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    InterviewDynamics of labor markets

    Dynamics of labor markets

    Date:

    George Okutho is director of the International Labor Organization (ILO) Country Office in Addis Ababa responsible for five counties, namely: Ethiopia, Somalia, Djibouti, South Sudan and Sudan. He is also the Special Representative to the African Union (AU) and the United Nations Economic Commission for Africa (UNECA). His experience spans over 34 years of service both in his country, Uganda’s National Civil Service where he dedicated 11 years of service. Apart from that, he has served the United Nations Development Program (UNDP), the Department for International Development (DFID) and the UN for 23 years. His reach biography indicates that he possesses both national and international exposure in the field of labor statistics, human resources management, institutional and administrative reforms, research and training, policy analysis and formulation; and development cooperation. His goal is to consolidate and use the vast experience gained over three decades in the field of development cooperation. In particular, improving the wellbeing of humankind through provision of the right information to enhance employability, decent work, and promote evidence-based policies. Asrat Seyoum of The Reporter sat down with Okutho to discuss the trending prospects and challenges of labor market in Africa and with particular emphasis to Ethiopia. During the interview, the director stressed that macroeconomic stability which governments adhere to achieve should not shun job creation and employment opportunities for citizens. He also made it clear how the nature of African unemployment trend is distinctive in its characterization with the Western nations where social protection services prevail. Back in Africa and with the extension of many LDCs, people couldn’t afford to be unemployed as such services could not be found nowhere. Excerpts:

    The Reporter: the issue of job creation has always been an issue for politicians and economic managers even in the most advanced nations. Seeing that the world has conquered so many of its challenges in the past, why do you think creation of more jobs or unemployment still haunt the world? What is special about that challenge?

    George Okutho: The problem is still going on for quite a number of reasons. One is the demographic factor. With population growth you have an increasing proportion of young people entering into the job market. They are looking for opportunities to get a job. The second will be that, yes, we are witnessing economic growth in many parts of the world, including Ethiopia. But this economic growth is not creating a sufficient number of jobs to take care of the increasing number of job seekers. The third reason could be that, this is really a question in many countries, people are taking their education very seriously — increasing enrolment at primary, secondary and tertiary levels. Hence, the number of people going to school has increased tremendously. You have an increasing number of people going to school but with limited opportunities to apply the knowledge that they have gained. That is why we hear a lot about the mismatch between what the education system is producing and what the labor markets are demanding.

    The current trend in global labor markets is that of migration of jobs from the most advanced nations first to Asian countries, and now to Africa. But if you look at the political changes in the advanced nations at present, far-right politicians coming to power are talking about reversing some of the entrenched labor migration trends. I am wondering if that is ever possible, and what does that mean to the world?

    I think at the International Labor Organization (ILO) we don’t believe in a mechanical control of migration. We think that migration, when it is conducted properly, can also have advantages to recipient countries. It just needs to be properly addressed in a government framework. Migration is a phenomenon that is bound to happen whether we like it or not. People will move whether it is in search of job opportunities or whether they have been forced out, they will move. When we look at history, in one way or another we all are products of migration. If you look back, you are not in the same place like your forefathers. What we are talking about is really to have a government framework that will maximize what we get from migration. This is to ensure that its negative aspects of are minimized. We know that people try to migrate through informal channels and face enormous problems in the hands of traffickers, not to mention risks to their lives. Those are the kind things we try to minimize. But I think you have heard about the remittances that are coming from migrant workers. I think Ethiopia is one example where a lot of money is coming from Ethiopians who are living abroad. A huge amount of money is coming annually, contributing to the development of the country. Hence, there are benefits.

    One of the points you have raised during the meeting was the issue of macro-economic stability and employment. You even specifically noted that governments should notprioritize job creation over macroeconomic stability. But my question in general is that employment and macro-economic stability especially have always been on the opposing end of the equation. How can you balance this? It could also be argued that in economics, unemployment and inflation always have tradeoffs between each other.

