Conference Agenda

Introduction: Since its enactment in 2000, the African Growth and Opportunity Act (AGOA) has been a cornerstone of U.S. trade policy with Sub-Saharan Africa, offering non-reciprocal duty-free access to goods from eligible countries. This study uses country-level data over three decades to examine the labor market consequences of AGOA by exploiting variation in eligibility and the timing of implementation across countries.

Research Question(s): This research addresses the question: What are the effects of AGOA on labor market outcomes in Sub-Saharan Africa, particularly on the distribution of workers across sectors and the quality of employment?

Methodology: To estimate the labor market consequences of the African Growth and Opportunity Act (AGOA), we specify the following difference-in-differences model:

Y_st=β_0+β_1 AGOA_t+β_2 Eligible_st+β_3 (AGOA_t×Eligible_st)+X_st Ω+_st

where Y_st represents various labor market outcomes in country s during year t, AGOA_t equals 1 from year 2000 onwards and 0 otherwise, reflecting the start of the AGOA policy, while Eligible_st equals 1 if a country meets AGOA eligibility criteria in year t, and 0 otherwise. The vector X_st includes time-varying country-level controls which account for factors potentially influencing labor market outcomes and the error term, _st represents unobserved factors affecting labor market outcomes. Standard errors are clustered at the country level to account for potential heteroscedasticity and correlation of errors within countries over time.

The coefficient on the interaction term, β_3,captures the difference-in-differences effect, highlighting the changes in labor market activities between AGOA-eligible states and AGOA-ineligible states after the policy’s implementation.

To address endogeneity concerns, we explore instrumental variables such as pre-AGOA trade intensity with the U.S.

Contribution to the literature: This study contributes to the literature on international trade policies and labor markets by providing empirical evidence on the sectoral shifts in employment induced by the AGOA policy. It also adds to the understanding of how trade policies can influence labor market structures in developing regions. Furthermore, this research offers insights into the role of non-reciprocal trade agreements in achieving Sustainable Development Goal 9.2, which emphasizes inclusive and sustainable industrialization.

Findings: The results indicate that AGOA has decreased the share of workers in agriculture while increasing the proportion in industry and wage labor, with consistent effects across genders. However, the policy has no significant impact on labor force participation, employment ratios, or unemployment rates. These findings suggest that while AGOA has partially achieved its goals, complementary measures are needed to expand its benefits to a broader share of the population.

I: Background

The assumption in the development economics literature remains that the informal economy is a free entry and exit sector. A key puzzle is how it is then possible that many developing countries have stubbornly high unemployment rates. We explore this empirical enigma of low informality amidst high unemployment with a specific application to South Africa - a country with one of the highest unemployment rates in the world.

II: Method and Approach

In a simple reduced-form theoretical model, unemployment is thought to be a function of both ‘formal’ unemployment (u_f)and ‘informal’ unemployment 〖(u〗_inf), such that aggregate unemployment (u_tot) is: [u_tot=u_f+u_inf ]. We show that elevated unemployment rates are a function of barriers to entry into either formal [b_f] or informal employment b_inf– or both. If we can show that the barriers to formal sector employment often touted in Neo-Classical models (Labour regulation, wages, Unions) are not particularly binding– then it must mean by inference that the economy’s unemployment rate is disproportionately a function of barriers to entry into the informal economy.

III: Assessing Formal Barriers to Wage Employment: An Empirical Application to South Africa

We apply this model to South Africa which has one of the highest unemployment rates in the world, yet also simultaneously one of the lowest rates of informality in the world. We examine various elements of the barriers to formal wage employment - b_f -that are common in the literature. These barriers germane to standard labour economics theory include low employment elasticities, high wage-employment elasticities, minimum wages, excessive labour regulation and the role of institutions. We hope to consider the evidence for each of these barriers – with a focus on whether they serve as an adequate explanation for South Africa’s inordinately high unemployment rates. We would show that in fact most of the standard explanations for South Africa’s high unemployment rates, cannot be explained by barriers to wage jobs.

IV: Barriers to Informality: A Brief Consideration For South Africa

This section will posit that instead of formal wage barriers to employment, there exist a series of barriers to informal sector activity for South Africa workers. These can be captured under the following broad thematic areas such as business regulation, infrastructure and crime.

VI: Policy Implications

Providing clear entry points to the informal sector whilst retaining core elements of a decent work agenda remains a key focus. The paper hopes to fill this intellectual gap.

