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Labor Market Regulation in Africa

Labor Market Regulation in Africa. Stephen Golub, Swarthmore College Aly Mbaye, University of Dakar Hanyu Chwe ‘ 16, Swarthmore College. Formal vs informal employment (from household surveys). Why so few formal sector jobs?. Demand of supply of labor failing to match

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Labor Market Regulation in Africa

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  1. Labor Market Regulation in Africa Stephen Golub, Swarthmore College Aly Mbaye, University of Dakar Hanyu Chwe ‘16, Swarthmore College

  2. Formal vs informal employment (from household surveys)

  3. Why so few formal sector jobs? • Demand of supply of labor failing to match • Demography and labor supply • Adverse Business Climate and labor demand • The specific role of Labor Market Regulations • Why are labor regulations ranked at the bottom of the ladder among business climate constraints? • Are labor regulations a problem? • How restrictive are they in Africa: Case study of Senegal and comparator countries

  4. Outline • Quantitative Analysis using Doing Business Indicators • Case Study of Senegal • Other Case Studies (comparators) • Ethiopia • Ghana • China • Bangladesh

  5. The Doing Business Indicators of Labor Markets

  6. Weights of Labor Market Regulation Index

  7. Labor Market Restrictiveness Index(0-1 range, 1 = most restrictive)Selected Countries

  8. Labor Market Regulations in Africa • Francophone countries tend to have more restrictive labor regulation index • Considerable variation within Africa • Labor market regulations generally not ranked as one of the most significant problems

  9. Labor Regulation Effects • Does the severity of labor regulation impact manufacturing exports, particularly labor-intensive products such as clothing? • We used the quantitative index to perform regression analysis

  10. Regression Results • Labor regulation index does not have a significant effect • Measures of the overall business climate and exchange rate overvaluation are correctly signed and significant • African exports of clothing low even after controlling for business climate and per capita income

  11. Senegal Case Study • On site data collection, June 2015 • About 30 interviews with business HR staff, government officials, labor unions

  12. Senegal Formal and Informal Employment, 2011(millions)

  13. Senegal Monthly earnings, by sector (in Euros) Source: Adapted from Roubaud and Torelli (2013, Table 1.14).

  14. Senegal: New Employment Contracts and Labor Force Growth

  15. Senegal Labor Regulation Severity Rank (189 countries) These are rankings out of our sample of 189 countries—Senegal has the third most restrictive labor regulations out of all the countries in our sample. Source: Our calculations based on the Doing Business indicators.

  16. Senegal’s Labor Market Regulation 1) Contracts • Indefinite term—very difficult to fire workers • Fixed term–max 2 years, renewable once 2) Labor Unions • Politically powerful and politicized • Union reps have special protections 3) Many cases go to labor tribunal • Workers almost always win • Expensive and time consuming

  17. Indicators of Labor Market Conflict Source: Directorate of Labor Inspections and Social Security

  18. Senegal’s Labor Market Regulation 4) particularly high mandatory payroll social insurance contribution from employers

  19. Senegal Social Insurance Mandatory Payroll Contributions (% of Gross Wages) Source: World Bank (2007), Interviews

  20. Senegal’s Labor Market Regulation Few workers actually enjoy the benefits of social insurance programs (IPRES) -less than 5% •Most informal workers do not have access to social insurance

  21. Number of Workers Enrolled in the IPRES Retirement Program, Level and as a Ratio of the Working Age Population

  22. Senegal Labor Regulation: Effects • Only enforced for the formal sector • Firms say regulations inhibit hiring and lower productivity • One of many reasons for the lack of formal employment • Especially for young people

  23. Senegal Labor Regulation: Effects • Labor regulations do not protect most workers since most workers are unable to break into the formal sector • Senegal needs to lower regulations to promote growth and equality

  24. Ethiopian Case Study • Agriculture still accounts for 85% of total employment • Only 10% of the labor force is employed in the formal sector

  25. Ethiopian Labor Regulation • Ranked 114th out of 189 countries • Above average labor restrictiveness • No minimum wage exists for the private sector • Minimal working conditions regulations

