ethiopia Djibouti Kenya Somalia Eritrea Non-youth unemployment Youth unemployment Urban youth unemployment Youth NEET Source: World Bank staff calculations. Discouragement from participation would prefer. Unemployment combined with mostly affects better-off groups, while discouragement (LU3) affects somewhat more underemployment is a widespread concern. workers than outright unemployment; yet, it is also Alternative measures of labor force use provide a concentrated among better-off groups that are in somewhat more nuanced picture of the degree principle able to compete for good jobs and afford to which workers are able to be as active as they periods of idleness. Unemployment combined 6 SECTION 2 | AN OVERVIEW OF THE LABOR MARKETS IN THE HORN OF AFRICA with underemployment (LU2) – a measure of and Kenya, the region’s two largest labor markets, job quality rather than solely of access to jobs between one in eight and one in ten youth are – is of concern for significantly more workers, idle – neither employed nor advancing their including many in agriculture and other self- education (‘NEET’ – Figure 4). This is a moderate employed activities. For instance, in Ethiopia and level of NEET youth. By stark contrast, in Somalia, Somalia more than one in five workers of all ages one in three youth neither work nor study, and report being underemployed (22 and 23 percent, in Djibouti, every other young person shares the respectively), compared to one in twenty-five who same fate. In Somalia, the very high share of NEET are outright unemployed (four percent). workers is in significant part due to the very low employment rate among young women (40% The chief jobs policy challenge is to make job of young women are NEET, compared to 24% activities more productive. As is common in of young men), mirroring the patterns in labor lower-income countries, it is more helpful to force participation described above. In Djibouti, frame the jobs policy challenge as one of finding the NEET rate is similarly high among young better, more productive work for the many workers men (46%) as among young women (52%), again whose activities do not provide a very good living, pointing to problems in encouraging activity that rather than one of finding jobs for workers who go beyond barriers specific to women. are truly idle. For instance, it has been observed that, in Ethiopia, “despite the lower incidence of Labor market characteristics and challenges open unemployment in rural areas, employment mirror the features of the different economies is clearly more precarious there, characterized by in the region. Viewed together, the features of risky own-account agriculture and unpaid work the labor market reflect the larger development (mainly for women and youth) … poverty rates challenges of each of the countries in the region. are far higher, and consumption levels far lower…” Among the five countries, labor markets in Eritrea (World Bank, forthcoming). and Ethiopia look most like what is typical in low- income countries, with broad participation, low In Djibouti, high rates of outright unemployment education levels, and modest gender gaps. For are an immediate concern and require policy broad-based improvement in jobs outcomes, action. Djibouti stands apart from the other support to higher productivity in agriculture countries in the region in that it does registers and other self-employed activities remains a significant unemployment. Nearly one in five priority. Kenya has achieved higher education adult workers are unemployed (18%). Youth levels and significant manufacturing growth unemployment is very high, with nearly every and is at a point where productivity investments other young worker reporting that they are unable balanced with actions to improve access to wage to find a job (46s%). These are numbers that call for employment can benefit significant numbers of a direct policy focus. Prior analyses have argued workers. Djibouti’s labor market is shaped by the that high wages in Djibouti’s large public sector successful but unbalanced growth strategy of the combined with low skill levels among workers past decades, with policy priorities on broadening lead to a labor market that clears at high wages job opportunities beyond the public sector and but low employment rates (World Bank, 2018b). activities linked to the port and improving access for women. Somalia faces very low income levels In Ethiopia and Kenya, few youths are neither alongside low participation and extreme gender employed nor in education or training, but in gaps and will need to focus on promoting entry Somalia and Djibouti, many fall in this category, into self-employed activities and gradual progress in particular among young women. In Ethiopia on access for women, in addition to productivity. 7 JOBS IN THE HORN OF AFRICA: SYNOPTIC BRIEF Table 3: Overview of labor market characteristics Labor Force Participation Unemployment NEET Education Gender gaps Djibouti Low High Very high Moderate Very high Eritrea High Low Low Low Moderate Ethiopia High Low Low Low Moderate Kenya High Low Low Moderate Moderate Somalia Low Low High Moderate Very high Source: World Bank staff calculations. 8 SECTION 3 | EMPLOYMENT PATTERNS SECTION 3 Employment Patterns Type of employment attainable for a meaningful share of the work force, and accounts for about one quarter to For most workers in each of the countries of one third of all jobs. Wage employment remains the region, a job still is self-employment or the exception rather than the rule in the region. work in household activities. Self-employment As is expected, it is heavily concentrated in contributes between two in five and one half of all urban areas: nearly half of all urban workers jobs in each of the countries of the region (Figure are wage-employed (47% in the weighted 5). An additional 19-41% of jobs are in family average of the five countries), compared to activities, and are often unpaid. It is a well-known fewer than one in ten in rural areas (9%). Wage weakness of employment data in low-income jobs are available to an estimated one in three countries that they do not always distinguish workers in Somalia (33%), and about one in reliably between self-employment, household four workers in Kenya (27%) and Eritrea (28%; work, and waged work. Misunderstandings arise Figure 5).5 The share of wage employment in easily in survey enumeration in economies where Somalia in strikingly high for a very low-income much economic activity consists of household economy. It is best seen in the context of strong members jointly carrying out a basket of income urbanization secondary to displacement, and of generating activities for the household’s gain. In low reported participation rates. As noted, the the data used for this report, such concerns arise 47% wage employment in share in Djibouti may for Djibouti, where the survey records no unpaid be over-reported. Yet, a relatively high share of work at all. It is likely that such employment is wage work – and queueing for such jobs – is a instead mistakenly coded as self-employment, consistent mirror image of an urban economy wage employment, or perhaps, as inactivity. A in which there is high public employment, similar, if lesser, concern arises in Kenya, where very low participation and significant youth the share of wage work may be somewhat unemployment. In Ethiopia, about one in underestimated in our indicator definition.4 eight workers hold waged jobs (12%), as is consistent with low incomes and a continued Outside of Ethiopia, wage employment is reliance on agriculture. 