CREDIT 15/01: Worker Flows and the Impact of Labour Transitions on Earnings in Uganda

Summary

Uganda is typical of many sub-Saharan African (SSA) countries that have experienced significant economic growth since the 1990s without a corresponding increase in employment, especially formal sector wage employment. This phenomenon of jobless growth represents a major challenge as the labour force is growing quite rapidly, reflecting population growth and demographic composition (SSA is the region of the world with the highest youth share in total population). Improvements in access to education exacerbate the problem of youth unemployment because the new workers entering the labour market are better educated. As there are no forms of unemployment benefit very few workers are officially unemployed, i.e. voluntarily declared as not engaged in any economic activity. On the basis of household surveys, less than five per cent of the labour force is not working and these tend to be in relatively rich families who can support them. Almost 80% of the labour force is employed in the informal sector, mostly own account workers and those engaged in household enterprise (including in agriculture). The formal wage sector accounts for no more than 20% of the workforce (about a quarter of these are in the public sector). It is established that workers in the formal sector have higher earnings and tend to be better educated, but little is known about movement of workers between sectors. 

In this Nottingham School of Economics working paper, Susan Kavuma, Oliver Morrissey and Richard Upward analyse the flow of workers (transitions) between three broad employment states or sectors: movement from not working to working; from informal to formal employment; and from formal to informal employment (the data do not permit a finer distinction of employment state). Labour force surveys provide a sample of 3130 individuals observed in 2005/06 and 2009/10, and a sample of 3255 in 2009/10 and 2010/11; the transitions in these two periods are studied. The majority of workers do not move sector (about 90% of informal and 70% of formal sector), although almost 60% moved from not working to the informal sector and over 30% not working to formal employment. There is a higher tendency to transition from formal to informal employment than vice versa, reflecting ease of entry into the informal sector and slow growth and barriers to entry in the formal sector (especially the public sector). The transition from informal to formal employment increases with education, whereas the likelihood of moving from formal to informal employment and from not working to working declines with education. Workers moving from formal to informal employment suffer a loss in wages, suggesting the reason for moving is the loss of a formal job (and the relatively less educated are more likely to be made redundant). Workers moving from informal to formal employment tend to experience an increase in wages; given that the movers tend to be relatively more educated, this suggests successful search activity. The more educated young workers appear willing to wait for a formal wage job.

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CREDIT Research Paper 15/01, Worker Flows and the Impact of Labour Transitions on Earnings in Uganda by Susan Namirembe Kavuma, Oliver Morrissey and Richard Upward

Authors

Susan Namirembe Kavuma, Oliver Morrissey and Richard Upward

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