Examining Labor Market Frictions in Ethiopia

Study Context

Unemployment rates, particularly among young people, remain high in sub-Saharan Africa – in Ethiopia, the rate is 25% (Berhe, 2021). Recent evidence from field studies suggests that a significant portion of unemployment in low-income countries is involuntary. At the same time, formal firms in low-income countries experience high turnover rates in manufacturing jobs. As an example, in a randomized evaluation in Ethiopia, Blattman and Dercon (2018) find that 77 percent of applicants offered a factory job in Ethiopia quit within the year. In Adhvaryu et al. (2022), 18 percent of workers in an Indian garment plant quit within five months. How can we reconcile high involuntary unemployment and high worker turnover? Understanding the reasons behind unstable matches between workers and firms, together with other frictions present in labor markets, will provide important insights into the study of labor market frictions, firm productivity, and structural transformation.

Study Design

Sam will conduct qualitative scoping surveys with workers and firm owners to better understand the reasons behind high turnover rates, and to think about randomized evaluations that can address these frictions. Some of the factors that Sam will analyze in his surveys are below:
Mismatched expectations regarding wages

• Mismatched expectations regarding non-wage job attributes (management practices, fixed schedules, etc)
• Issues affecting the female workforce (childcare, household work, and the inability to negotiate a handover of those duties in the household)
• Firm-level perspectives on turnover (high cost or desirable to screen out poor matches)

Results and Policy Lessons

Sam found demonstrable returns to tenure based on individual-level productivity data from firms that countered the widespread belief among firm managers who do not see much return to tenure and will allow workers to separate early from a job.

Sam hopes to run a larger scale RCT to examine the effects of firms recording information on information on worker-level productivity and linkages to tenure.