4 The KIHBS 2015/16 survey distinguishes between paid employment outside of the household and paid employment within the household. We report only the former as wage employment. If paid employment within the household is included, the share of wage employment is 46%. However, most of those workers are related to the household head, and are active in agriculture or housekeeping, suggesting jobs that are more commonly thought of as household work. 5 The Government of Eritrea’s report on the 2015/16 labor market survey shows conflicting statistics on the prevalence of wage work. The share shown in Figure 5 is the lower estimate, given in the report’s Table 4.12, which is more in line with what is typical of countries with similar incomes as Eritrea. Elsewhere, the report provides a higher estimate of a 42% share of wage employment. 9 JOBS IN THE HORN OF AFRICA: SYNOPTIC BRIEF Figure 5: Jobs by employment type 100% 12% 12% 90% 27% 33% 80% 47% 28% 70% 46% 60% 50% 43% 43% 40% 40% 30% 50% 20% 41% 29% 10% 24% 19% 0% Ethiopia Djibouti Kenya Somalia Eritrea Unpaid/family Self-employed/employer Wage employed Other Source: World Bank staff calculations. Young workers are most likely to start out accessing wage employment than older women. helping in household activities; while most older When looking at all age groups together, women men transition to paid work, about three in ten hold far fewer waged jobs than men – about employed women do not take up an independent one in three in the weighted average of all five activity. Lifecycle transitions matter for the kind of countries (36%; Figure 7). Wage work also accounts jobs workers hold. As a stylized fact, most workers in for a smaller share of jobs held by women (14%, the Horn of Africa begin their working lives helping compared to 22% among men). This pattern holds in household activities. This is true for between in each country in the Horn of Africa. However, it one third and one half of young men, and about is noteworthy that young women are much closer one half of young women in Ethiopia, Kenya, and to parity with their male counterparts among wage Somalia (Figure 6).6 As workers get older, most men workers: in Ethiopia, young men and women are transition into independent activities, and few men equally likely to hold a wage job (50%), and in Kenya over 25 years of age remain in household activities. and Somalia, their share approaches parity (41% Older women who remain in the labor market are and 43%). also more likely to have job activities independent of their households than younger women. Yet, the Among men, a transition into wage employment share who remain in unpaid work is much higher among older workers is consistent with queueing, than among men, and between one in four and but young women are as likely as older women one in three do not work independently. This to have wage jobs. In Kenya and Somalia, wage further compounds lower labor force participation employment is far more prevalent among older among women, an implies that a far lower share male workers than younger workers (a differential of women than men ever undertake their own of 14 and 23 percentage points, respectively). independent activities. This is a familiar pattern, often associated with queueing for attractive but scarce wage jobs. The Women are much less likely than men to have comparison between younger and older workers is wage jobs, but young women fare far better in notably different for women. In Kenya and Somalia, 6 Patterns in Djibouti differ, but are hard to interpret due to the difficulty in distinguishing unpaid work from other activities; no data are available for Eritrea. 10 SECTION 3 | EMPLOYMENT PATTERNS the share of wage workers among young and levels among women, but also to cultural shifts. older women is virtually the same, and in Ethiopia, The data may be consistent with the latter, in that a higher share of young working women holds education levels are higher among older wage- wage jobs (14%) than among older workers (10%). employed women than among older wage- Such a shift could be related to rising education employed men. Figure 6: Life cycle transitions between job types A. Work in household activities among men B. Work in household activities among women 60% 57% 60% 52% 50% 52% 50% 50% 40% 40% 42% 31% 32% 30% 30% 29% 20% 21% 20% 24% 10% 13% 10% 5% 0% 0% Youth (15-24) Adults (25-65) Youth (15-24) Adults (25-65) Ethiopia Kenya Somalia Ethiopia Kenya Somalia C. Wage employment among women D. Wage employment among men 60% 60% 50% 50% 45% 40% 40% 37% 30% 30% 23% 21% 23% 20% 18% 20% 20% 22% 16% 10% 14% 10% 10% 12% 0% 0% Youth (15-24) Adults (25-65) Youth (15-24) Adults (25-65) Ethiopia Kenya Somalia Ethiopia Kenya Somalia Source: World Bank staff calculations. Figure 7: Share of women among wage workers 60% 50% 50% 43% 38% 41% 40% 33% 34% 35% 30% 27% 25% 27% 19% 20% 14% 10% 0% Djibouti Ethiopia Kenya Somalia Young workers (15-24) Adult workers (25-65) All workers Source: World Bank staff calculations. 11 JOBS IN THE HORN OF AFRICA: SYNOPTIC BRIEF Sectors of employment a key source of employment in Kenya, where about half of all employment is in agriculture Industry remains a minor employer in all of the (47%), and about two in five in services (41%). Jobs countries of the Horn of Africa, despite high in Eritrea come about equally from agriculture and sustained growth in Ethiopia and Kenya. (44%) and services (50%), while Djibouti’s port Kenya has East Africa’s largest industrial sector in economy is almost entirely based on work in terms of value added, and the sector’s share of the services sector (94%). In Somalia, the share employment has nearly doubled between 2005 of workers in agriculture of 29% is surprisingly and 2015. Ethiopia’s industry value added has low for a fragile country with very high poverty; grown about ten-fold in the past twenty years, the importance of employment in the sector has reaching similar size as Kenya’s (World Bank, fallen in part due to the displacement of currently 2019a and