Labor Markets Conditions in Madagascar - Research program synthesis report (World Bank/2010)

8/3/2019 Labor Markets Conditions in Madagascar - Research program synthesis report (World Bank/2010)

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Report No. 57652-MG

LABOR MARK

MADAGASCARESEARCH P ROGRAM SYNT

October 18, 2010

Human Development DepartmSocial Protection Unit Africa Region

Document of the World Bank

This report is for restricted distribu

duties. Its content may not be rele

ETS CONDITIONS I

ESIS REPORT

ent

tion. Recipients may use it only in the performance

sed without authorization of the World Bank.

of their official



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ContentsAcknowledgements ...................................................................................................................................................... iv

Executive Summary ....................................................................................................................................................... v

1. Introduction .......................................................................................................................................................... 1 1.1. Understanding labor markets in Madagascar – A research program .......................................................... 1

Raising labor earnings is key to poverty reduction ............................................................................................... 1

Lack of information on labor market developments prompted a broad research program ................................ 2

1.2. Summary of main messages......................................................................................................................... 3

Key findings ........................................................................................................................................................... 3

Policy recommendations ...................................................................................................................................... 4

1.3. Organization of the report ........................................................................................................................... 5

2. The Madagascar Economy .................................................................................................................................... 6

2.1. Country context ........................................................................................................................................... 6

2.2. Recent economic developments .................................................................................................................. 8

2.3. Madagascar’s Challenges ........................................................................................................................... 11

3. Labor markets structure and dynamics .............................................................................................................. 13

3.1. Key facts and figures .................................................................................................................................. 13

High access to jobs, low access to good jobs ...................................................................................................... 13

Rural labor markets – accounting for 80 percent of the jobs ............................................................................. 18

Urban labor markets ........................................................................................................................................... 18

Higher earning jobs and how and where to get them ........................................................................................ 19

3.2. Trends 2001-2005: Growth, employment and poverty and the links between the two ........................... 23

4. Job creation and income protection ................................................................................................................... 31

4.1. Labor demand in the formal sector and the business environment .......................................................... 31

4.2. Quality of jobs in the informal sector ........................................................................................................ 33

Increasing productivity in agriculture ................................................................................................................. 34

Promoting off farm activities .............................................................................................................................. 36

4.3. Policies to improve productivity and income for the poor ........................................................................ 39

Education and skills ............................................................................................................................................. 39

Strengthening Public Work Programs for income protection............................................................................. 41

5. Improving labor market outcomes for the poor in Madagascar ........................................................................ 45



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Annexes

Annex 1: List of reports and authors .......................................................................................................................... 50 Annex 2: DATA COMPARABILITY ISSUES .......................................................................................................... 51 Annex 3: . WB doing business – labor market regulations. ......................................................................................... 53 Annex 4: Non-Farm Enterprises in Madagascar ......................................................................................................... 54

Annex 5: Determinants of daily earnings for adults (15-64) ....................................................................................... 55

Boxes

Box 1-1: Employment in the Madagascar Action Plan (MAP)........................................................................................ 1 Box 1-2: Background Reports for the Labor Market Research Program ...................................................................... 3 Box 4-1: Rural non farm activities in developing countries ........................................................................................ 37 Box 4-2: Apprenticeships and skills development in Ghana ....................................................................................... 41 Box 4-3: Public Works Programs – Elements Required for Reaching the Poor........................................................... 44

Figures

Figure 2-1: Increasing growth, important setback, and recovery ................................................................................. 9 Figure 2-2: Important producer price rises in 2004 .................................................................................................... 10 Figure 2-3: Net population increase per year (thousands) by age group ................................................................... 11 Figure 2-4: External flows – FDI, tourism, and aid – what impact of the crises? ........................................................ 12 Figure 3-1: Distribution of employment by economic sector ..................................................................................... 16 Figure 3-2: Education levels by gender and sector of work (2005). ........................................................................... 17 Figure 3-3: Percentage of workers in agriculture whose household produces the specific crop ............................... 18 Figure 3-4: Employment structure differs – especially in large cities where non-agricultural and wage activities

dominate. .................................................................................................................................................................... 19 Figure 3-5: Earnings are higher in large cities, and higher in nonagricultural, formal activities ................................ 20 Figure 3-6: Earnings increase with education levels, with particularly important differences in the formal sector

and the informal nonwage sector. .............................................................................................................................. 20 Figure 3-7: Female earnings are lower than men, and they have less access to good jobs sectors. .......................... 22

Figure 3-8: Earnings developments between 2001-2005 ........................................................................................... 25 Figure 3-9: Employment-to-population rates as well as unemployment rates increased for the non-poor. ............. 26 Figure 3-10: Poverty changes – reductions for the largest groups of workers. .......................................................... 27 Figure 3-11: Changes in the share of income by major source and by expenditure quintile, 2001-2005. ................ 28 Figure 3-12: Hourly earnings increased for the poor, and fell for the non-poor. ....................................................... 29 Figure 4-1: Labor regulations are not considered a major obstacle compared to other issues in Madagascar’s

Investment Climate Assessment. ................................................................................................................................ 32 Figure 4-2: Doing Business in Madagascar (greater numbers indicate less flexibility) ............................................... 33 Figure 4-3: Density functions: Per capita income and period of drought season (“soudure”) for CF and non CF

households. ................................................................................................................................................................. 36 Figure 4-4: Non-farm opportunities are negatively associated with poverty ............................................................. 38 Figure 4-5: Over 1.3 million children out of school. ................................................................................................... 40 Figure 4-6: Poor targeting of PW programs ................................................................................................................. 43

