Econ 216: Economy of Ghana II

Lecture 5: Employment

Introduction

• What is employment?• “An unemployed person is one who

during the year is engaged in a regular work for not less than eight weeks and received either in cash or in kind directly or indirectly remuneration considered reasonable in relation to requirements for basic sustenance.” – Workshop on Harmonisation of Labour Market Concepts in Ghana (1996)

Introduction

• A Productive activity;– One that results in output for which there is effective

demand/ market– One that results in positive net return to individual,

having adjusted for costs involved.• The labour force;– Composition of employed and unemployed above the

minimum working age.– By virtue of this definition, its possible to have a large

labour force with more unemployed, or more aged people.

Introduction

• Full Employment;– Persons willing and able to work under the

prevailing wage and working conditions are employed – Natural Rate of Unemployment

– Unemployment level is low/ acceptable.

(Does this mean zero employment? Explain.)

Employment Distribution in Ghana

• Distribution by Sector; Industries, Agric, Trade and Manufacturing account for 81.9% (GLSS-5)

Employment Distribution in Ghana

• Occupational Distribution

Employment Distribution in Ghana

Forms of Employment

• Formal Sector Employment– Employment in large institutions with a workforce

of more than five people.– Formal contract between employer and employee– Though proportion of labour force involved is small,

it has significant effect of public budget– Supplies much needed consumption and industrial

goods.– Attracts the largest number of skilled and educated

labour

Forms of Employment• Informal sector employment;

– Small scale businesses in urban economy not subjected to formal contracts or official rules and regulations such as pension, profit taxes or collective bargaining.

– Contracts are largely informal– Characteristics such as temporary locations, high turnover or

failure rate make it impossible to officially account for their activities

– Tend to absorb urban workers unable to secure formal employment – “labour sponge”

– Includes mechanical workshops, whole sale trade, transportation, petty trading.

– Labour turnover is high and incomes are relatively low.– Largest source of employment after Agriculture in Africa….

Forms of Employment

• Performance of formal sector employment in Ghana (GSS, GLSS-5)

Forms of Employment

• Underemployment;– A measure of the extent of under-utilization of labour rather than

non-utilization/ unemployment.– Unemployed urban workers will tend to accept any job offered

them given that they cannot remain unemployed forever. Especially In rural economy, people tend to be fully employed, but not productively.

– Self employed folks cannot be described as “seeking work”– When a person works fewer hours than desired, we refer to it a

visible underemployment. – Again, where a one is working on a job in which one is less

productive than should be the case if fully employed elsewhere is termed invisible underemployment.

Forms of Employment

• Based on the ILOs classification, a visibly underemployed is one;– Working less than the normal duration of work

determined for that activity– Doing so involuntarily– Seeking or being available for more work

• Underemployment can also be the result of higher aspiration or need, as one can earn well above the minimum wage and still consider oneself underemployed…..

UnderemploymentThe International Labour Organisation (ILO)’s definition of underemployment, which considers all those who work for 35 hours a week or less and are willing to work for more hours as underemployed, then out of the 27.1 percent of the working population who worked for at most 35 hours a week only 5.1 percent are underemployed. The proportion of the underemployed in urban areas (3.3%) is about half the proportion in rural areas (6.4%). The data shows that the proportion of the female underemployed population (5.6%) is slightly higher than that of their male counterparts (4.6%) – (GLSS-5)

Measuring UnemploymentFirst, what does unemployment mean?• Unemployment exists where the aggregate supply of labour

exceeds the aggregate demand for labour as there are people who wish to work at the prevailing wage rate but are without work.

• There are three criteria for determining unemployment (ILO);– Availability for work – Includes people available for work

and excludes those who are unavailable (examples of each). It excludes also those below minimum working age and incarcerated felons.

– Without work – whether underpaid or underemployed is inconsequential. “Work” here includes paid employment, self-employment, work in unpaid family business, mutual labour exchanges and cooperatives. Helps distinguish between being employed and being unemployed.

Measuring Unemployment

– Seeking work – any active attempt to engage in paid or self-employment such as correspondence with employers, responding to print and electronic media advertisements. Distinguishes between those active in labour force and those out for whatever reasons.