forthcoming; WDI). Yet, industry still 2.6m Somalis, many of them from rural areas employs only between one in nine and one in (World Bank, 2020a; UNICEF, 2020). twenty workers in the countries of the region (Figure 8). This is a familiar and regrettable The sector breakdown of primary employment pattern in lower-income countries and reflects activities does not fully capture the diversity the difficulty of translating success in industrial of job strategies in lower-income countries. It development into a decisive shift in job patterns is common for households to jointly carry out when the baseline is low and population growth several activities, including those that are part- is high. time or seasonal, in order to make a living. For instance, in Kenya, one in four rural households Most jobs remain in agriculture and services, but (25%) have activities in both agriculture and their importance varies across the countries of non-agriculture (World Bank, 2019a). The the region. Agriculture remains by far the largest sectoral breakdown shown here is most likely employer in Ethiopia, where more than two in to approximately hold among the poorer three workers depend on the sector (71%), a households, in which workers tend to rely on moderate decrease from a decade earlier, when single activities due to poor access to assets, agriculture accounted for 78% of all jobs (World as well as among the better-off, where full-time Bank, forthcoming). Agriculture also remains wage employment is most common. Figure 8: Distribution of employment by sector 100% 90% 21% 80% 8% 41% 50% 70% 61% 60% 94% 11% 50% 6% 40% 71% 11% 30% 47% 44% 20% 29% 10% 5% 0% Ethiopia Djibouti Kenya Somalia Eritrea Agriculture Industry Services (and other minor categories) Source: World Bank staff calculations. 12 SECTION 3 | EMPLOYMENT PATTERNS Figure 9: Distribution of employment by sub-sector 100% 7% 10% 13% 28% 7% 25% 80% 6% 18% 8% 5% 8% 16% 7% 60% 14% 44% 11% 17% 8% 40% 71% 11% 20% 47% 44% 17% 29% 5% 0% Ethiopia Djibouti Kenya Somalia Eritrea Agriculture Industry Commerce Transport & communication Finance & Business Public Administration Personal services and other Source: World Bank staff calculations. Outside of agriculture, commerce and personal the public sector (18%), but especially in Djibouti, services dominate private sector employment. where more than two in five jobs are classified as As is common in lower-income countries, most being in public administration (44%). Indeed, the private-sector jobs outside of agriculture are in 2018 Djibouti SCD (p.54) estimated that including commerce and in personal services (such as for state-owned enterprises, nearly three in five jobs instance hospitality, tailoring, cellphone charging, are in the public sector. Public administration or mechanical repairs). Commerce consistently public sector is a much less prominent employer provides about one in six jobs (14-17%; Figure 9), in Ethiopia and Kenya, with 5% and 7% of all with the exception of Ethiopia, where far fewer are employment, respectively. However, it has been active in trading. Personal services are particularly estimated public sector employment accounts important in Djibouti and Somalia, where they for nearly half of all wage jobs in Ethiopia (46%, provide at least one quarter of all employment, or about 5% of all employment; World Bank, and also account for many jobs in Kenya. forthcoming). Work in the public sector remains more accessible to men in both countries. In Work on the public payroll remains very both Djibouti and Eritrea, there are four men on important in Djibouti and Eritrea, in particular the public payroll for every woman, similar to the for men. It is worth noting that public sector jobs gender ratio in private wage employment Djibouti, contribute a very high share of employment in but considerably below the wage work gender Eritrea, where just below one in five workers are in ratio in Eritrea. 13 14 SECTION 4 | JOB OUTCOMES SECTION 4 Job Outcomes In all countries of the region, there is a lack of good and with most households economically active, jobs that allow for a life free of poverty. There are so does the share of the working poor. At survey various meaningful approaches to defining what is time, poverty was particularly widespread in a ‘good’ job. In a lower-income setting, the most Somalia, where more than two in three residents immediate and compelling criterion is whether lived on less than USD1.90 per day. Ethiopia and a worker’s income-generating activities are Kenya both recorded poverty rates of about one productive enough to allow her to live a life free of in three residents (33% and 37%), while in Djibouti, poverty. By this yardstick, there is still a pronounced one in six residents remained in poverty, despite lack of good-enough jobs in the countries of the an GNI per capita that approached the upper Horn of Africa. Poverty rates remain high (Table 4), middle-income threshold. Table 4: Poverty levels Poverty headcount rate at USD 1.90 PPP Djibouti 17% 2017 Povcalnet Ethiopia 33% 2015 Povcalnet Kenya 37% 2015 Povcalnet Somalia 69% 2017 World Bank 2019b Source: World Bank staff calculations. In Ethiopia and Kenya, wage jobs paid about tended to be among the highest, and those in I$130-170 (2010) per month at the median. agriculture, among the lowest. Thus, in Ethiopia, Data on wages and earnings are available from those in public administration could expect to two surveys, in Ethiopia and Kenya respectively. be paid about half more than the median wage, The median monthly wage was $130 (2010 PPP) while wages in agriculture barely reached half of in Ethiopia, and median earnings were $168 the median, with a daily rate of about $2.60. The (2015 PPP) in Kenya, or about $6.50 and $8.40 majority of wage workers active in commerce, per day respectively (Table 5). The relatively small manufacturing, transport and construction saw difference between the two economies is due to an intermediate level of wages, around $5 per the fact that the Kenya data capture non-wage day. Wages in Kenya were significantly higher, employment in agriculture, which pays less including in agriculture (around $5 per day) than most wage jobs. As is expected, wages in and industry, commerce, and personal services professional services and in public administration (around $10 per day). 