  26. Ethiopia Labor Regulation Rank (189 countries)

  27. Ethiopian Layoff Difficulty • Workers can appeal layoff decisions to labor tribunal • Labor tribunals are notoriously long and complicated • an average judge hears forty cases a day and takes between two months and two years to decide a case • 68.7% of companies say that firing labor is expensive or very expensive

  28. Ethiopian Labor Regulation: Conclusion • As in Senegal, labor regulations are a problem but not the main one (Less than 2 % of firms cite labor regulations as a major problem): • These include: • Lack of Electricity and Infrastructure • Access to Finance

  29. Ghana Case Study • Almost 90% of Ghanaian employment is in the informal sector • Ghana has the 59th least restrictive level of labor regulations • better than average

  30. Ghanaian Labor Regulations • Few obstacles to hiring new workers • Employers are required to inform unions when laying off workers and provide adequate redundancy pay • Unclear if this is enforced

  31. Ghana Labor Regulation Severity Rank (189 countries)

  32. Unionization • Strong union presence in Ghana • Strikes occur frequently • Protests against general economic conditions as well as the National Tripartite Committee, the determiner of minimum wages by industry.

  33. Ghana Labor Regulations: Conclusion • Labor laws are less restrictive than in Senegal • However, strikes are frequent • Again, electricity and infrastructure concerns trump labor regulations • 61.2% of firms in Ghana identify electricity shortages as a major constraint, 3.6% of firms identify labor regulations as a major constraint

  34. China Case Study • Rising wages in the formal sector • New 2008 Labor Law designed to address worker abuse • China is ranked 68th in labor restrictiveness, somewhat better than average

  35. China Labor Regulation Severity

  36. Minimum Wage • Minimum wages are set regionally • Determined by local governments • Supposed to factor living costs, supply and demand for labor • Much higher in urban areas, • ex. Shanghai, Beijing • Than rural areas • Ex. Guizhou

  37. Hiring Difficulty & Working Conditions • Little hiring difficulty • No prohibition on the use or duration of fixed-term contracts • Working conditions • employers can require certain staff to work overtime without extra pay

  38. Layoffs • China has extremely strict layoff regulations • May only fire employees if they violate rules or commit a crime • Cannot layoff workers with fifteen years of continuous service • For collective dismissals, employers must prove bankruptcy or “serious difficulties in terms of production or operation”

  39. Enforcement? • Unclear how regulations are enforced • Workers are supposed to have pensions, but in 2013, only 242 million workers of 770 million had pensions. • No active Union presence—union is controlled by the Communist Party • Almost all workers strikes’ are nonunion.

  40. China Labor Regulation: Conclusion • China’s case illustrates a key point: Labor regulations and wage increases should follow economic growth, not precede it • Cheap labor was necessary for Chinese growth • Now China can afford to give more benefits to workers

  41. Bangladesh Case Study • Several high-profile factory disasters stemming from dangerous working conditions • However, garment industry has created 3.6 million formal sector jobs • 80% are women • Still, 87.5% of workers in informal sector

  42. Regulations • Ranked 83rd, average labor regulations • Minimum wage set by sector • Minimum wage doubled in 2013 • As of 2014, only 5% of factories in Chittagong enacted increase • No restrictions on hiring

  43. Bangladesh Labor Regulation Severity Ranking (189 countries)

  44. Working Conditions • In theory, workers are guaranteed overtime if working more than 48 hours a week. • In practice, workers almost never get overtime pay • Before 2013, workers needed the permission of factory owners to create unions. • Unremarkably, few unions were formed.

  45. Bangladesh Labor Regulation: Conclusion • Few labor regulations are actually enforced, notably in the garment sector • Garment sector jobs are significant improvements, especially for women • The garment sector promotes gender equality as well as national economic growth

  46. Conclusions • Generally, African countries have higher levels of regulation compared to Asian developing countries. • Francophone African countries are generally more regulated than Anglophone African countries

  47. Conclusions • Labor market regulations are not the most important impediment to growth and employment creation in Africa • Ex. Electricity, infrastructure • However, the case studies show that labor regulations have a negative impact • Cooperative rather than adversarial labor relations are conducive to competitiveness and employment creation.

  48. THANKS FOR ATTENTION

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