Learning from other nations vital in solving Zim’s low labour utilisation

By Kevin Tutani | 21h ago

LABOUR utilisation refers to the extent to which a country’s labour force (working age population) spends its time on income generating activities.

Higher utilisation, therefore, implies that the country is being productive and using the potential in its workforce. The opposite of that points to a country where the working age population is being underutilised.

Underutilisation of the labour force naturally indicates missed opportunities for national economic growth and prosperity. Economists generally aspire for an economy to operate at full employment.

Full employment occurs when the unemployment rate is only 5% or less. This target is desirable because it indicates the rate at which a country fully utilises its capital, technology, labour and other resources for maximum economic results.

In other words, a rate of unemployment, which is greater than 5% points to an economy, which is operating below its potential (ideal level).

Zimbabwe ranks among the countries with the lowest labour utilisation in the world. In 2019, it was estimated that around 57% of the working age population (15-65 years) is not actively seeking work.

This figure includes subsistence farmers, adults who serve as carers for their households (for no salary), those in tertiary education and others who are simply not interested in looking for work.

So, the labour market in Zimbabwe has only 43% of the working age population. In other words, only 43% of the working age population are interested in work.

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Of those in the labour market (interested in working), 17% of them are unemployed. This means that they cannot find work even though they are seeking for it.

Of those, who are employed, the majority are in the informal sector (over 80%) with a few (less than 20%) in the formal sector.

Zimbabwe’s low labour utilisation is reflected in the huge number of people who are not interested in work (57% of working age population), the huge share of the unemployed (17% of the labour market) and the dominance of the informal sector (over 80% of those employed).

A major concern with acknowledging employment in Zimbabwe's informal sector is that it generally produces goods of low value. It is three times less productive than the formal sector (on average).

For this reason, some analysts may even refuse to acknowledge the informal sector in its entirety, when considering Zimbabwe’s labour utilisation rate.

This article discusses the reasons behind the country’s low labour utilisation and proposes ways to resolve it.

Causes

The de-industrialisation of Zimbabwe since the land reform of the year 2000 is a major contributor to the current low utilisation of the labour force.

As agricultural production plummeted, the country’s several productive sectors (including manufacturing and service industries) went down with it. The poor economic performance which ensued, limited demand for labour within the economy.

Zimbabwe is notorious for having a heavy regulatory environment. The tough regulations governing the establishment of new businesses have repelled a number of foreign and Zimbabwean investors, driving them into investing in other countries instead.

The lost investment opportunities have naturally contributed to low labour utilisation.

A number of global research institutions consider Zimbabwe’s overall regulatory environment to be very inefficient and not conducive to entrepreneurial activity.

Burdensome and complex licensing, permits and regulatory procedures for formal businesses, have worked against the opening of new investments in the formal sector.

For those who end up investing in the country, a considerable number of them prefer operating in the informal sector, where the regulatory burden is much lighter.

However, as explained earlier, the informal sector does not seem to contribute significantly to labour utilisation. Due to its low level of productivity, its contribution can be easily contested.

Barriers on imports, such as tariffs, have afforded some local businesses an environment of limited competition. Limited exposure to foreign competition means that local businesses have a reduced incentive to be globally-competitive and to seek markets in other countries.

Instead, they are driven to charge higher mark-ups locally. The failure of local businesses to serve export markets and withstand imports has resulted in further job losses in agriculture, manufacturing and the services sector. As for manufacturing, it has crashed from a high of around 23% of national economic activity (GDP) in the 1980s, to around 9%, currently.

The education system also has its challenges. The school-to-job transition is haphazard and neglected, for those who fail to proceed to university.

For those students who enrol at universities, several of them take courses which do not equip them with useful skills for working in or outside Zimbabwe.

The country is in what others can describe as an “education arms race”, whereby a university degree is assumed to be superior than mid-level technical skills such as plumbing, vehicle mechanics, computer programming, mechatronics, etc.

As a result, Zimbabwe’s labour market has an oversupply of academically gifted people and a scarcity of technical skills, among other things.

Geographical variation of economic activity means that there are fewer employment opportunities for citizens who live in secondary cities (Bulawayo, Kwekwe, Victoria Falls, etc) and rural areas. Jobs are mostly available in Harare, where there is the most economic activity.

Furthermore, there are no active public employment services, which help to match job seekers with employers in the private sector.

So, when some private businesses are in need of professionally sourced and vetted (background-checked) labour, they struggle to access it, unless they engage a private recruitment agency (for a fee).

This challenge can be more pronounced in geographically-isolated regions. The failure of such businesses to recruit and to expand their operations due to the skills deficit (or matching challenges) will reflect in the country’s low economic performance and labour utilisation rate.

Solutions

Policymakers need to attend to a number of issues in order to improve the utilisation of Zimbabwe’s labour force.

The government (central and local government) needs to relax the regulatory environment. Licences and permits required for opening and operating a business should be reduced in their number and cost.