Economic policy is often conceived from the vantage point of the state: that is, what can economic policy do to improve the performance of the economy overall. National, regional and local economic policy is almost always conceptualized in terms of formal economic activity: trade policy, monetary policy, industrial policy, for example, are all designed to intervene in the formal economy. In this paper we ask two key research questions. Firstly, what are the economic challenges faced by informal traders in South Africa. And secondly, what does good economic policy look like from the perspective of informal workers? Drawing on a set of in-depth interviews with informal traders, activists, and policy makers in Gauteng, South Africa, we find that informal traders in South Africa face a range of economic barriers which are often ignored in the literature on informal trading, and in the debates about formalisation. While the literature focuses on regulation and compliance, our findings show that competition in various forms is a key concern of informal traders. We argue that there are two principles which should underscore an economic policy from below, which are largely ignored in policy documents governing informal traders in South Africa. Firstly, informal trading must be recognised as an important economic sector which contributes employment and income to many marginalised people. The second principle is that informal traders must be involved substantively in all matters which affect them. Taken together, these two principles lay a foundation for cooperation and mutual advancement between informal traders and local authorities. Drawing on our fieldwork findings, we offer eight pillars at the core of an economic policy from below for informal traders: “the Economic Policy We Want”. The Economic Policy We Want is an economic policy from below; it is intended to improve the sustainability of informal traders, promote their advancement, reduce harassment, and ensure that informal traders work in an environment that is safe and conducive to their trade. Finally, we ask if this conception of economic policy is in tension with efforts to transition workers from the informal to the formal economy, how these tensions can be resolved, and what lessons the South African case offers for global debates on the formalisation of the informal economy.

There is a crisis of decent employment in Africa where creating jobs that offer fair compensation, security, and opportunities for advancement have become a challenge. Why does Africa find it difficult to create decent jobs for citizen? This paper investigates the role institutional and settlement factors that influence the availability of decent employment, including the strength of labor market institutions, the quality of governance, and the level of state capacity in Africa. The literature on why the cotinent is lagging behind in providing decent employment for its citizens is found in structural theories which draws attention to limited economic growth (World Bank, 2019); lack of diversification (AfDB, 2019); and infrastructure deficits (World Bank, 2018). Studies on demographic theories suggests that rapid population growth (UN, 2019); urbanization (World Bank, 2019) do exert pressure on urban labor markets. Other studies pay attention to trends in automation and artificial intelligence (ILO) and climate change (IPCC, 2019) as causes of job losses. Few studies pay attention to institutional theories which argue that weak institutions (Acemoglu & Robinson, 2012) manifesting in ineffective governance, corruption, and lack of rule of law, often suppress investment and obstruct job creation efforts. To the best of our knowledge there are no discussions on political settlement amongst the tripartism actors and citizens as a way of addressing the unemployment problematic. The institutional and radical political economy theoretical framework provides an understand of how political institutions and settlements can shape employment outcomes. Regression Analysis, using econometric models will employed to analyze the relationship between political institutions, political settlements, and employment outcomes. The World Bank's Governance Indicators and the International Labour Organization's (ILO) employment data will be used. In addition, case studies of South Africa, Kenya and Nigeria with varying political institutions and settlements will be used to examine such relationships. The major preliminary findings of the study are that (i) the nature of political institutions and political settlements in African countries has a profound impact on the availability of decent employment. (ii) therefore, countries with weak institutions and unstable political settlements are more likely to generate high levels of unemployment. (iii) weak institutions, clientelistic politics, and unstable settlements can lead to policy incoherence, corruption, and regulatory uncertainty, which in turn discourage investment, innovation, and job creation. African countries can create jobs, when institutional strengthening, settlement reform to ensure all-of-government, private sector and citizens’ approach to employment, and policy coherence is prioritized.

Many residents in low-income areas in South Africa rely on informal convenience stores, colloquially referred to as “spaza shops”. Many of these are immigrant-owned and operated, often by Somali nationals. Increasingly, there are attempts to formalise the spaza sector. Such formalisation would limit ownership to those who are legally permitted to work. It could, consequently, open opportunities for local South African residents to take over spaza businesses. Formalisation could thus be a way to promote one of South Africa’s national development goals which is to expand entrepreneurial opportunities. This assumption fails to neglect, however, that foreign nationals have been able to establish a strong foothold in the sector even though it had, until the 1990s, been fully locally owned. It suggests that availing entrepreneurial opportunities alone is insufficient to drive economic development. Is formalisation thus indeed the best way forward for the spaza sector? To answer this question an in-depth understanding of what creates business success in the spaza sector is required. This study furthered this understanding through mini-ethnographic case study data from South African (n = 5) and Somali (n = 5) owned spaza businesses in Orlando West, Soweto. Soweto is an urban area in the City of Johannesburg in Gauteng province. Gauteng is South Africa’s entry point for most Somali migrants. It has the largest Somali community in South Africa and Somali immigrants own most spaza shops in the province. The study used direct observations and semi-structured, individual face-to-face interviews to collect data to obtain a detailed picture of each owner and their business and enable a detailed descriptive analysis of each participant. The researchers spent four weeks with each business owner. The data revealed marked differences between locally and immigrant run businesses. The study found that formalisation benefits spaza shops by providing legitimacy, stability, and increased government support. It can lead to economic growth and job creation. However, South Africa's formal regulatory framework may not adequately address township business needs. Many entrepreneurs thrive in the informal economy, seeing little incentive to formalise due to administrative burdens outweighing benefits. While formalisation can enhance access to resources and legitimacy, it also presents challenges related to regulatory compliance and costs. The effectiveness of formalisation in expanding entrepreneurial opportunities depends on policy measures addressing these challenges and creating a more supportive environment for small businesses.