Bridging the skills mismatches between job seekers and firms in Ethiopia

With a population of approximately 120 million people, Ethiopia faces significant challenges in creating decent job opportunities. Despite experiencing an average annual economic growth of about 10% since 2005, the country has struggled to match this progress with job creation. Unemployment rates, particularly among women and youth, remain high, with nearly a quarter of young people and a third of young women in urban areas unemployed. Underemployment, low earnings, and job insecurity are prevalent in rural and urban areas, resulting in high working poverty.

Investigating the dual challenge of high unemployment and skill mismatches

IGC researchers investigate the issue of skills mismatch in urban Ethiopia, with a specific focus on Addis Ababa. The study provides a fresh perspective on skill mismatches in labour markets by focusing on active labour market participants. This method complements the conventional approach of considering mismatches in existing employment relationships by also considering latent demand and supply of skills that is not captured when the mismatch is focused on individuals who are already employed.

Another novelty of the study is investigating whether the self-selection of applicants alleviates skill mismatches by driving applicants to apply for jobs that match their skills.

For the study, the researchers collected data on both job seekers and vacancies in Addis Ababa. The data was collected from various sources, including online and offline job boards and actively hiring firms that consented to have the content of their adverts varied as part of another study.

Job seekers are often overqualified but underexperienced for advertised positions

Among the study participants, the job seekers were relatively young, with their average age ranging from 25 to 27 years, and highly educated, with between 65% and 83% having university education. However, only between 35% and 61% had any previous work experience. The sample is overwhelmingly male, in particular among offline job seekers (only 9% female respondents), while among online job seekers the share of female job seekers slightly increases to 20%.

Our study reveals that the labour market in Addis Ababa faces significant skill mismatches among active job seekers. Specifically, we find that job seekers are overqualified but underexperienced for the vacant positions posted on job boards. While 75% of the sampled job seekers have a university education, only 39% of job postings require it. On the other hand, only 16% of job seekers have vocational education, while 32% of job vacancies require such qualifications. This mismatch in qualifications and experience level is more significant than the pattern seen among realised matches, indicating that job seekers and firms engage in directed searches. Additionally, active job seekers have substantially lower levels of experience than what is demanded on job adverts, with 82% of job postings requiring some experience and only 41% of job seekers reporting having any work experience. This mismatch can plausibly lead to unfilled vacancies paired with high unemployment.

Poorly designed job advertisements undermine job seekers' understanding of employers' skill demand

As part of the study, we also collected data on all job applicants for about 400 real vacancies in Addis Ababa. The data show that job seekers' self-selection into which positions they apply to does not substantially alleviate mismatches in skills, education, or experience. One potential reason is that job adverts are poorly designed and lack adequate information about the skills which are required from prospective workers. This lack of essential details can contribute to job seekers being imperfectly informed about employers' skill demand.

Our study also finds that there is a significant mismatch in sector-specific qualifications among job seekers and job board vacancies, indicating a significant horizontal qualification mismatch. For example, more than 30% of vacancies are in the education sector, while only 5% of surveyed job seekers have a corresponding qualification. The demand for administration, management, and food and beverage workers, exceeds the available supply, with the number of vacancies roughly twice as large as the proportion of job seekers in this category. In contrast, there is an oversupply of computer science, social science, engineering, and accounting and finance graduates. However, this discrepancy might reduce when considering all search channels beyond the physical job boards analysed here.

The study has some key limitations that need to be considered when interpreting the results. The findings only apply to the formal labour market in Addis Ababa, and skill mismatches in other labour market segments, such as employment agencies and network-based search, may be substantially different. Moreover, the study does not focus on subject or occupation-specific skill mismatches, and caution is advised when interpreting estimates of sector-specific skill mismatches. A comprehensive analysis of occupation-specific skill supply and demand is needed to capture job seekers in all labour market segments.

Bridging the skills gap and enhancing labour market skill-matching

Overall, our study highlights the necessity of a more coordinated and responsive approach to address the skill mismatch in the Addis Ababa labour market. Specifically, we recommend the following interventions to address these labour market issues:

1. Improve education and industry partnerships to help job seekers gain first practical experiences. This includes developing a policy and legal framework for work-based learning that encourages firms to provide apprenticeship and internship opportunities, as well as wage subsidies for firms that provide work-based training in apprenticeships and internships.

2. Enhance the capacity of career centres in technical and vocational education and higher education institutions to provide career guidance and counselling to job seekers to make best use of their existing skills as well as link new graduates with industries.

3.  Improve the information environment of the labour market. Job seekers in Addis Ababa have very scarce information about firms’ demand for skills and the nature of offered jobs, mostly because job adverts tend to be uninformative. Nudging firms to increase the information content of their job adverts either by trainings, public information campaigns, or light touch regulation will be crucial. Moreover, relevant government agencies and ministries can explore the use of technology and data analytics to develop more efficient job matching systems that take into account the skills of job seekers and the requirements of employers. This will enable job seekers to identify jobs that match their skills and expectations.