• To determine the unemployment rate, the following formula is used;

Ur = [(LF – E)/LF] * 100Where Ur – unemployment rate, LF – labour force, E – number employed

Type of Unemployment• Structural unemployment; following advances in technology including

automation of production systems, improvements in productivity and development of input substitutes, the skills of the employed are rendered obsolete.

• Frictional unemployment; arises following time spent in job search. Usually short term and will always be present in an economy even if economy is functioning perfectly. One reason for this has to do with lack of information on labour market. Typical situation of graduates.

• Cyclical Unemployment (Keynesian unemployment); Deficiencies and inefficiencies in aggregate demand during certain periods in the business cycle. Coincides with underutilised/ unused industrial capacity or capital goods.

• Seasonal Unemployment; similar to cyclical unemployment, it associated with a shortfall in demand in a particular season, sector or industry rather than economy as a whole and usually short term. Modifications to jobs or structure of a sector or industry can help absorb labour and mitigate the incidence of the problem year round.

Cost of Unemployment

Social and economic;• Individual financial cost - Lost income• Indirect Private Cost;– Missed work experience– Pensions and retirement benefits

• Indirect public financial cost – Social support instead of investment

• Non-financial cost – psychological effects and social repercussions

• Loss of aggregate output to nation– GDPgap = Potential GDP – Actual GDP

Unemployment Trends in Ghana

Year Male Female All

1984 3.2 2.5 2.8

1991/92 3.7 5.4 4.7

1998/99 7.5 8.7 8.2

2000 10.1 10.7 10.4

2005/06 4.6 4.8 4.7

Unemployment rates (%) in Ghana - GSS

Employment performance in Ghana (Post – ERP/SAP)

• Despite the growth of the economy following ERP/ SAP (avg. 4.8% between 1984/2000), employment rate has lagged, growing at 3.1%. Investment has also been low, while the labour has continued to grow.

• Contraction of formal sector employment following public sector retrenchment exercises, privatisation, removal of subsidies and tariffs aimed at protecting inefficient SOEs, has shifted labour to the informal sector especially since job requirements are low and little capital is required to setup, although job security is unavailable. It is also the case that some have found their way back to the formal sector employed in other regions/ ministries/ sectors/.

• The presence of over 230,000 new job seekers annually with the formal sector having an absorptive capacity of 2%, thus creating excess labour.

• Globalisation and unfair trade practices, along with the depreciation of the cedi and high domestic lending rates has led to downsizing or collapse of many private sector firms/industries.

Employment performance in Ghana (Post – ERP/SAP)

• According to the Ministry of Manpower, Youth and Employment the causes of youth unemployment in Ghana include the following – the introduction of the Junior Secondary School and Senior Secondary

School system without adequate planning for integration into the trades/vocations and job placement;

– education and training have no link to the needs of the important sectors of the economy;

– the near collapse of Ghana’s industrial base due to ineffective management of the divestiture process which resulted in the closure of many factories without a structural transformation of the economy to generate alternative jobs for people;

– the shrinking of public sector employment opportunities coupled with a relatively slow growth of the private sector;

– and the lack of a coherent national employment policy and comprehensive strategy to deal with the employment problem

Strategies for Improving Unemployment Situation in Ghana

• Some initiatives have been undertaken to improve the situation of Youth employment in Ghana;

• the National Youth Volunteer Programme by the Ghana National Service Scheme; the establishment of the Youth Venture Capital Fund;

• the enactment of a new Labour Law (Act 561) to ensure a more flexible labour market environment;

• the enactment of the Disability Bill to address the employment needs of young persons with disability and the enactment of a demand-driven law for technical and vocational education

Strategies for Improving Unemployment Situation in Ghana

• Growth and Poverty Reduction Strategy Programmes (GPRSP II) which provide a blue-print for the nations’ development agenda, including interventions such as the pro-poor decentralization and good governance reforms, the Rural Enterprise Project, Alternative Livelihood Programme, the Village Infrastructure Project (VIP) and projects implemented by the Social Investment Fund (SIF) would help support the process.

• Some proposals for dealing with the challenge;– Output growth for more employment opportunities– Measures to enhance labour productivity and absorption– Promote self employment and informal sector employment– Special programs for vulnerable groups such as youth, women, rural

population

Strategies for Improving Unemployment Situation in Ghana

• On labour supply;– Population control– Human resource training to deal with the

structural causes.– Q: What other strategies do you propose?