# **Workers and Labor Markets**

The set of issues concerning jobs, workers and labor markets constitute one of the most significant ways in which the PSD agenda differs in post-conflict situations. Conflict undermines economic activity, as factor and product markets are disrupted. As economic opportunities dwindle, un- or under-employment surges. Jobs in the formal sector are particularly vulnerable. The demobilization and reintegration of ex-combatants compounds the problem. The end of war generally sees a flood of new and mostly unskilled labor into urban areas, depressing further the already low price of labor.<sup>10</sup> There are severe skills shortages in the labor pool in conflict-afflicted countries. Ex-combatants, in particular, are likely to have limited education and few marketable skills, complicating their absorption into the post-conflict economy. Demobilization, disarmament and reintegration (DDR) programs often focus on re-building these skills. For example, in Sierra Leone, out of 70,000 excombatants who had been discharged, over 35,000 have been put through training programs that aim to build vocational skills.<sup>11</sup> In some cases, a role for the private sector in supporting excombatant reintegration is explicitly envisaged in the DDR program, through providing training and job opportunities for former soldiers. In Afghanistan, for example, local businesses were provided incentives to engage in the DDR program by being offered trainees at no cost for 4–12 months.<sup>12</sup>

# **Regulatory Framework & Taxation**

_Regulatory frameworks and informality_ Following a conflict, the pre-existing business regulatory framework for the private sector is likely to remain on the books, but it is unlikely to be fully, coherently or fairly implemented. In other words, as with the legal framework, the gap between the _de iure_ and _de facto_ regulatory framework is likely to be very wide. This is the result of the very limited enforcement capacity that remains in government departments and agencies following conflict.

When the normal rules of doing business—registering businesses, obtaining licenses, observing contracts—are not enforced, firms operate in a manner similar to the informal sector in nonconflict situations. Even if the government retains some administrative capacity, many firms may move operations into the informal sector, in order to lower the profile of the business in an uncertain security and regulatory environment.

As a result, the business sector in post-conflict environments is likely to consist mainly of informal SMEs, with very few formal businesses remaining in operation. This poses problems for private sector participants. Because of its unregulated nature and the difficulties of enforcing

> 10 Note that, in some cases, conflict may drive up the price of labor. In Eritrea, targeted conscription drives by the military resulted in a shortage of, and hence high cost for, white-collar labor. In such a scenario, where labor is a binding constraint on economic activity, the freeing up of the labor market following conflict may lead to a surge in productivity and exports. Conflict and Labor Markets in Manufacturing: The Case of Eritrea, World Bank. 11 Ginifer 2003.

> 12 International Alert 2006.

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