The menace of unemployment versus limited job creation

By Mathias Burton Kafunda*

One of the most important issues before the nation is the subject of unemployment.  Whether we are in a recession or a depression the plain fact is that 22 percent of our working force is today unemployed, and every day brings additional hardships. Unemployment is more common among females than males, according to the Fourth Integrated Household Survey.

The percentage of unemployed females is 26 percent compared to the 14 percent unemployment rate among males. The risk of being unemployed is higher among the economically active persons aged 15-24 than among older members of the labour force. Considering that job creation does not match the increase in the labour force, most people are turning to informal economy as an alternative source of livelihood and most of them are doing so not by choice, but out of a need to survive.

The informal economy has experienced rapid growth as per the Malawi Decent Work Country Programme.  Overall, 89 percent of employed persons in Malawi are engaged in informal employment.  Informal employment is more prevalent in the rural areas than in urban areas. In rural areas, the percentage of employed persons in informal employment is 91 percent compared to 69 percent in urban areas. Nearly 90 percent of all employed women worked in the rural informal sector, particularly in subsistence farming. The informal sector also has many young people.

Young, unlicensed street vendors have become one of the most visible signs of the chronic jobs’ shortage on Malawian city streets. The street hawker’s community has swelled dramatically as thousands of poverty-stricken young job seekers are increasingly pushed into the informal sector in a desperate bid to survive in a tough economic climate.

They are working in circumstances where individuals are: unable to enforce their rights; where social insurance protection is absent; where health and safety is put at risk; where work does not provide sufficient income to live decently; where work does not allow individuals to plan for their future; where work does not provide stability;  where work is temporary (the duration of which is uncertain); and where work is without access to training.

The scale of desperate young workers trapped in precarious livelihoods is highlighted in a recent report from the International Labour Organisation (ILO) which shows that over 70 percent of young Malawians aged between 15 and 29 are employed in the informal sector. The report, Global Unemployment Trends for Youth: A Generation at Risk reveals that with just over 66 percent of the demographic completing secondary education, many young people in Malawi are unable to make a successful transition to stable or decent employment.

It says five out of ten young Malawian workers are undereducated or overeducated for the work they do and that six out of ten receive below average wages. The report cites a weak industrial base and lack of work experience as some of the major obstacles to securing a job.

Three things worthy paying attention to in the findings of this report are that; Most young Malawians are undereducated; we have a weak industrial base (private sector); and that most young people lack experience that could help them secure a job. Being undereducated coupled with lack of experience implies that most of our youth cannot attract the best paying jobs as most of employers are in search for a skilled and experienced labour force.

Studies show that almost two-thirds of the labour force have not completed primary education, and another 25 percent have not progressed past primary school. This is ultimately reflected in the low labor intensity of the more productive sectors (World Bank: 2018). Lack of training and job-matching mechanisms make the transition from school into the workplace difficult. While firms do not view the availability and cost of adequately trained workers as major constraints, employers still complain about the unpreparedness of graduates once they enter working life.

Only a few graduates benefit from established training programs, making the transition from education institutions to the workplace difficult. As such, a high population (64 percent) of the employed persons are in agriculture, forestry and fishing and nearly 20 percent of the employed labour force works in the wholesale and retail trade (IHS4).  These low paying jobs translate in high populations of working poor.  Malawi has one of the highest rates of working poor, which stands at around 60 percent on $2 per day. The working poor are those individuals who are (i) employed and (ii) living in households whose income or consumption levels fall below a poverty threshold.

The third aspect of having a weak industrial base (private sector) is of high interest too. Having a weak industrial base means private sector development and job creation are both constrained. It has been observed by the World Bank in 2018 that the business environment remains characterized by a lack of transparency and predictability for investors. Among many aspects, corruption is increasingly seen as a huge challenge to business activity and private sector growth in Malawi.

It is observed the percentage of companies that reported having been asked for bribes by public officials has been increasing significantly every year (from 13.7% in 2008 to 24% in 2014- World Bank 2018). It also observed that another constraint to growth of Malawi’s private sector is the high cost of doing business. High trade costs make it difficult for the firms to gain access to take advantage of export opportunities.

What this entails, is that, if there is limited private sector growth, then private sector can only play a very limited role in job creation in the country even though both are key determinants of future growth and poverty reduction for the country. We have a burgeoning working-age population yet very limited availability of jobs to accommodate this growing population.

Currently, formal employment comprises only 11 percent of total employment, with a large share of self-employed (own-account) workers (54 percent), mostly in the agriculture sector. Around 84 percent of men and 94 percent of women hold jobs without social protection or employment benefits, which includes self-employed (own-account) workers as well as a large share of paid employees.

What needs to be clear is that even in our current adverse situation, the private sector development and job creation remains one of the most important routes out of poverty for most poor people. Malawi needs to pursue reforms that will help to encourage private sector development that provides productive income-generating opportunities for Malawi’s growing population.

Continuing to take a “business as usual” approach to private sector development and job creation in Malawi would leave the country stuck in high levels of inequality and unprecedent levels of poverty. Business as usual would mean continued the current low-level private sector activity, with limited new (quality) private sector investment, and very limited job growth. A better approach would be to reform radically the business enabling environment, improving transparency and predictability.

The objective would be to develop an investment climate that can attract higher-quality investors and investments and facilitate the creation of more and better-quality jobs in diversified sectors. The government needs a comprehensive focus on changing its relationship with the private sector, so that it proactively removes blockages to growth within the sector. In tandem with this, there is equally a pressing need to invest in human capital development to ensure that the next generation is more productive, flexible and innovative.

*Kafunda is a regular contributor to The Lamp magazine