Urban jobs are key drivers of economic growth in developing countries. However, finding ways to connect and match young and skilled workers with better jobs remains a key policy challenge. In Ethiopia, experiments with training and transport subsidies show good promise in the short term, with the former’s positive effects persisting four years later.
This study looks at active labour market policies in low-income countries by trying two remove two key obstacles to young people’s job search, and analysing whether this may help them access better employment opportunities. Taking advantage of a large and heterogeneous sample, new light is shed on whether small average employment effects observed in previous studies mask significant heterogeneity, thus providing strong justifications for better targeting.
Africa has almost 200 million people between the ages of 15 and 24, the youngest population of any continent in the world. These people, better educated and more likely to live in urban areas compared to their predecessors, represent a great opportunity of growth for the whole continent.
However, their inclusion in the labour market has so far been problematic. In middle-income countries, youth unemployment rates remain very high. In low-income countries, instead, precarious and informal jobs are easily attainable, but undesirable and unlikely to ensure satisfactory employment (OECD 2015, Feng et al. 2017). For example, in Addis Ababa – where this study is set - young workers under 30 years of age represent half of the workforce, but take up two thirds of the temporary jobs, despite permanent contracts being highly valued. These jobs suffer from very weak real wage growth, and worker turnover rates are high, signalling poor match quality.
Existing studies have uncovered two significant frictions faced by young people in the labour markets. On the one hand, they often are unable to cover the costs of searching and applying for jobs. In large cities, this often implies extensive travel to acquire information about vacancies and apply for jobs. On the other hand, young people often lack formal credentials. Young jobseekers, often without any prior work experience or widely recognised qualifications, find it hard to prove their value and skills to firms, who end up not hiring potentially skilled and good employees.
Existing experimental research on interventions that aim to remove these obstacles through active labour market policies (ALMPs) has shown limited promise (McKenzie, 2017). However, these underwhelming results may stem from certain features of these trials: firstly, effects on the types of jobs that treated jobseekers obtain have largely been ignored; and secondly, representative samples have rarely been employed. As a result, there is a possibility that improving the targeting of these interventions may dramatically improve their effectiveness (Bertrand et al., 2017).
The evaluation looks at two separate interventions, aimed at reducing different search frictions faced by young workers, in particular the cost of job search and the inability to signal skills.
The first intervention is a transport subsidy. The amount of the subsidy is calibrated to allow participants to travel via bus, up to three times a week, to the centre of Addis Ababa, where they can find information about jobs and visit firms. Note that participants are required to reside at least 2.5km away from the city centre.
The second intervention, instead, is a two-day job application workshop, which is comprised of two components. Firstly, an orientation session helps participants make more effective applications using CVs and cover letters, and gives guidance on how to approach job interviews. Secondly, general and hard to measure skills are certified using a mix of standardised personnel selection tests.
These interventions are cheap in terms of marginal costs (USD 19.80 for the former, USD 18.20 for the latter) and relatively easy to implement and scale-up.
The evaluation of the programme takes advantage of a large sample of 3,000 young people, aged between 18 and 30, who were without permanent work at the beginning of the study. As previously mentioned, the participants are randomly selected from a census of all young people without permanent work who lived in randomly selected neighbourhoods across the city, excluding the city centre. Study participants are randomly assigned to either of the interventions, or to a control group.
Looking firstly at short-run effects, the program seems to be in line with the existing literature, as there are no significant average treatment effects on the probability of having a job, on hours worked, on earnings or on job satisfaction. However, both interventions are successful in increasing the jobseekers’ chances of landing good jobs, as indicated by two key indicators of job quality: whether work is formal – i.e. it includes a written contract – and permanent – i.e. it does not have a specified end date -. More specifically, the workshop increases the probability of working in a permanent job by nearly 60 percent. The transport treatment, on the other hand, had a smaller impact on permanent employment. Both interventions, however, increase workers’ chances of having a formal job by about 30 percent. These effects remain robust to multiple comparison correction and to bounding exercises.
A long-term follow-up run four years after the intervention allows us to shed additional light on the impact of these policies. In short, while the improved signalling that stems from the workshop still show a significant impact, transport subsidies have almost no long-run effects. More specifically, the workshop treatment has large and significant positive impacts on earnings and job satisfaction, with individuals in treatment groups earning 25 percent more than in the control group. These effects are robust to several checks, and are large and significant across the entire distribution of earnings. On the other hand, overall and formal employment rates are not dissimilar from those of the control group.
These main results, and additional analysis conducted in the published paper (Abebe et al., forthcoming) are consistent with the hypothesis that, while the subsidy increases search intensity, the workshop improves search efficacy. Ultimately, the latter appears to be responsible for an increase in match quality that improves, in the short- and long-term, the labour market outcomes of treated individuals.
Abebe, G S C, M Fafchamps, P Falco, S Franklin, S Quinn (2017), “Anonymity or distance? Job search and labour market exclusion in a growing African city”, Review of Economic Studies, forthcoming.
Bertrand, M, B Crepon, A Marguerie and P Premand (2017) “Contemporaneous and post-program impacts of a public works program: Evidence from Cote d'Ivoire”.
Feng, Y, D Lagakos and J Rauch (2017), “Unemployment and development”, Working Paper.
McKenzie, D (2017) “How Effective Are Active Labor Market Policies in Developing Countries? A Critical Review of Recent Evidence”, World Bank Policy Research Working Paper no. 8011.
OECD (2015), "Enhancing job quality in emerging economies", in OECD Employment Outlook 2015, Paris: OECD Publishing.