POVERTY AND LABOUR MARKET RESPONSE TO ECONOMIC REFORMS IN UGANDA

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POVERTY AND LABOUR MARKET RESPONSE TO ECONOMIC
REFORMS IN UGANDA

• . FRANCIS NATHAN OKURUT, SARAH SSEWANYANA, ASAF
  ADEBUA

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Motivation of Study

• Expectations of economic reforms
• More job creation structural shift in labour to
  highly productive sectors wage flexibility
• Scanty studies relating labour markets outcome to
  poverty in Uganda during the economic reform era
• The empirical evidence on the same else where in
  developing countries is mixed
• Explore the effects of economic reforms on labour
  market outcomes in Uganda

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Objectives of the Study

• To examine how labour market outcomes due to
  economic reforms are linked to poverty
• To analyse the extent to which economic reforms
  have led to creation of employment opportunities
  in various sectors

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Objectives of the Study contd

• To investigate the extent to which the factors
  influencing labour market employment choice
  changed during the reform period
• To examine the factors influencing wages in paid
  employment in private and public sectors
• What explains the wage differentials between
  these sectors?

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Economic Reforms in Uganda

• Civil Service Reforms
• Privatization
• Financial Sector Reforms
• Trade Liberalization
• Education Reforms (e.g. UPE, Private scheme in
  State Universities)
• Decentralization (More districts larger
  parliament)

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Data

• UNHS data for 1992/93 1999/00 2002/03
• All three surveys contain data on labour but the
  more comprehensive labour module was only in
  2002/03 as per ILO standards
• Limitations
• For comparability over time, analysis restricted
  to same geographical coverage (some districts
  such as Kitgum, Gulu, Kasese and Bundibugyo not
  covered in the 1999/00 survey round due to
  insecurity)
• data on wages collected from individuals only in
  paid employment even some individuals in paid
  employment did not report their wages

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Scope

• Analysis restricted to individuals aged 15 64
  based on ILO standard for economically active
  population
• Analysis restricted to main economic activity
  status an individual was engaged in the last 12
  months prior to the interview
• Wage/salary structure restricted to only those
  individuals reporting paid employment

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Highlights of Study Period

• 1992 1999 High GDP growth rates (6.9 p.a.)
  fall in poverty (from 55.7 in 1992/93 to 33.8
  in 1999/00)
• 1999 2002 Reduced GDP growth rates (5.9 p.a.)
  increase in poverty (37.7 in 2002/03)

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Labour force

• How has it evolved?

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Labour force

• Labour force growth rate 3.4 p.a for 1992-02

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Labour force cont
Fig. 1 Labour force for persons aged 15-64 years
by rural/urban
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Labour force cont
Fig. 2 Labour force for persons aged 15-64 years
by educational attainment
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Employment

• What happened?

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Employment cont

• Employment growth for period 1992-02 was 3.1
  p.a. which was below labour force growth rate
• Job losses and job creation in reform period
• Jobs created 1.5 million (1992-1999) 0.6
  million (1999-2002)
• Job losses mainly privatised public enterprises
  and retrenchment

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Employment cont

• Increase in self employment
• A majority of the employed population in Uganda
  is own account workers, so limited job creation
  in the formal sector.
• Gender dimension for own account workers sharp
  decline for male employers (1992 1999), rise in
  female employers (26 over a 10-year period)
  mainly due to eased credit constraints though
  MFIs.

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Employment contd

• Share of wage employment in total employment has
  not changed much under economic reforms.
• By 2002, was 15 of which 76.8 were employed in
  the private sector.
• Public sector employment declined nearly by 1.6
  percent annually (1992-2002).

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Employment cont

• Public sector employment declined by 4 percent
  during the period of poverty reduction, it rose
  by 4.8 percent between 1999 and 2002.
• The civil service reforms and voluntary
  retirement, privatization of the government
  parastatals/enterprises partly explain the
  decline in the period (1992-99).

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Employment contd

• Increase in public sector employment (1999 02)
  due to the decentralization process, emergence of
  new authorities creation of new districts,
  recruitment of teachers for UPE program and
  recruitment of health workers
• The private sector had a positive employment
  growth rate of about 4.3 p.a between 1992 and
  2002 with a higher growth registered at a time
  when poverty was rising.

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Employment contd

• Structural labour shifts
• away from agriculture (low productive activities)
  to services (non-tradables) and industry sectors.
  
