Published on Africa Can End Poverty

The demographic transition and labor markets in Sub-Saharan Africa

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The recent revolutions in the Middle East have brought even more urgency to the perennial challenge of how policies can help create better job opportunities for youth. North Africa, along with Sub-Saharan Africa and South India, has among the world’s highest population growth rates and as one widely quoted study put it, “the Arab Spring could not have occurred without the ideological and numerical push of a huge mass of angry youth.” Neighboring countries in Sub-Saharan Africa, which still has among the highest birth rates in the world, noticed.

Does failing to control population growth really have serious consequences for young workers in developing countries? In the standard demand and supply framework, increasing the supply of workers ought to reduce equilibrium wages, and might even increase unemployment. But the size of the effect depends on how productive workers are and how willing they are to work, both of which are difficult to measure directly. The canonical Solow and Ramsey models come to different conclusions about the long-term effect of population growth on economic growth. For a long time, there was very little if any evidence about how population growth has affected labor market outcomes outside the OECD.  
Until now. Two new papers have tackled this question by looking at how population growth is associated with changes in youth employment outcomes. Did countries that reduced their population more, see a larger increase in the availability of good jobs? The studies both find small effects in developing countries. The first study, Youth Bulges and Unemployment, considers unemployment and finds that a 10 percent reduction in the youth ratio is associated with a moderate 3% reduction in the unemployment rate. The second paper, Cohort Size and Youth Employment Outcomes, uses a much richer dataset and finds even smaller effects:  A 10%reduction in population is associated with only a 0.7 percentage point reduction in unemployment.
Admittedly, unemployment is usually a poor indicator of labor market conditions in low-income settings, and it’s better to look at the type of job people have. But even then, controlling the youth bulge seems to matter only slightly more, and mainly for one particular group: 15 to 19 year olds in middle-income countries. Reducing population by 10% increases the share of these workers working outside of agricultural by a lot – by 5 percentage points. It also increases the share of young women working in wage and salaried employment by 4 percentage points. But these effects generally fade after age 20, and there is no evidence that being in a larger cohort permanently damages a workers’ career trajectory.
The upshot is that reducing population growth seems to benefit young workers aged 15 to 19, in middle income countries. But the effects aren’t overwhelming, and explanations blaming the lack of economic opportunities on the youth bulge are probably too simplistic. Instead, the main culprit is insufficient growth of labor-intensive jobs in the private sector, and the remedy is to improve competitiveness by ensuring fair competition and a level playing field, investing in public infrastructure, and improving health and education systems.  


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