15 JOBS IN THE HORN OF AFRICA: SYNOPTIC BRIEF Table 5: Wages and earnings by activity and type of employer (Ethiopia and Kenya) Ethiopia (2013) Kenya (2015) Median monthly wage Number of Median monthly earnings Number of (2010 I$) observations (2010 I$) observations All $ 130 26,997 $ 168 25,678 Agriculture $ 52 1,394 $ 96 10,697 Industry $ 117 6,869 $ 240 3,008 Commerce $ 91 1,390 $ 216 4,336 Transport & Communication $ 117 3,452 $ 360 1,506 Finance & Business $ 224 2,766 $ 781 214 Public Administration $ 186 7,957 $ 552 2,454 Personal services and other $ 52 3,169 $ 192 3,463 Kenya (2015) Employer Median monthly earnings (2010 I$) Number of observations Civil service ministries $ 853 407 State owned enterprise $ 720 254 Teachers service commission $ 850 637 County government $ 240 1276 School Boards (BOM) Employees $ 168 310 International NGO $ 1,081 84 Local NGO/CBO $ 360 84 Faith based organization $ 240 163 Private sector enterprise $ 216 5,507 Self-employed modern sector $ 384 635 Informal sector (employee) $ 202 2,335 Self-employed informal $ 216 5,061 Self-employed small-scale agriculture $ 96 6,121 Pastoralist activities (employee) $ 58 545 Self-employed pastoralist activities $ 108 924 Individual/private household $ 96 3,032 Source: World Bank staff calculations. Wages and earnings in Ethiopia and Kenya by one third than wages for the third of the reflect a considerable education premium. working population that has no schooling. The In both Ethiopia and Kenya, there is a marked premium is about twice as high for the one in premium for higher education. In Ethiopia, ten Ethiopian workers who have secondary wages for the roughly two in five workers education. Likewise, in Kenya, roughly half of who have primary education are higher all worker report that they have some secondary 16 SECTION 4 | JOB OUTCOMES education, and they command more than lower wages than older workers and men with double the wage premium of those with primary comparable education levels. We previously education. Fewer than one in twenty workers in discussed that there are some encouraging signs either country have post-secondary education, that young women have greater success than but among them, wage premia are very high – their older peers at finding wage employment. a bit less than twice as high as for those with However, among those who find a waged job, secondary education in Ethiopia, and more than significant wage differentials persist. Young three times as high in Kenya. workers and women both earn up to half less than their older peers and men, with larger wage Young workers and women earn significantly differentials in Kenya than in Ethiopia. Box 1: What might regional integration mean for jobs? Better infrastructure and trade facilitation and a four percent increase in real incomes. could increase employment outside of While modest in absolute terms, the predicted agriculture, grow productivity, and raise additional shift out of agriculture amounts incomes. CGE modeling suggests that to nearly one tenth of current employment investments in infrastructure and trade in other sectors. The increase in income is facilitation could economic transformation about the equivalent of a good year’s growth. both through sectoral employment shifts and Because earnings are higher for workers productivity gains (see HoA REM Background outside of agriculture (see Table 5), some of Paper 5 on Enhancing Intraregional this rise in incomes comes from the shift of Connectivity in the Horn). The analysis employment into other sectors. Without any simulates significant investment in road changes in productivity within each sector, rehabilitation along with a halving of border this predicted shift alone would account for a transit times. Such policies would be associated 2.6 percent increase income. The additional with an increase in the share of employment increase is explained by an expected rise in outside of agriculture by 3.5 percentage points, productivity within sectors. Predicted change in Current share of Predicted change in Predicted change in employment share employment outside real income (ppt) real income due to outside agriculture agriculture inter-sectoral shifts (ppt) (ppt) All Horn of Africa 3.5 39% 4.3 2.6 Ethiopia 0 29% 5.3 0.0 Kenya 10.7 56% 6.3 12.2 Somalia 0.8 71% 4.9 0.8 Note: predicted changes in employment share and real income from Chapter INFRA. Predicted change in real income due to inter- sectoral shifts obtained from predicted change in employment shares and mean sectoral earnings in Ethiopia and Kenya from data shown in Table 1, assuming no change in mean earnings. 17 JOBS IN THE HORN OF AFRICA: SYNOPTIC BRIEF With complementary strengths in agriculture gains with better integration. Thus, Kenya is and manufacturing, Ethiopia and Kenya predicted to experience a large additional shift stand to gain most from productivity of jobs out of agriculture (eleven percentage gains, while Kenya could expect further points – compared to a 14 percentage point structural transformation. Trade between decline over the years 2006-2016), along with Ethiopia and Kenya, the two largest markets income gains of six percent that are entirely of the region, currently shows agricultural due to this shift. By way of contrast, no products flowing from Ethiopia to Kenya, and additional shift out of agriculture is predicted manufactured goods flowing back (see HoA for Ethiopia. However, modeling suggests that REM Background Paper 3 on Cross-Border real incomes in Ethiopia would rise by more Trade in the Horn). CGE modeling suggests than five percent. In the absence of shifts that the complementarity between the two between sectors, this would be entirely due economies could lead to further welfare to productivity gains within sectors. Figure 10: Determinants of monthly wages in Ethiopia and Kenya Border region -0,06 0,30 Urban 0,70 0,25 Tertiary education 1,95 1,51 Secondary education 0,67 0,87 0,17 Primary education 0,35 -0,51 Youth -0,40 -0,51 Female -0,33 -1 -0,5 0 0,5 1 1,5 2 2,5 Coefficient on low wages Kenya Ethiopia Note: OLS regression of log monthly wages on worker characteristics. 18 SECTION 5 | A LABOR DEMAND PERSPECTIVE SECTION 5 A Labor Demand Perspective While this report does not analyze enterprise data, and household work, and the public sector labor market outcomes shed light on the level and continues to play a large role in the demand for evolution of labor demand from businesses. This wage work. As shown above, about two-thirds report is limited to analyzing jobs outcomes among to three quarters of the work force of the region workers as they are observed in household surveys. do not hold a wage job (Figure 5). The share is It does not use data collected from businesses to higher in Ethiopia, where seven in eight workers directly describe labor demand. Still, individual jobs are not in waged employment. What is more, outcomes reflect labor demand, and it is possible much existing demand for wage employment to point out some major features. still relies on the public sector. Nearly half of all wage employment in Ethiopia remains in the Despite growth in business employment, labor public sector (46% – World Bank, forthcoming), demand still relies heavily on self-employment including in state-owned enterprises