    I think that is all economic theory of the past. If I may say we probably used to call that the Washington Consensus where it was believed that economic growth will cure everything; growth will trickle down to the poor.  But we have seen that if you don’t have the enabling policy to guide growth, it will not achieve the desired effect. The point I am trying to make here is that yes it is very important to have macro-economic stability — for low inflation, stable foreign exchange, or favorable balance of payment. These are very important to have but they should never be assumed to be in contradiction to creation of jobs. In other words, creating jobs will actually improve those parameters you are looking for   because if people are able to get income through jobs, that will eventually enable the economy to grow. Hence, there is no contradiction at all. Creating more jobs means perhaps helping enterprises become more productive. They will absorb more people. Creating jobs and macro-economic stability support each other. Creating jobs and having productive enterprises support economic growth. That is how I see it and I think it can be demonstrated in many ways.

    How do you evaluate what has been done in Ethiopia so far?

    I think you have heard what the minister of finance and economic cooperation, Abrham Tekeste (PhD), said. He said we want to have economic growth with jobs. Job creation and industrialization is what the government is looking for. I think the government realizes that economic growth without jobs is not going to create an enabling environment to sustain economic stability. If we talk of industrialization without creating jobs, that is not going to be complete. I think the government has been cognizant of that. I think the government has put itself on the right track. But how do we practically get this implemented on the ground is what needs to be looked at. We need to begin looking at the potentials of future investment to create jobs.  For example, we have massive infrastructural development projects. Look at the railways, the roads, and all sorts of things. We need to forge ahead in such a way that these infrastructural projects help maximize the creation of jobs. Take the example of condominiums that have been built around the country. The government has decided to link the production of the grounding, machinery fitting, procurement of blocks, and fabrication of windows to youth groups with engineering skills. Can you imagine how many jobs have been created by that one policy decision? Now you will agree with me that there is a difference in the quality of condominiums built five years ago and the ones being constructed now. The capacity of sub-contractors has improved over time and that is one of the benefits of the policy, the creation of jobs vis-a-vis the government’s policy of provision of low-cost housing. This is the kind of thing we are looking from the perspective of job creation. You can do that in many sectors. You heard the minister talking about industrial-parks development initiatives. Efforts are under way to put in place more than ten parks throughout the country. That is going to be huge investment. This will create employment opportunities for many people. Look at the value chains. Who are going to be involved in these value chains, and how can young people be maximally involved so that they can create job opportunities along the line. Now you can see they are making deliberate efforts to link investment with job creation.

    I am going to pursue on that point because you have explained that some of the policies have resulted in the creating of jobs in Ethiopia. The Ethiopian economy has shown growth in recent years. But what I want you to tell me is whether the rate of job creation actually keeps pace with the rate of economic growth? How can one go about evaluating that?

    Like I said, you have to look at the number of people entering into the labor market every year. At the moment, the available figure we have is that half a million people are entering every year. But not all of them are going to get job opportunities. Next year part of them will have jobs. So you can see how the numbers are always increasing. But at the same time, with the economy growing at 10 or 11 percent, they may find that they are not actually creating the same number of jobs and that is why the issue of where will be the highest potential to create a reasonable number of jobs that could be absorbed. They are saying half a million are entering the labor market because of the government’s good policy in providing education. But you have a constraint in the economy. Is it because of the number of jobs that are not being created or because of our education policy that we are not preparing the people for the jobs that are available or the combination of the two? We need to look at those two simultaneously. Half a million people graduating from educational institutions are completely unprepared to take up jobs available for them because the industries or the enterprises want people who can do the jobs. The fresh graduates will take a while to learn skills pertinent to their jobs, and that is costly to employers. They are not adequately prepared for the jobs. We need to look at our educational system critically. Quantity is there but what is required is quality.

