Unemployment, at least as it is conventionally measured, is not the major labour market problem in low-income countries. While low-income countries have had among the highest rates of population growth in the world in recent decades, unemployment has generally not increased in these countries. The more serious problem is that the vast majority of workers are in low-paying, low-productivity jobs in agriculture, small-scale self-employment, or the urban informal sector.
Given that the majority of workers in most low-income countries are self-employed, and that this is unlikely to change much over the coming years, traditional social protection programs that are linked to formal employment will have a limited impact on working conditions. This raises the issue of how working conditions can be improved for the self-employed.
The variance in firm productivity appears to be much larger in low-income countries than it is in middle-income and high-income countries. This raises the question of what barriers may limit the creation and expansion of high-productivity firms, and what factors may allow small low-productivity firms to survive.
Little is known about what drives job creation in low-income countries. Given a high proportion of the labour force is self-employed, what determines their decisions to employ workers? Are there barriers that prevent the self-employed from hiring workers?
Non-market work plays an important role in low-income countries, but we have limited ability to measure non-market productivity and the value of non-market work. This is especially important for women, who are disproportionately found in non-market work. This also makes it difficult to get good estimates of women’s labour supply as they are most often engaged in self-employment or unpaid work on farms or in other family businesses.
Longitudinal data has been very informative about labour market dynamics in high-income and middle-income countries, providing evidence on transitions between formal and informal jobs, transitions between employment and unemployment, and other dimensions of labour market dynamics. There is good reason to think that labour market dynamics may be different in low-income countries, but the shortage of data, especially longitudinal data, means we know very little about these dynamics.
Low levels of schooling are a constraint on productivity growth in low-income countries. While primary schooling has increased rapidly for both males and females in low-income countries, there has been more limited success in converting primary completion into completion of secondary and tertiary education. In many low-income countries there has been very little attention to technical and vocational education and training (TVET), a segment of the educational system that may be especially important for increasing wages, employment, and productivity.
We know much less about the distribution of earnings in low-income countries than we do in middle-income and high-income countries. This is the result of both data limitations and a lack of research on low-income country labour markets. There is a need for research on inequality in earnings by gender, region, and ethnicity, and for research on returns to skill (both cognitive and non-cognitive) and how those returns vary across groups.
