Employment, labor markets, and
            poverty in Ghana
The slowdown and possible reversal in
            the rural-to-urban flow of labor in Ghana is symptomatic of
            a basic shortcoming in the country's economic recovery:
            the inadequate growth of the productive sector in the
            non-agricultural economy. The rate of growth of GDP has been
            adequate but much of the growth has been fueled and led by
            the services sector, which (at more than 46 percent) has
            surpassed agricultural as the main contributor to GDP. In
            some way growth in the services sector has been positive,
            but arguably it is a once-for-all adjustment to recovery
            that cannot be sustained at this growth rate without
            commensurate growth in both agricultural and
            non-agricultural production. Evidently, stabilization and
            liberalization measures have not been sufficient to put the
            industrial sector on a path of sustained growth. There is
            too little skilled labor in Ghana, and demand for industrial
            goods has been weak, in part because the cost of credit is
            high and savings are too low for inefficient, state-run
            enterprises to buy the equipment they need. Returns to
            higher (especially university) education are high in Ghana,
            largely because of high wages for government services.
            Because of inadequate technical and vocational education,
            returns to secondary education are low. Employment trends
            have mirrored the deficiency in output growth. Every year
            since 1987, industrial employment has fallen. Every year
            since 1987, industrial employment has fallen. The growing
            labor force, which agriculture could not absorb
            productively, has spilled over into service activities and
            the informal sector is symptomatic of an economy with low
            growth potential. In the medium term, the surest way to
            absorb labor would be to increase investment in the
            agriculture sector by changing the composition in public
            spending. As long as the public sector wage bill remains a
            sizable part of government expenditure, an increase in wage
            levels not compensated by reduction in employment will
            create strains in the budgetary balance and will defeat the
            most important instrument of increasing the growth rate of
            employment--higher levels of public investment in
            agriculture. It is possible that a vicious circle is
            complete. Higher wages in the public sector might be
            necessary to increase efficiency, without which productive
            public investment is not possible. But if the government is
            not willing or able to reduce public employment, and is
            further unable to alter the composition of expenditure to
            provide more finance for agriculture-related public
            investment, a high wage public policy will merely fuel
            inflationary pressures and reduce the real investment ratio.
            The only way out of this vicious circle is a larger infusion
            of foreign and private investment than has been seen so far,
            supplemented by corrective monetary policy.