Some workers in Africa are moving from more productive to less productive forms of employment. What's going on?
The second approach is what happened in developed countries such as the United States over the past two centuries: workers left subsistence farming and found jobs in factories and other modern, high-productivity industries. Farms became consolidated and targeted urban markets. Their workers either moved to nonfarm rural work or to cities.
Economists call this movement of labor from low productivity to modern sectors “structural transformation.”
More recently, structural transformation has taken place in China, India, and Thailand, where workers have left subsistence farming to take jobs in factories and other modern industries.
“Just about every country that has experienced a sustained increase in income per capita has done so by moving its workers from low-productivity activities such as agriculture into more modern sectors of the economy,” explains Maggie McMillan, deputy director of IFPRI’s Development Strategy and Governance Division.
Why, then, are some countries not experiencing this type of growth-enhancing structural transformation? For example, in some Sub-Saharan African countries, workers are going back to the farm after working in manufacturing. It’s development in reverse.
McMillan and a group of her IFPRI colleagues, including Deborah Brautigam, Xiaoyang Tang, Shashi Kolavalli, Inigo Verduzco, Alan De Brauw, Valerie Mueller, and Hak Lim Lee, are examining the state of structural change in Africa, and many of their findings will appear in a forthcoming special issue of the journal World Development.
In developing countries, the gap between productivity in agriculture and in more modern sectors is extraordinarily large. Workers in other sectors are often two to three times more productive than agricultural workers. In Ethiopia, for example, the productivity gaps are so large that if labor were reallocated to resemble the distribution of workers across sectors in the United States, output per worker would rise sevenfold.
Despite the obvious benefits of modern sector work, labor in Sub-Saharan Africa is moving the other way. Between 1990 and 2005 workers in the region on average moved from high- to low-productivity work, and regional growth declined by 1.3 percentage points a year, according to McMillan.
Migration patterns, demographics, and globalization all provide clues about why this is happening. As a country develops, workers typically migrate from rural farming to more urban areas in search of high-paying jobs. In Africa, however, IFPRI research shows people migrating at an extremely low rate, perhaps because of policies discouraging migration, weak social networks, low education levels, or strong family ties in rural areas.
Demographics also play a role in stalling structural transformation, McMillan says. The rural population, benefiting from improved health interventions, is growing at a higher rate than the urban population. This can stall structural transformation if the growth rate of jobs in urban areas does not also grow.
Finally, globalization, which was supposed to provide a bracing jolt of competition to make sectors more productive and efficient, can kill industries in developing countries, leaving their workers with nowhere to go but back to the farm.
Turning the tide
Some African countries have managed to move workers from agriculture to manufacturing and reduce poverty, but researchers agree that economies within Africa could be growing in a more sustainable way through structural transformation. But how?
One solution is to encourage manufacturing. According to McMillan, manufacturing can absorb a large number of workers with moderate skills and provide them with relatively good wages and benefits. To even break into global markets for manufacturing, agro-industry, and services, however, African governments need to make these sectors internationally competitive. At the very least, this will require more clearly defined and transparent property rights and a properly managed exchange rate regime.
Another solution involves appealing to foreign investors. China, for example, has built special economic zones in Africa and Asia. “These zones have significant potential,” says IFPRI Senior Research Fellow Deborah Brautigam. “The Chinese are building infrastructure, investing in local manufacturing, and creating local employment.”
One thing is clear: African governments need to boost capacity in more modern sectors of the economy such as manufacturing and business-related services. And the time to do this is now. According to Justin Lin, chief economist of the World Bank, wage pressure in China is leading Chinese investors to expand operations overseas in search of cheaper labor. Lin estimates that millions of manufacturing jobs could be relocated from China to Africa over the next decade—if Africa is ready.
In the meantime, most of the poor in Africa are still smallholder farmers and need support to increase their productivity on the farm and transition to nonfarm, higher-productivity work. A consensus among IFPRI researchers, as well as organizations such as the International Labour Organization, calls for a holistic approach: policy action that supports smallholder farmers and industry to allow African countries to join the ranks of their global neighbors who have reached development through structural transformation.