which 19 JOBS IN THE HORN OF AFRICA: SYNOPTIC BRIEF “continue to play a considerable role in key areas nearly half of all businesses interviewed for the of the Ethiopian economy, including in telecoms, 2019 Enterprise Survey in the Somali cities of finance, energy, logistics and transport, as well Bosaso and Mogadishu reported that they had as in manufacturing, leaving little space for the hired during the two years preceding the survey private sector” (World Bank, 2019e). In Eritrea, (World Bank, 2020c); yet, formal private wage the public sector accounts for about two in three employment remains at three percent of all jobs. wage jobs (64%), while in Djibouti, public sector employment provides six in seven formal wage Individual entrepreneurship and household jobs (86% – World Bank, 2018b). enterprises are significant potential sources of labor demand that could provide a ‘step up’ With a low starting base, even high growth in from more basic job activities. With most jobs modern private businesses can only gradually in self-employment, it is important to consider change the structure of labor demand. The the potential for the self-employed to create economies of the region have made strides in additional jobs. An analysis in Kenya finds that fostering private business growth. Yet, with a currently, only two percent of the self-employed rapid increase in the labor force and little initial hire additional workers (World Bank, 2019a). Yet, it employment in formal private business, the also notes that two in five self-employed workers structure of labor demand will change only live in non-poor households and are the main gradually. This dynamic is palpable in the Kenyan breadwinners of their households (40%), two labor market. There is significant progress, and characteristics that may suggest that they are “the Kenyan economy is well diversified, boasting more likely to hire helpers in the future than other a major regional financial center in Nairobi, … a self-employed workers. Since the self-employed large manufacturing sector, … and Africa’s largest account for such a large share of the workforce, it exporter of agricultural products such as tea would be sufficient for one in seventeen of these and horticulture.” (World Bank, 2019d) Among ‘potential entrepreneurs’ to hire a helper to create manufacturing sub-sectors, food processing as many jobs as would result from a ten percent recorded more than six percent annual growth growth in formal private employment.7 Similarly, over the years 2009-2016, and the textiles, an analysis of the Ethiopian labor market shows pharmaceuticals, and furniture sub-sectors each that in 2016, the 4.3m household enterprises achieved double-digit growth rates. Yet, despite active in the country had created about 4.4m jobs these strong dynamics, formal private sector for workers other than the owners – one in ten wage employment remains limited to about one jobs in the economy, and nearly twice as many in every ten jobs (10%). Further persistent effort is as there are currently formal private sector jobs needed to continue to bend the curve. Similarly, (World Bank, forthcoming). 7 With a self-employment share of 43%, of whom 44% are ‘potential employers’, and a formal private sector employment share of 10%. 20 SECTION 6 | LABOR MARKET PATTERNS AND JOB OUTCOMES IN THE BORDER AREAS SECTION 6 Labor Market Patterns and Job Outcomes in the Border Areas Border regions are distinct in their remoteness as well as a sizeable urban population. Among as well as other factors – this section describes the four countries for which data are available, how jobs outcomes differ at the border, but does regions bordering another country have by far the not suggest that differences are necessarily due highest population share in Somalia, where they to remoteness. In the region’s three countries are home to half of the working-age population that are large in terms of surface area, border (54%; Table 6). By way of contrast, Ethiopia’s and regions are more remote than other regions by Kenya’s population is concentrated away from meaningful measures (HoA REM Background border areas; only about one in twenty residents of Paper 5). Yet, they also differ in other important working age live near neighboring countries (5%). facets of geography and politics. For instance, all Kenya’s and Somalia’s border-region populations of Kenya’s counties on the borders with Ethiopia are about as likely to live in urban areas as in other and Somalia are arid, compared to only three of parts of the country, but due to the low overall the country’s other 42 counties; the potential for population share in Kenya, only Somalia’s border agriculture is limited.8 Ethiopia’s borderlands host regions account for a large share of the urban the vast majority of the country’s over 750,000 working-age population. Somalia’s border areas are refugees (UNHCR, 2020). Such differences matter thus home to an urban working-age population of for jobs outcomes. This section describes jobs about two million, compared to about half a million outcomes in the border areas; it does not seek in Kenya, and far fewer in the other countries. In to disentangle the effect of remoteness on jobs Djibouti, about one in six working-age residents outcomes from the effect of other features of live in border regions, but the designation does border regions. not carry the same notion of remoteness due to the small size of the country. It is worth noting, Only in Somalia are border areas home to a large however, that most of Djibouti’s disadvantaged share of the overall working-age population, rural population lives in border areas. 8 Following the classification of the Ministry of Devolution and the Arid and Semi-Arid Lands. 21 JOBS IN THE HORN OF AFRICA: SYNOPTIC BRIEF Table 6: Population characteristics of border areas Working-age population Share of the working-age population Urban share in border areas living in border areas of WAP All Urban Rural WAP Urban WAP Overall WAP Non-border Border Djibouti 0.1m 0.04m 79% 8% 17% 97% 41% Ethiopia 2.8m 0.1m 6% 2% 5% 10% 4% Kenya 1.4m 0.5m 5% 5% 5% 33% 33% Somalia 4.0m 2.0m 52% 56% 54% 45% 49% Source: World Bank staff calculations. The working-age population in border areas is Border regions tend to have a lower share of active slightly less youthful and there are fewer young workers, a higher share of NEETs, and less wage women among it. With the exception of Somalia, employment, all consistent with a comparative the share of youth among the WAP is somewhat lack of attractive job opportunities. Among lower in border regions than in other areas of different characteristics of the labor market, labor the countries, presumably reflecting migration. force participation is most consistently affected in The differential in the youth share is