Unemployment and self-employment in urban Ethiopia: Determinants and scenarios

  • Urban labour markets in Ethiopia feature very high rates of unemployment and own-account work, with an unemployment rate of 23.5% and a self-employment rate of 25.9% in Addis Ababa, according to the 2016 Urban Employment and Unemployment Survey (UEUS).
  • This study documents facts about the labour market situation of workers in Addis Ababa by skill type and uses a quantitative model to study its determinants.
  • Low-skilled workers face job finding rates that are very low, at less than 7% per month, and job loss rates that are extremely high by global standards, at over 5% per month. High-skilled workers face similarly low job finding rates and moderate job loss rates.
  • The findings of the study suggest that rates of low-skill own-account work are very high since it serves as an important alternative to job search in a situation where jobs are hard to find and do not last long. For the low skilled, reductions in labour market frictions would not only reduce unemployment but would reduce own-account work by even more.
  • Reducing costs of job search and improving the quality of matches between workers and firms would reduce both unemployment and low-skill own-account work. Income support to the unemployed would redistribute and provide insurance. Alternatives like subsidised transport for concrete job search activities or other ways of promoting search should be considered seriously.