Other regulations, which are not conducive for the competitiveness and expansion of businesses, should also be revoked.

Through time, local businesses need to be exposed to more foreign competition (imports) through the reduction of import tariffs. This will enable Zimbabwean consumers to purchase affordable goods, whilst ensuring that domestic businesses can adapt to foreign competition and become globally competitive. Exposure to competition (both domestic and foreign) is known to encourage productivity, innovation and job creation.

The government can introduce an Employment Tax Incentive (ETI) in order to encourage the migration of businesses from the informal sector and to promote the employment of certain segments of the population.

The ETI may see the government deliberately forfeiting personal income tax from school leavers (under 22 years), who are employed in the formal sector.

For example, any business which employs persons under 22 years, will not be required to have them pay personal income tax, for a period of up to two years.

This would preferably apply to employees who earn less than US$400 monthly. The ETI would, therefore, make it cheaper for businesses to hire school-leavers, since they will be able to offer them much less in salary payments, than if the employees were liable to paying income tax.

Ultimately, more businesses would find it favourable to operate in the formal sector, more of the nation’s labour force would be utilised and several businesses would expand their operations.

Zimbabwe’s school-to-job transition and tertiary education need to be redesigned. Countries which have low youth and overall unemployment need to be studied and imitated where possible.

In Germany for example, there are generally three learning streams which learners can be branched into by the age of 10 years. From the age of 10, students are branched into learning streams which focus on; vocational (technical), academic (theoretical) or integrated (both technical and theoretical) learning, depending on their capabilities.

Resultantly, there is an abundance of both technical and theoretical (academic and conceptual) skills in Germany. Up to 25% of secondary school learners, who exit the education system earlier, get involved with companies in lower-level apprenticeship programmes.

Another 25% of secondary school learners proceed to participate in higher vocational education, where they learn more sophisticated technical skills.

The rest end up in universities and polytechnic institutions where they are involved in purely academic studies or a combination of both, respectively.

Zimbabwe’s education system should also try to separate students into different learning streams from the age of 14 years, so that by the time they write their “O” Level examinations (usually at 16 years), they would either have been trained to specialise in technical skills (basic or sophisticated), academic depth or an integration of both.

This will likely be successful if the technical skills comprise useful capabilities, which can be applied by the students as entrepreneurs or workers in a modern economy.

The technical skills to be imparted may therefore include: agricultural extension capabilities, computer programming, furniture manufacturing and other forms of wood work, biomaterials processing and construction, among others.

Such an approach will ensure that the country has a useful and well-balanced labour force. Any excess talent (skills) can also be exported to other countries.

Zimbabwe needs a relevant and visible public employment service, which can match job-seekers to employers (businesses). A government website may therefore be established, to enable job-seekers to register their details.

Employers may use the website to search for workers within their vicinity, who have the skills that they are in need of. For those who do not have internet access (such as the rural areas) job-seekers may be permitted to use any nearby government offices to submit their details.

It will be incumbent on government to ensure that submitted details (including images of applicants, educational certificates, fingerprints, etc) are verified.

All this can be done digitally. This service may also have a WhatsApp platform which provides training on entrepreneurship, career development, etc.

This public employment service can lead to the rapid expansion of various local businesses, whilst improving Zimbabwe's labour utilisation rate. Job-seekers will no longer need to guess on where else they need to apply for work, or to ultimately give up on the job search altogether.

When the economy begins to improve, it will also be critical to re-look the current wage bargaining processes in the formal sector. Collective bargaining, in particular, which allows labour unions (trade unions) to negotiate for industry-wide salary changes for all employees, needs to be dropped or redesigned.

This is because, when done wrongly, collective bargaining can trigger wage-price spirals (inflation) and cause employers to cut back on hiring new workers.

In some advanced countries, such as Germany, Austria, Belgium and the Netherlands, for example, trade unions are willing to sacrifice immediate salary increases in order to contain domestic inflationary pressures and employers’ costs.

This strategy has been very successful because over the long term, employees eventually get notable wage gains, as their countries and industries operate with great stability and global competitiveness.

In other countries such as the United Kingdom (UK), wage bargaining is done on a company-level instead of industry-wide processes, which characterise labour markets in Zimbabwe’s formal sector.

This helps because each employer ends up paying according to what (s)he is capable of offering and does not risk closing down due to unrealistic wage demands.

It is obvious that in any country, different geographical regions have different cost structures (rent, food, transport, etc) and economic opportunities.

So industry-wide wage negotiations (in both the private and public sectors) are not consistent with sound economic principles. Thus, wage bargaining could be refined to differentiate disparate (different) geographical areas.

Social agreements which characterise Germany’s processes or decentralised wage bargaining used in the UK or a mixture of both methods, will be desirable, going forward.

An adoption of the proposed solutions can be expected to increase demand for Zimbabwe’s labour force and improve its utilisation.