two to three border areas, potentially due to more conservative percentage points in rural areas, but in urban social attitudes as well as a dearth of opportunities areas, the gap is quite large, between seven and (Figure 11). A similar pattern prevails in the share of ten percentage points. In Ethiopia and Kenya, NEETs and those in wage employment. It is worth men also make up a substantially larger part of noting that unemployment is quite consistently the urban WAP in border areas. This is particularly lower in border areas. However, to the degree notable among youth, with a differential of seven that unemployment in the countries of the Horn percentage points between border areas and other of Africa chiefly reflects queueing among the well- regions in Ethiopia and a gap of 13 percentage educated for good jobs, lower unemployment in points in Kenya. border regions may speak to a dearth of well-paid opportunities, rather than a vibrant labor market. The workforce in border area is less well- educated, with very large differentials among In Kenya’s border areas, rural jobs outcomes young urban workers. Differences between border may be most affected, while in Ethiopia and regions and other areas are yet more pronounced Somalia, urban border communities appear in education levels. Young urban workers, in to see the least favorable outcomes. In particular, are much less likely to have more than Kenya’s border regions, outcomes are most primary education, with gaps of between twelve unambiguously negative in rural areas, where in and 33 percentage points in Ethiopia, Kenya, and addition to low participation, there is less wage Somalia. This differential could reflect migration employment, and those who have a waged job as well as poorer access to education. These are have lower average wages. In Ethiopia, lower large differences. In each country, they exceed urban wage employment alongside higher the gains in education between young workers average wages among those who do hold wage and their older peers, and in Kenya and Somalia, jobs may speak to less vibrancy in border region they are of similar magnitude as the gap between businesses. Outcomes in rural areas are more rural and urban areas. mixed. Somalia’s large population in border 22 SECTION 6 | LABOR MARKET PATTERNS AND JOB OUTCOMES IN THE BORDER AREAS areas has mixed outcomes, with a lower share background of poor job opportunities and high of waged employment and greater reliance on poverty throughout the country. The small non-agriculture self-employment in rural areas. labor market in Djibouti’s borderlands shows a It is worth recalling that this comes before a divergence between urban and rural areas. Figure 11: Labor market characteristics of border areas compared to non-border regions Panel A – All border areas LFP Unemployment NEET Wage Agriculture Share Low Wages Employment Ethiopia Lower Slightly lower Slightly higher Slightly lower Similar Much higher Djibouti Lower Much lower Much higher Slightly higher Slightly higher Kenya Much lower Slightly lower Higher Lower Similar Much lower Somalia Slightly lower Similar Slightly higher Much lower Lower Panel B – rural areas LFP Unemployment NEET Wage Agriculture Share Low Wages Employment Ethiopia Lower Similar Higher Similar Slightly lower Much higher Djibouti Lower Lower Much higher Lower Higher Kenya Much lower Slightly higher Slightly higher Lower Much lower Somalia Slightly higher Similar Slightly higher Much lower Much lower Panel C – urban areas LFP Unemployment NEET Wage Agriculture Share Low Wages Employment Ethiopia Much lower Lower Higher Much lower Similar Much higher Djibouti Similar Lower Lower Higher Similar Kenya Much lower Slightly lower Slightly higher Slightly lower Much lower Somalia Much lower Similar Slightly higher Lower Slightly lower Note: saturation of shading indicates the magnitude of the gap between border and non-border areas; non-shaded cells record differences that are not statistically significant at the 95% level. Despite differences in education achievement well as statistically significant), with increments and access to opportunities, education wage of about one quarter and one half at the mean premia persist in border areas. In Ethiopia, wage for those with primary and secondary education, premia are consistently smaller in border areas, and double among those with post-secondary by around one third of the premium in non- training. In Kenya, premia are at least slightly border areas (Figure 12). However, premia are larger in border areas (and statistically significantly nonetheless very meaningful in magnitude (as larger for secondary and higher education. 23 JOBS IN THE HORN OF AFRICA: SYNOPTIC BRIEF Figure 13: Correlates of wage levels in border and non-border areas Urban 1,90 2,08 Tertiary education 1,53 1,07 0,63 0,91 Secondary education 0,89 0,52 0,13 0,25 Primary education 0,36 0,26 Youth Female -1,5 -1 -0,5 0 0,5 1 1,5 2 2,5 Coefficient on log wages Kenya - non-border region Kenya - border region Ethiopia - non-border region Ethiopia - border region Source: World Bank staff calculations. 24 SECTION 7 | YOUTH COHORTS SECTION 7 Youth Cohorts With youthful populations, labor forces in the countries are expected to see labor force growth region are expected to grow at high rates in the rates around 3% per year. This translates into some coming decade. As noted, population growth rates very large net increases in the number of people are high in the region. Over the coming decade available to work. In Ethiopia, by far the region’s and beyond, the labor force is projected to expand most populous nation, nearly two million more rapidly as large cohorts of young workers being to workers may be looking for a job each year over be active, while comparatively smaller cohorts of the coming decade. In Kenya, the net increase older workers stop work. Table 7 shows estimates of is not far from a million potential workers per this evolution, based on UN population projections, year. Because of the significant opportunities and and assuming that age and gender-specific labor challenges associated with such growth, it is worth force participation rates remain as measured in illustrating the scale of these changes relative to the survey data. With the exception of Djibouti, all current employment patterns. Table 7: Labor force projections 2020-2030 Labor force Average annual net increase Growth rate 2020 2025 2030 2020-2025 2025-2030 2020-2030 Djibouti 255,000 280,000 300,000 5,000 4,000 1.7% Ethiopia 55,578,000 60,930,000 70,173,000 1,832,000 1,995,000 3.0% Kenya 23,472,000 27,438,000 31,574,000 793,000 827,000 3.0% Somalia 4,373,000 5,180,000 6,098,000 161,000 184,000 3.4% Eritrea 1,562,000 1,806,000 2,057,000 49,000 50,000 2.8% Source: World Bank staff calculations. In each country, the