Structural change, productivity growth and labour market turbulence in Africa

in: in: UNU-MERIT Working Papers No. 2018-026

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This paper combines a standard decomposition of labour productivity with a decomposition of labour market turbulence to study the role of structural change and job reallocation in the economic growth performance of African countries over the past fifty years using an updated and expanded version of the Africa Sector Database (ASD) developed by the Groningen Growth and Development Centre (GGDC). The results show that productivity growth has been generally low since the 1960s with moderate contributions from structural change across the entire period. Although productivity growth from structural change is generally low, a regional comparison shows that structural change is more rapid in East Africa than in the other regions of sub-Saharan Africa (SSA). While structural change accounts for more than half of the labour productivity growth in East Africa, within-sector productivity growth accounts for more than half of the labour productivity growth in West Africa and Southern Africa. Structural change is characterised by a net reallocation of workers across different sectors. As such, we compute the labour market turbulence effect of structural change. The turbulence effect of structural change has been mostly felt in the Service Sector due to volatile demand and the high level of informality. The paper further makes the first attempt to estimate the effect of labour market flexibility on job reallocation in Africa. The results show that more rigid labour markets reduce job reallocation across sectors impeding structural change and productivity growth in Africa.