    We will get back to the educational aspect of the labor market. Before we exhaust the macro issue, I want to raise one point about inflation. The cost of living has now become part and parcel of determining wages in the labor market. When inflation goes up, it has an undercutting effect on welfare. But at the same time there is increase in wages, since wages are firms’ major outlays, that would also contribute to increasing the rate of inflation.  There goes some sort of spiral, and how do economies manage such challenges?

    That is why you don’t need to divorce macro-economic stability from the needs to create jobs because when you are looking at both sides of the equation, the moment you say let’s focus on addressing everything in totality, I think if you have an inflationary situation, it is not good for growth. It’s going to make the cost of living very high. It will also make imports to be very expensive.  You may have to devalue your currency and that has a spiral impact on the economy. In this particular respect, I think the government has done tremendous work to maintain economic stability. In fact, inflation has been going up but not to the level that could distabilize the economy. If inflation is skyrocketing, real wages will become very smaller and purchasing power will be reduced. So because of inflation, a basket of goods that you would buy with 100 birr last month but now you have to pay 1000 birr. That would be unaffordable to the majority of Ethiopians. That also has a negative impact on productivity and employment. Real wages and inflation have to be kept in balance. At the ILO, we say the issue of wages has to be negotiated. There has to be a forum for discussion where you can have collective agreement reached at amicably between workers and employers based on facts available on the ground. Because, I tell you cannot have productive workers that are underpaid or your pay do not make them a happy living. I was in a country where workers say if the employers are pretending to pay, workers also pretend to work. So I still want to make that point that nations’ macro-economic stability has no contradiction so long as they are able to address both sides of the equation.

    One of the recent studies conducted by the World Bank Group which you were part of has some interesting findings on the labor market, specifically the urban labor market in Addis Ababa. It says it is basically inefficient, that it doesn’t absorb the excess labor force in the market. Do you think that is a fair assessment?

    Of course my only reservation there was we need to also have included rural areas because that is where the bulk of the labor force is. If you included that, there could be a situation where the result could reinforce what is in the urban area or there could be a shift. For example, there was one thing we were talking about the majority or the very small proportion of the employed are in paid employment. Many more are in informal employment. Now if you include the rural economy into that I think it would be very different. I thought missing out the rural dimension could not allow us to have a complete picture. But of course there are certain characteristics; when you see most of the unemployed people, thay have low-level education both in urban and rural areas.  I think the issue of lack of skills is a valid one that the study found out. Again we go back to the point of what the educational system is offering and what the job market is demanding. We need to see if skill development can be part of our educational system.

    On the labor market, some other studies also indicate that there is very high unemployment if we are talking about only urban markets, like Addis Ababa. But there is also a persistently high turnover or attrition rate. One way of making sense of such things would be, because if you look at it, workers will be predisposed to hold on to whatever job they have during a period of such high unemployment?

    That is why you need to have a standardized dynamic labor market before you make any conclusion. From my submission from which I see, that is a conventional problem in the analysis is that such analysis in many developing countries should never been based on only one data like unemployment rate. Because in a country like Ethiopia or Uganda, , nobody wants to be unemployed. They will always be doing something to earn a living whatever it takes. So in a conventional way, the unemployment rate in these countries would not be like in the UK, or in the US where unemployment benefits are available. Now it is the quality of the work the employee is doing. We also need to understand by analyzing the labor market. We don’t only have to look at unemployment rate. Otherwise, it’s underrepresenting the situation. In some countries you find the unemployment rate at 4 percent but that cannot be true. Or even ten percent and you may say how because that is the nature of the economy. We don’t have the social safety net system. Hence, everybody is doing something. You need to open up that group that you are saying those people are employed to begin to understand the workings of the labor market.

    If I understand you correctly a lot of informal activities you said are conducted in the so-called Least Developed Countries (LDCs) to earn a living as people could not afford to be unemployed. But the basic definition of unemployment according to mainstream economic science is that those people who are in the labor force but not employed in the formal sector. Therefore, are you challenging the characterization of unemployment?