labor force is projected Even with continued growth in industry, many of to grow within two to three years by as many the additional jobs needed will be in agriculture workers as are currently employed in industry. The and services, requiring continued attention to number of workers entering the work force each productivity in these sectors. It is notable that, year looms large in comparison to limited current despite Ethiopia’s success in creating robust employment in industry. In Eritrea, the number of numbers of jobs in the industrial sector through workers is expected to increase within two years focused support, the manufacturing share of urban by the number of workers active in industry today. employment has reportedly fallen from 12% in 2010 In the other countries of the region, it will take a bit to 9% in 2018 (Table 8). This illustrates the difficulty less than three years for an equivalent number of of maintaining broad access to opportunities in workers to enter. In Ethiopia, a single year’s increase the sector among a steep increase in labor supply. exceeds the current estimated number of wage Conversely, while the share of employment in jobs in industry (the projected annual increase is agriculture declined from 78% in 2005 to 71% in 113% of current wage employment in industry). 2013, it is worth that the sector still accounted for 25 JOBS IN THE HORN OF AFRICA: SYNOPTIC BRIEF by far the largest increase in jobs. Other countries provide the bulk of new jobs, even if industrial policy in the region rely less heavily on agriculture, but it continues to succeed – and that hence, productivity is clear that the agriculture and services will have to in these sectors deserves undiminished attention. Table 8: Labor force increase compared to current employment patterns Annual net increase as a share of… Absolute annual increase 2020-2025 Employment in industry Formal private sector wage employment Djibouti 5,000 37% 65%a Ethiopia 1,832,000 39% 52% Kenya 793,000 29% 34% b Somalia 161,000 34% 89% Eritrea 49,000 53% 25% b aIncrease shown relative to all current private wage employment, including informal. bIncrease shown relative to all current formal private employment, including self-employment. Source: World Bank staff calculations. Annual labor force growth is expected to be the increase amounts to the entire current number equivalent of all current formal private sector of these jobs within one to four years (Table wage employment within one to four years. 9). What is more, these projections assume Formal sector wage employment is often among that women and men maintain their respective the most desirable jobs available but remains the current disparate levels of participation. It is worth preserve of the lucky few in the countries of the considering what would be needed for further Horn of Africa. While in Djibouti and Eritrea, the progress – for instance, reducing the current youth public sector provides many wage jobs, further gender gap by half. In Djibouti, achieving this goal growth in public employment is problematic. would mean tripling the number of additional jobs A comparison of current private sector wage for young women; in Somalia, it would require employment and the expected labor force growth increasing them by about one third. With lower suggests that competition for these attractive jobs gender gaps in the other countries of the region, is likely to intensify. Thus, the number of (net) the goal could be more easily achieved. entrants is equivalent to all current formal wage employment in private business within one year Recent performance confirms that even in Somalia, two years in Ethiopia, and three years maintaining the current level of access to in Kenya. formal wage employment will be no easy feat. A recent analysis from Kenya suggest that over Expected labor force growth among women is the years 2014-2017, a period of strong GDP equally significant and reducing the employment growth, the economy created on average about gender gap poses an additional challenge, in 107,000 additional formal-sector jobs (including particular in Djibouti and Somalia. There is no the public sector) per year (World Bank, 2019a). comparable data available on formal private If this pace were maintained over 2020-2025, it sector wage employment of women. However, would amount to about 14% of the net increase in the number of young women expected to enter workers. The overall rate of formal employment in the labor force is significant even compared to the economy was 17% 2015, so that the share of all current private-sector wage employment of formal jobs would slowly decrease. In Ethiopia, it women, including informal wage jobs. The net has been estimated that employment growth in 26 SECTION 7 | YOUTH COHORTS the formal private sector was 2.4% on an annual The analysis shown here may appear to suggest that basis between 2011 and 2018 – a period of very Djibouti faces a lesser challenge of creating good robust growth (World Bank, forthcoming). This jobs than other countries in the region. However, growth rate is substantially below the expected 3% this is purely due to the fact that the labor force annual increase in the work force, so that if these projections assume that Djibouti maintains its very trends continue, the share of workers in formal low participation and high unemployment rates. In private employment would likewise fall. Somalia, it bears highlighting that the considerable increases projected here are also based on the The challenge of labor force growth is assumption that participation remains below the compounded if Djibouti and Somalia hope to rates more typical of low-income countries (and address the challenges of low employment rates. within the Horn of Africa). Table 9: Labor force increase among women compared to current employment patterns Women in LF annual net increase 2020-2025 … maintain current LFP … reduce youth LFP Additional increase to reduce Annual increase as a share gender gap by half youth gender gap of current private wage employment among women (maintain current LFP) Djibouti 1,000 3,705 270% 85% Ethiopia 843,800 941,650 12% 66% Kenya 378,400 407,978 8% 34% Somalia 64,600 87,598 36% 25% Eritrea 22,800 25,036 10% 52% aIncrease shown relative to current wage employment excluding work in public administration. Source: World Bank staff calculations. 