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Modelling Labour Markets in LICs with Imperfect Data

A GLM|LIC Research Project conducted by University of Cape Town

© istockphoto.com / Peeter Viisimaa

Despite the centrality of the labour market to the questions of poverty and inequality, African labour markets are not well understood and significant research gaps exist. These gaps have important implications: they weaken the ability of governments to design and implement effective policies and hamper the monitoring of change and the measurement of impact. Within low-income countries in Africa, it is the lack of regular, high-quality data that is particularly challenging.

Weak data collection in African LIC labour markets is evident from the fact that even simple statistics, such as the employment-to-population ratio, are often years out of date or non-existent. Part of the problem is a lack of quality labour market data, but in many instances, this data is not even publicly available, despite the fact that surveys are conducted by or in conjunction with national statistical offices. Non-availability of data has constrained both the volume of empirical research and the ability of researchers to critically engage with the resulting research.

This project contributes towards filling some of the gaps in the information base available to policymakers, civil society, and other stakeholders in African LICs. One of these gaps involves patterns of labour market segmentation that characterise these countries. There is, though, little agreement on the exact nature of the segmentation or whether there is even a ‘typical’ pattern of segmentation across countries. Fields (2007), for example, suggests five labour market states in LICs, where “[workers] might be employed (be it in wage employment or self-employment) in … the formal sector, the free entry part of the urban informal sector, the upper tier of the urban informal sector, and rural agriculture [and they] might also be unemployed”. This type of segmentation, then, extends beyond the traditional rural-urban or formal-informal distinctions to, amongst others, unpaid family work and non-farm household enterprises.

With this in mind, the existing literature on LIC labour markets reveals that there are three key gaps in our understanding. First, we have no appreciation of what the different labour market segments are, both across and within LIC labour markets. Second, we do not fully understand how these different segments interact with each other. Thirdly, we do not have the most basic understanding of the impact of demographic, spatial, household, institutional, and other factors in shaping labour market outcomes in a typical LIC labour market.

The research contributes towards filling some of the informational gaps in our knowledge of African LIC labour markets by developing a set of labour market profiles for a sample of low-income African countries in, as far as the data allows, a consistent manner. This research develops a series of papers that focus on four African countries—three LICs, namely Kenya, Tanzania, and Uganda, and Zambia, which is a lower-middle income country—describing and profiling the labour market activities of their populations in a systematic and consistent way. We attempt to firmly establish a robust baseline for future analyses in these countries, as well as provide a template for similar analyses in other countries.

This research addresses three issues or questions:

First, we explore the issue of labour market segmentation that is so characteristic of African LICs. What are the patterns of segmentation and multi-sectoral labour markets in each of the countries and to what extent are they similar or different?

Second, we look at the best way of modeling these labour markets econometrically. This is done to explain differences in labour market participation, employment, and earnings within each of the countries.

Third, given the results generated and the data challenges experienced during the research, we identify shortcomings in existing labour market surveys in terms of understanding labour market segmentations.

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Project Overview

  • Thematic AreaLabour Markets in Low-Income Countries
  • Tags
    Labour Markets
  • Evaluated Countries
    KenyaMalawiTanzaniaUgandaZambia
  • Principal Investigator Haroon Bhorat
  • Co-Investigator Morné Oosthuizen
  • Co-Investigator Benjamin Stanwix
  • Co-Investigator Aalia Cassim
  • Co-Investigator Kavisha Pillay
  • Co-Investigator Chris Rooney
  • Co-Investigator Sibahle (Siphokazi) Magadla
  • Co-Investigator Kwan Cheung Derek Yu
  • Co-Investigator Karmen Naidoo

Related Publications

  • GLM|LIC Policy Brief No. 20 Modelling Labour Markets in LICs with Imperfect Data
  • GLM|LIC Working Paper No. 4 Minimum Wages in Sub-Saharan Africa
  • GLM|LIC Working Paper No. 39 Modelling Labour Markets in Low Income Countries with Imperfect Data
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Established in 1998 in Bonn, Germany, IZA is an independent, non-profit research institution supported by the Deutsche Post Foundation with a focus on the analysis of global labour markets. It operates an international network of about 1,500 economists and researchers spanning across more than 50 countries.

Based on academic excellence and an ambitious publication strategy, IZA serves as a place of communication between academic science and political practice.

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