The structure and outcomes of urban labor markets in Africa

The purpose of this study is threefold as represented by its three separate parts. In the first part, it highlights major characteristics of labor markets and institutions in Africa. In the second, it investigates effects of these labor market institutions in the process of wage determination; and in the third, it investigates the separate influences of these institutions on gender wage gaps, where it also measures part of the gaps that may be due to discriminating treatments in the labor market against women. The analysis mainly focuses on the two most populous African countries: Ethiopia and Nigeria. Part I shows that African labor markets are characterized by a dominant public sector, high and increasing levels of informality and unemployment; minor to significant restrictions on forming independent unions, as well as gender disparity in labor force participation rates, education and wages. It also suggests that despite the prevalence of such common labor market characteristics, there are also significant differences within Africa, and that in the manufacturing sector, there is a substantial degree of occupational job segregation where women are over-represented in low paying occupations. In part II, the study finds that generally labor market institutions have significant wage effects, and the effects vary across countries and groups of firms within a country. For example, it shows that union firms pay an average premium of 33 percent over nonunion wages in Ethiopia, and about 62 percent in Nigeria; while there are no such significant union wage effects in the public sector sub-samples in both countries. The study further shows that in both countries, foreign firms pay better than domestic firms, and public firms on average pay less than private firms. Part III shows that women on average get about 73 percent of men's wages in Ethiopia and about 58 percent in Nigeria; and again institutions have significant influences on gender wage gaps. Using the Oaxaca-Blinder and Cotton-Neumark procedures, the study finds that the 'unexplained' component and discrimination due to women's disadvantage are also more pronounced in Nigeria where there is more restrictive attitude towards women's economic role.