Where are the Jobs? Exploring the Contrast between Economic Growth and Rising Unemployment

Two decades of consistent economic growth have seen improvements in nearly all aspects of life in Ethiopia. However, the issue of youth unemployment remains a major headache for policymakers. In research published through the African Economic Research Consortium, Alemayehu Geda (Prof.) probes into the possible explanations for this mismatch

Two decades of consistent economic growth have seen improvements in nearly all aspects of life in Ethiopia. However, the issue of youth unemployment remains a major headache for policymakers. In research published through the African Economic Research Consortium, Alemayehu Geda (Prof.) probes into the possible explanations for this mismatch. 

The first decade of the millennium saw double-digit growth in gross domestic product (GDP), averaging 11%. Growth slowed in the following 10 years, though not by much, to an average 9%.

One would assume that employment opportunities would expand along with economic progress, but that has not been the case. 

The research study utilizes a national labor force survey conducted in 2021 by the Central Statistics Agency (CSA) (now the Ethiopian Statistics Service) and similar surveys from previous years to comprehend the status of unemployment in Ethiopia.

According to CSA’s finding, as of 2021, 60% of the population aged 10 years and above are employed. No less than 80% of this cohort is employed in a rural setting. At 49.6%, self-employment accounts for the largest mode of employment, followed by unpaid family work.

The researcher argues that the national unemployment figure underrepresents the joblessness haunting the labor force as the contribution of rural unemployment to overall unemployment is extremely low. Official figures put rural unemployment at 5.2% in 2021, while it soared to 18% in urban areas.

One reason for this is the ever-expanding labor force, which ballooned to 69 million in 2021 from 40 million in 2005. Migration is another important factor behind the growing urban unemployment. 

To show for it, Addis Ababa and Dire Dawa host the highest urban unemployment rates in the country.

The research suggests that a mismatch between economic sectors’ potential for growth and capacity to provide employment opportunities is the primary cause behind the persistence of staggering unemployment rates.

  • It highlights that although the agricultural sector has huge potential for job creation, its contribution to GDP has been dwindling for over a decade. The industrial and service sectors took the forefront as the major sources of economic growth beginning 2005. Construction was the largest contributor from the industrial sector, while manufacturing’s output has stagnated.

“Our capital-labor ratio-based analysis has also shown the construction sector has significant potential for job creation. Although it has created some jobs, it did not manage to create significant jobs comparable to the manufacturing sector that has contributed relatively low to economic growth, however. Thus, a concerted effort in supporting the manufacturing sector would have the dual effect of high job creation and structural transformation at the same time,“ reads the study. 

  • Among sectors in service, trade was the main driver of economic growth. However, trade employs less people compared to other service sectors such as health, education, and transport.
  •  Despite government efforts to tackle the youth unemployment problem through the expansion of “Technical and Vocational Training” (TVT) schools, the empirical finding shows that this endeavor has not had the desired effect. This could be due to shortcomings in tuning training to local demand and potential. 

Read the full research study here

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