# **3.2. Employment**

In this paper, we predominantly use data from two labor force surveys (LFS) and two household income consumption and expenditure surveys (HICES), namely: HICES 1995/96, LFS 1999, LFS 2005 and HICES 2010/11. The HICES 1999/00 and HICES 2004/05 are not included because the labor force surveys cover similar time periods and provide more comprehensive information on employment issues.<sup>7</sup> Moreover, the HICES 1999/00 does not provide data on the sector of employment, which is a crucial variable for our analysis on structural transformation. In addition, we do not use Census data. The 2007 Census also does not provide data on the sector of employment,<sup>8</sup> while the 1984 Census includes data for Eritrea. The 1994 Census is fairly close to the first HICES and is not included to minimize the use of multiple data sources. The use of the HICES 2010/11 survey is particularly crucial, since it enables us to investigate recent sectoral employment dynamics (and thus structural change).

Before analyzing employment dynamics, it is important to investigate the underlying demographic trends. However, as we will note below, there can be significant discrepancies across data sources. For instance, while Census data is the primary source of population statistics, the methodology we utilize later in the paper requires consistency between data on total population, working age population and sector of employment. We therefore use the data included in survey reports and describe broader trends rather than focus on exact values and magnitudes.

Table 3 suggests that the Ethiopian population increased from about 53 million in 1996 to 63 million in 2005 and 76 million in 2011. The 2007 Census estimated total population at 73.8 million – with those under 10 years of age at 22.8 million (about 31 percent) and those under 15 at 33.2 million (45 percent) – while the 1994 census calculated total population at about 53 million. The World Development Indicators – which interpolates 5-year data from the UN Population Division’s World Population Prospects – estimated total population at 77 million in 2007.<sup>9</sup> This seems to highlight some uncertainty around population estimates in Ethiopia.

Nonetheless, there are some important points that can be made. First, Ethiopia’s population remains predominantly rural, even if its weight is slowly declining – from 86 percent in 1996 to 83 percent in 2011. Second, Ethiopia’s population is very young, with about 65 percent below 25 years of age. Finally, the proportion of the population in the 10-65 age group has recently increased, which led to a falling dependency ratio. This is partly due to the fact that the proportion of 10-14 year-olds is increasing, while the 0-9 age group is declining in relative terms. In conclusion, there are some signs that Ethiopia might be undergoing a period of demographic transition, and thus it is crucial to seize this opportunity.<sup>10</sup> The table also presents data from the WDI, which uses the more traditional age brackets for the working age population – i.e. 15-64. While the broad conclusions above still apply, there is significant variation with regard to the specific values – e.g. dependency ratio – mainly due to the treatment of the 10-14 age group.

> 7 Labor force surveys have larger sample sizes and, quite naturally, larger employment modules – which is likely to lead to more consistent estimates. Nevertheless, our results are robust to the use of HICES 2004/05 instead of the LFS 2005. 8 The questions relating to occupation and industry were dropped from the questionnaire when it was observed that some trainers had difficulty in understanding concepts and definitions relating to the occupational and industrial classifications (CSA, 2012: 49). <u>http://unstats.un.org/unsd/censuskb20/Attachment489.aspx</u> 9 Although the WDI-UN series are regularly revised to take into consideration recent data (e.g. Census), the modelled estimates for the late 2000s seem far off the Census estimates.

> 10 In order to secure a demographic dividend, it is important to provide adequate skills and create productive employment opportunities for this youth bulge. Otherwise, unemployment and underemployment will undermine recent economic and social achievements and potentially fuel social unrest.

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