27 28 SECTION 8 | POLICY RECOMMENDATIONS SECTION 8 Policy recommendations With few productive jobs and high population instance, in terms of promoting better access to growth, the region must balance policies finance, a cooperative banking sector such as for broad-based productivity growth in the Kenya’s offers a platform to reach farmers, while in short term with policies to foster economic Somalia, support to the livestock sector may have transformation. Most workers in the region remain to start from small grants before the basis for more in activities that do not provide good incomes, sustainable financial services can be established. with high levels of self-employment and family work in agriculture and casual services activities Jobs policy must take account of the differences (chiefly, commerce and personal services). There in economic structure between the countries are important gains to be had from a gradual of the region. While the countries of the Horn of shift toward higher-productivity work – including Africa face some common challenges, differences wage jobs – in manufacturing, services jobs are pronounced, and their analysis must inform with higher productivity, and market-oriented policy design. Prior World Bank assessments have agriculture. Policy should vigorously support provided a full assessment of appropriate policies such structural transformation. However, with in individual countries (World Bank 2018b, 2019a, high population growth and a small base of high- 2020a, forthcoming). Broadly, labor markets in productivity businesses and jobs, self-employment Eritrea and Ethiopia look most like what is typical in agriculture and services will remain a crucial in low-income countries, with high participation, source of jobs for the foreseeable future. It remains low education levels, and modest gender gaps. important for policy to support productivity gains While it is important to foster Ethiopia’s recent in these jobs, including in smallholder agriculture. success in promoting its industrial sector, support to higher productivity in agriculture and other At the economy-wide level, effective policy for self-employed activities remains a priority for jobs and economic transformation in the Horn broad-base progress toward better jobs. Kenya of Africa can focus on macro-fiscal stability, has achieved higher education levels and strong infrastructure and access to finance, and manufacturing growth, and actions to improve education. As the World Bank’s policy framework access to wage employment can benefit for Jobs and Economic Transformation points increasingly large numbers of workers. Djibouti’s out, “the list of policies to achieve JET is long labor market is shaped by the successful but and prioritization should reflect country contexts” unbalanced growth strategy of the past decades, (World Bank, 2019c). Given the endowments and and policy priorities include broadening job current economic performance of countries in opportunities beyond the public sector and the Horn of Africa, policies that deserve attention activities linked to the port and improving access at the cross-cutting, economy-wide level, include for women. Finally, Somalia faces the legacy of (1) macro-fiscal stability, better governance and conflict, very low income levels alongside low a more favorable investment climate, as well participation and extreme gender gaps. In addition as (2) investments in infrastructure and access to policies to restore productivity after conflict to finance, and in (3) education. The form such (see also World Bank, 2020b), will need to focus policies should take to be effective depends on promoting entry into self-employed activities on the state of the individual economies. For and gradual progress on access for women. 29 JOBS IN THE HORN OF AFRICA: SYNOPTIC BRIEF Jobs policies can align with and complement for instance, by providing funding, training, and investments in regional integration. As discussed, advisory services for jobs that can be done from further integration of the markets of the Horn of home, Continued efforts to improve access to Africa promises better jobs for many in the region, education for girls also remain crucial. both through structural shifts and productivity gains within sectors. Infrastructure investment and Borderlands offer fewer job opportunities, but trade facilitation are both needed to achieve these while investment in human capital should not goals (see HoA REM Background Paper 5). Sectoral lag other areas, other policy initiatives dedicated policies can support such investments and seek to to local development need scrutiny. While border ensure that there is an impact on jobs. For instance, areas in the Horn of Africa are not dramatically investments could seek to support farmers in disadvantaged in terms of the job opportunities Ethiopia, herders in Somalia, and manufacturers they offer, there are perceptible differences to less- in Kenya in seizing the opportunities better market remote areas of the five countries. Investment in access provides – whether through financing, education is a no-regret policy to promote job capacity building for producer cooperatives, or outcomes for residents of border areas; higher skill business development services to help navigate levels will benefit them whether they decide to look product quality requirements. for job opportunities locally or to migrate internally. However, investment programs dedicated to Despite recent gains, jobs outcomes for women boosting local production need to be carefully remain inferior, and deserve dedicated support. scrutinized. They may be justified by externalities Young women in the Horn of Africa fare better that relate, for instance, to stability or the inclusion in some aspects of working life than their older of disadvantaged groups living in border areas, or peers. However, a wide gender gap remains; in by special fixed cost associated with operating in Djibouti and Somali, it is stark. Policy can target remote areas. Yet, they must also consider the cost explicit barriers to women’s full participation in of investment in lagging regions and ask whether economic life and build capacity in women’s there is a viable path for local industries. Somalia cooperatives and trade associations. Further, it has by far the largest population share in border can support women in building livelihoods that areas, and the case for explicit spatial development work within the persistent cultural constraints, policies is arguably stronger. 30 REFERENCES References Government of the State of Eritrea (2018). Eritrea Achieve Full Potential. Labor Force Survey 2015/16. World Bank (2019e). Creating Markets in Ethiopia – World Bank (2018a). Somalia Systematic Country Sustaining Progress Towards Industrialization. Diagnostic. World Bank (2020a). Improving Access to Jobs World Bank (2018b). Economic Transformation for the Poor and Vulnerable in Somalia. in Djibouti. Systematic Country Diagnostic. World Bank (2020b). Improving Access to Jobs World Bank (2019a). Kenya Jobs Diagnostic for the Poor and Vulnerable in Somalia. ‘Light’. Unpublished manuscript. World Bank (2020c). Somalia Urbanization World Bank (2019b). 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