• The shift in the employment structure across
  sectors is consistent with the structural
  transformation in the economy.
• Increased share of private sector in total
  employment
• Increased share of self employment in total
  employment
• Increased participation of females in the labour
  market

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Employment contd

• A steady integration of females into the labour
  market
• increased participation in the labour market
• increased presence in self employment in
  non-agricultural activities and
• increased share in professional occupations
  (e.g. increased by 13 1999-2002)
• Implication Narrowing of gender gap in the level
  of participation in the labour market.

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Employment sector choice

• How have the determinants changed?

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Employment sector choice

• Education influences the allocation of
  individuals across employment states.
• The higher the education level the higher is an
  individuals likelihood of being employed in the
  public or self-employment in non-agricultural
  activities relative to being not working.
• Implication investment in human capital
  development is a key to moving the masses from
  agriculture to other sectors.

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Employment sector choice cont

• Local community characteristics also effect
  employment sector choice.
• The presence of banking facilities increases the
  likelihood to being self employed in
  non-agricultural sector or private sector, but
  reduces the chances of being self employed in
  agriculture.
• Presence of electricity, telephone and health
  facilities increased the likelihood of being
  employed in non-agricultural or private sector
  over time.

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Employment sector choice contd

• Presence of feeder roads was significant in these
  two sectors, it became insignificant during
  1999-2002.
• Policy implication infrastructural development
  is necessary for the successful implementation of
  economic reforms.
• Marginal effects for individuals community
  characteristics were increasing through the
  reform period with the exception of roads

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Wages

• What has happened to the wage structure and
  distribution in wage employment?

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Wages

• At the national level, mean real wages grew by
  9.1 (1992-99) and declined by 1.7 (1999-02).
• But for 1992-2002, it grew by 6.2
• A fall in the real wages in the private sector
  in 1999 2002 (when poverty was rising)
  increased labour supply to private sector due to
  public service reforms de-regulation of labour
  market
• Private sector contributes over 70 percent of
  the wage employment
• Public sector wages have been increasing over
  time but highest rise was in 1992 - 1999
• Widening of public-private sector wage gap

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Wage inequality

• Nationally, wage inequality has remained fairly
  constant, but increased in urban areas and among
  female wage employees.
• Wage inequalities have not only remained constant
  among public sector employees but are lower than
  in the private sector.
• Males wages grew faster than that of females,
  mainly because of their higher human capital
  accumulation. But inequality of wages in higher
  among female employees

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Decomposition of wage inequality

• Wage inequality is driven mostly by the
  within-social groupings inequality relative to
  between-social grouping inequality.
• A widening gap was observed between economic
  sectors, private/public sector and educational
  attainment.

Fig 3 Between group inequality
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Returns to education

• The returns to education both in the private and
  public sector changed, suggesting that the labour
  market was somewhat responsive to the reforms.
• Since 1992 onwards there was a significant and
  substantial rise in the returns to education
  especially at higher levels, but marked decline
  after 1999. The only exception was post secondary
  education in the private sector

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Emerging policy issues

• What do we make out of all this?

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Emerging policy issues

• Labour employment is the main source of income to
  Ugandans. A better understanding of the changes
  in labour employment is important in the
  governments poverty reduction efforts
• Private sector-led growth Increasing employment
  opportunities in the private sector but declining
  real wages. This presents a challenge, given the
  higher contribution of this sector in wage
  employment. If trend continues, we are likely to
  see more poverty
• Need for government to provide further incentives
  to the private sector to create more employment
  opportunities with better pays

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Emerging Policy Issues contd

• Increasing public sector employment with rising
  real wages has serious implications for
  government budget
• More caution has to be taken in creation of new
  districts and new authorities to control cost of
  public administration
• Education has a very clear influence on the
  allocation of individuals across employment
  choices and has a strong effect on the wage
  structure.
• Investment in human capital development is a key
  to moving the masses from agriculture to other
  sectors
• Need for more public and private investment in
  education especially at higher levels
• Ensure that the education system graduates
  individuals with skills relevant to the
  development of the private sector.

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Emerging Policy Issues contd

• Infrastructural development Access to banking
  facilities, electricity, health facilities and
  feeder roads depicted positive and significant
  effects on the employment choice and wages.
• Infrastructural development is critical for the
  successful implementation of economic reforms
• There is a steady integration of females into the
  labour market but most of them remain employed in
  relatively low paying jobs

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Emerging Policy Issues contd

• Geographical dimension in the employment growth.
  There is more concentration of private sector
  employment in the Central region relative to the
  other regions.
• The high growth in labour supply relative to
  labour demand calls for measures aimed at
  controlling the rapid population growth.

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