    No, we are not challenging that. We are just talking about the reality. We are not taking issue with international standards. Because in the labor market you can only be one of these three:  employed, unemployed or not in the labor market. You cannot be in all of the three. You cannot be both employed and unemployed. That is the standard classification. But what we are saying in the LDCs is that if you exclude not in the labor market, you will have the two options, employed or unemployed. But people cannot afford to be unemployed. So you get people who are employed but working in the worst working conditions. There are people employed in the family business but unpaid. Hence, you need to add package to that to understand the labor market properly. If you go to Merkcato, many people are helping their family businesses without pay but they are working. You have to understand that to be able to analyze the market very clearly. It doesn’t in any way contradict with international standards. But when you do the analysis please look at the other factors. When talking about the turn over, people want to see progress in their work. I want to get back to the educational issue. We have a classical case in Ethiopia where the government made a conscious choice to balance college education in proportion of 70/30 where the majority of students go to natural sciences. There are now cases where graduates are complaining that the shift in education has come but the shift in the nature of jobs has not arrived yet. There is an interim matching problem in the Addis Ababa labor market. What do you think should the government doto address that gap?

    Let me tell this. I think the government had all that with best intentions. Because they had sensed that for the transformation that the country needed to go through, science-based training would be the way to go. When you talk about small and medium enterprises that are going to be information technology (IT)based, you will need people with certain level of knowledge in science. I think that is visionary of the government. Of course training a person in science takes a while. But again as you pursue that you need to begin retuning the curriculum of what goes into training a scientist. Is it going to be purely a theoretical or theoretical with some practical knowledge in what area? Is it also good to combine it with entrepreneurial skill development? An IT person who also went through all that when he gets out of college will create jobs as well. I think it is that fine tuning that needs to be done.  

    Another point here mentioned is the rising cost of living in the urban areas which is making it very difficult for firms to offer jobs. For example, for markets like Addis Ababa, manufacturing jobs are becoming less available as wages are going up. So what would be the solution? Is it for the firms to move elsewhere?

    No, I think many of the firms, whether private or public, will try to minimize the cost. A lot of them will do that to maintain break-even point. Making break-even and some little profit I think is very important. One has to look at the cost. People always think of wages as being the major outlay. But there are costly areas that management needs to look into. I would tend to think of human resources as part of the production system for you to achieve your enterprise’s objective. You need to know thatany expenditure you make on them is an investment. You buy a car and that is an investment. It is an asset as you don’t import a cost. The productivity of human resources is dependent on so many factors. It could be the technology that has been used. It could be the level of training that has been provided to them. It could be the environment. It could be the safety of the environment that can affect their productivity. Hence, you need to look at all of the factors. I also mentioned that we are doing a lot of work with the garment and textile subsector. We have come to agree that productivity, competitiveness and better working conditions are the way to go about. It’s interlinked. People will go where they are better motivated.

    If I can take you back to the education issue, teachers are in that part of the labor market that is not well regarded to a certain extent. What we invest in the teaching sector will come back to haunt us in the labor market at the end of the day. Do you care to elaborate on that?

    I don’t know why this is not obvious. Because it is teachers who are responsible for molding young people. Look at the primary level. They bring them up and prepare them up for the future. Teachers really have a very important role in shaping up what will be there in the labor market. I would suggest that this role be acknowledged. If you really want to create jobs, then the whole process of preparing and developing students by teachers should be looked at very seriously. But what we have now is the status of teachers deteriorating in many countries. In my country long time ago, if you ask anybody going to school what they wanted to become in the future, they would say, I want to become a teacher, I want to become a doctor, or I want to become a nurse. Those were like the key professions respected and everybody wanted to become one of them. I don’t think that is the situation now. Despite the huge contribution to human resource development, the status of teachers has kind of suffered.

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