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STRATEGIC DIALOGUE ON POVERTY AND INEQUALITY

Session 7: How can employment and public policy more effectively level out inequality and in what ways can evidence be used to inform this process?

Presentation by

Saurabh Sinha

Chief, Employment and Social Protection

Social Development Policy Division

UNECA

Organized by ESCAP

5-6 October 2017, Bangkok, Thailand

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Key Fact

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Africa’s growth has reduced poverty, but much more slowly than in other regions

0

10

20

30

40

50

60

70

1990 1993 1996 1999 2002 2005 2008 2010 2011 2012

$1.9

0 a

da

y h

ea

dc

ou

nt (%

)

East Asia and Pacific Europe and Central Asia Latin America and Caribbean

South Asia Africa, excl. North Africa

Africa, excl. NA

42.6

SA 18.7

EAP 7.2

Source: POVCALNET, World Bank

Even though poverty headcount ratio has declined by more than a quarter since 2002,

number of poor people is stagnant and

more than half the world’s poor people are in Africa.

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3

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Why?

1. The poor in Africa live much further below the extreme poverty threshold, on average

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World average

8.8

4

With wide variation across sub-regions

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2. Africa’s demographic transition is delayed, limiting its potential to unlock the demographic dividend

Africa has the fastest rate of population growth in the world (2.6% per year)

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-0.5

0

0.5

1

1.5

2

2.5

3

Africa Asia Europe LAC Northern America Oceania

Percent

1990-1995 1995-2000 2000-2005 2005-2010 2010-2015

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TFR is ‘stalling’ in 14 countries, esp. where fertility rates are high, with nearly half the continent’s population

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3. Africa’s growth rate per capita too little to effectively reduce poverty

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4. Africa is the second most unequal region in the world

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35.8

42.7

43.2

46.1

51.5

55.6

60.5

61.0

33.4

40.6

42.1

42.4

44.1

48.5

51.3

55.9

30.8

35.3

35.4

35.8

37.5

40.9

33.0

33.7

34.0

34.0

35.3

36.5

40.3

42.8

43.0

43.2

43.4

46.0

47.2

47.3

50.7

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0

Mauritius

Angola

Zimbabwe

Malawi

Swaziland

Zambia

Botswana

Namibia

Burundi

Madagascar

DRC

Uganda

Djibouti

Kenya

Rwanda

Comoros

Egypt

Algeria

Sudan

Tunisia

Mauritania

Morocco

Mali

Guinea

Niger

Sierra Leone

Burkina Faso

Liberia

Senegal

Ghana

Nigeria

Cote d'Ivoire

Benin

Togo

Cape Verde

Gambia

Guinea-Bissau

So

uth

ern

Afr

ica

Ea

ste

rn A

fric

aN

ort

he

rn A

fric

aW

est

Afr

ica

How do African countries compare globally on the Gini?

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Source: ADB (2016), African Development Report 2015

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5. Inequality is amenable to policy

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Inequality has declined in many countries and important lessons can be learnt from their experiences

6. Link between informality and inequality

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Informality and inequality interact in a number of ways, though the link is noteasy to establish given data constraints and because of two-way causality.

1a. Informality may reduce inequality

• By providing employment to those who might otherwise be unemployed, allowingindividuals to engage in the economy and potentially benefit from economic growth.

1b. Informality may increase inequality

• By providing lower quality employment and generating lower productivity in theinformal sector, and by limiting opportunities for mobility to a higher incomes (lockingthe informal workers in an “informality trap”), especially for women workers, becauseof structural constraints such as limited education and lack of access to credit.

2. Inequality may increase informality

• By lowering the relative benefits from becoming formal, with the effect beingstronger when the institutions and the protection of property rights are weak in theformal sector.

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15

0

20

40

60

80

100M

ali

Tan

za

nia

Ma

da

gascar

Za

mb

ia

Lib

eria

Uga

nd

a

Zim

ba

bw

e

Nam

ibia

Le

so

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o

So

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Afric

a

Informal employment as a percentage of total non-agricultural

employment, by sex

Women Men

• Informality contributes 55% of the GDP in Africa other than North Africa, and 60-80% of its

labour force is in informal employment.

• Women and youth are more likely to be employed informally. Of women in the labour force,

74% are informally employed compared to 61% of men.

• Over the next 10 years, one in four youths will find a wage job, and only a small fraction of

those jobs will be ‘formal’ in the modern enterprises.

7. Informal employment is high in Africa

7a. What is informality?

Collective term for informal workers and those employing informal workers

Informal sector – uses the enterprise-based classification

Informal employment – uses the job-based classification

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7b. Types of informality

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7c. Gender inequality in informal sectorWomen more visible in “lower value-added” activities with the lowest returns (selling cooked food, brewing beer, making baskets or crafts) – constitute 65% of total numbers of workers in retail trade and personal services.

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• Informal trade key strategy for self-employment, poverty reduction and income generation for

women – provides 60% of non-agricultural self-employment.

• Street vending, e.g. food sale, the largest source of income for most African women. It employs >37%

of the labour force and contributing to >38% to total GDP.

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7d. Why so many women in informal employment?

�On average, women in Africa receive 4.3 years of schooling as against men who have 5.7 years of schooling.

• West Africa is the worst off with girls on average having 2.5 years of schooling, or 2 years less than what the boys get.

�Retail trade and personal services being flexible in terms of time and location attract women workers, so that they can carry their other work burdens as well.

�Informal employment enables women in Africa to combine high fertility with high labour force participation.

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Poor girls face a significant schooling disadvantage, a disadvantage that is higher at lower incomes

Gender gap in Mean Years of Schooling (MYS) by sub-region

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• On average, women in Africa receive 4.3 years of schooling as against men who have 5.7 years of

schooling

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In spite of many gains, gender inequality is a key development challenge in Africa

Gender gaps in primary education have closed, though there are wide variations across sub-regions.

Change in gender gap (M:F) in primary completion rate, 1999-2014

Still, 18 percent more boys complete primary education in Central Africa as compared to girls in 2014.

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Women’s fertility and labour force participation in Africa

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8. To summarise• For Africa, with its young population, the absorption of a growing labour force into

productive employment is fundamental to capitalize on the demographic dividend.

• Understanding the relationship between informality and inequality is critical for successful policy formulation to improve living standards.

• Policy matters but one policy does not fit all. The informal sector in Africa is highly heterogeneous, and policy needs to take this into account.

• “Involuntarily” informal – Poorly educated informal workers, mostly young people and women, for whom informality is the only alternative to unemployment.

• “Voluntarily” informal – Highly educated young adults living in cities, choose to work in the informal sector or run informal enterprises to avoid cumbersome regulations or taxes.

• Analysis using Tanzania data confirms that limited education outcomes is a good predictor of an individual’s probability of being employed informally.

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Policy Conclusions

• Accord the highest priority to increasing access to quality education and skills (across location, gender and quintiles) to increase job opportunities, reduce inequalities and promote inclusive growth.

• Technical and vocation education has shown high rates of return, and its curriculum should be aligned with labour market requirements. Mauritius and Namibia provide good examples.

• Urgent need to improve the collection of regular, reliable and robustdata for better monitoring and evidence-based policies, especially, gender-disaggregated data.

• Much more rigorous research and analysis needed to establish causal relationships and influence policy.

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Informal employment and inequality (Gini)

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Lesotho 2009

Liberia 2010

Madagascar 2012

Mali 2004

Namibia 2008

South Africa 2010

Tanzania 2006

Uganda 2013

Zambia 2007

Zimbabwe 2004

30.0

35.0

40.0

45.0

50.0

55.0

60.0

65.0

70.0

30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0

Gin

i In

de

x

Informal employment (% of total non-agricultural employment)

• Extent of informal employment data is very scant (available only for 10 countries and different years)

• Comparison of informal employment is difficult because of lack of consistent and comparable data

• The scatter plot of Informal Employment and Income Gini shows a negative relationship