Tables

Table 2-1: Key social indicators for Madagascar .......................................................................................................... 7 Table 2-2: The role of agriculture in Madagascar ......................................................................................................... 8 Table 2-3: Crisis and recovery ..................................................................................................................................... 10 Table 3-1: Basic labor market indicators for Madagascar, 2001-2005 ....................................................................... 14 Table 3-2: Employment* - Working age population .............................................................................................. 15 Table 3-3: Madagascar and comparator African countries ........................................................................................ 17



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Table 3-4: Returns to education (basic wage equation) ............................................................................................. 21 Table 3-5: Higher employment, especially among women, ........................................................................................ 23 Table 3-6: Output and employment, shares of total, 2001 and 2005 ......................................................................... 24 Table 3-7: Inequality fell in the non-agricultural sectors but increased in agriculture. .............................................. 30 Table 4-1: Doing Business Rankings, by topic ............................................................................................................. 31 Table 4-2: Convergence in crops structure ................................................................................................................. 35

Table 4-3: “Better” job creation in the non farm sector (rural Madagascar, 2001) .................................................... 39



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Acknowledgements

The Labor Market multi-year programmatic work for Madagascar was initiated by Stefano Paternostro

(AFTH 3, TTL) in 2007 and the core bank Team included Margo Hoftiijzer (AFTH3, PRMPR). Various

country Team members have been engaged at various stages of the work in their respective area of

competence. Key authors of various background papers are: Prof. David Stifel, Lafayette College and

manager of the IDRC funding; F.H. Rakotomanan, INSTAT; Barrett C. Cornell University; Bellemare M.

Duke University; Celada E. AFTH3; .D. van der Mensbrugghe, DECPG; R. Ravelosoa, INSTAT; JC

Randrianarisoa, INSTAT; G. Pierre, AFTH3; C. Del Ninno, HDNSP; D. Filmer, DECRG; N. Francken, AFTH3;

A. Kolev (AFD); C. Nordman, DIAL; and A. Robilliard, DIAL. In addition counterparts in the collaborating

institutions are as follows: Mr. Rakotomalala Andriamampianina, General Director of INSTAT, the local

statistical office; Claire Harasty, ILO; and Diane Coury, UNICEF. Each background paper was individually

peer reviewed and disseminated as a self-standing product during 2008 and 2009. Peer reviewers for

the background papers included: Alderman H.(AFTHD); Bardasi E. (PRMGE); Dayton-Johnson J (OECD);

Lanjouw P. (DECRG); Kanbur R. (Cornell University); Mwabu: J. (University of Nairobi); Temple J.

(University of Bristol); and Unni G. Gujarat (Institute of Development, National Commission forEnterprises in the Unorganized Sector, India).

This synthesis report builds mainly on the background reports and policy briefs that were prepared

during 2007 and 2009 and which focused on a wide range of issues, such as the links between

employment and poverty reduction, rural labor demand, commercial farming, gender issues and the

institutional framework for job creation. This synthesis report was prepared by Sara Johansson de Silva,

consultant, and Setareh Razmara, Lead Social Protection Specialist, AFTSP. As peer reviewers for this

synthesis report, Milan Vodopivec (Sector Leader, AFTSP) and David Robalino (Senior Economist,

HDNSP) provided constructive comments. In addition valuable suggestions were provided by Maureen

Lewis (Economic Adviser, AFTHD).

The identification of the themes and, within each of them, the identification of the specific topics to be

investigated, has been developed in consultation and/or collaboration with Government officials,

relevant Bank units, and external partners. To this end the background papers were prepared focusing

on the following four themes: (i) labor diagnostics and macroeconomic issues; (ii) the rural economy and

labor market arrangements; (iii) the formal economy: labor demand and regulations; and (iv)topics of

relevance that have emerged during consultations with Government and partners. The unifying theme

among the series of reports that make up the main outputs of this multi-year programmatic approach is

how labor markets and labor earnings can facilitate poverty reduction and growth in Madagascar. A

workshop was organized together with Government in June 2008 in Antananarivo to present and discuss

all the outputs produced at that date. Furthermore, the background papers were discussed with the

Government and development partners and disseminated in various workshops during 2009. In

addition, key messages of the background papers have been included in the CEM (2009) and the

collection of policy notes (2010).

To build on the results of this multi-year programmatic work, and as suggested by this synthesis report,

more analytical work is needed to generate the underpinnings for solid policy advice on labor markets

and poverty reduction strategies in Madagascar. The upcoming AAA on safety nets, starting in FY11, is

expected to address some of the issues that need further investigation.



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Executive Summary

A. Building knowledge about labor market conditions in Madagascar

1. Understanding employment and earnings conditions is essential to understanding poverty

because the poor depend almost entirely on labor earning. Seven in ten Malagasies were poor in 2005.

They were poor because they did not have access to a source of income or a job with earnings that

permitted covering basic household needs. Improving labor opportunities and earnings for the poor, by

helping them access jobs with higher earnings, is the most important and most sustainable means of

reducing poverty in Madagascar.

2. Against this background, in 2007, the World Bank launched a comprehensive work program to

provide policy relevant and updated information on labor market conditions in Madagascar. This

report provides a synthesis of the background papers produced for this research program. The program

addressed a wide range of important issues such as the links between employment and povertyreduction, rural labor demand, commercial farming, gender issues and the institutional framework for

job creation. Some of the analytical work drew on relatively new sources of micro-data. The present

report summarizes the main findings of the work program, synthesizes the policy conclusions, and

proposes a way forward in terms of policy and complementary analytical work.

3. Madagascar faces significant policy challenges in the short and medium term:

• Diversifying production and employment. Madagascar remains dependent on aid flows and

foreign direct investment, both of which are vulnerable to political and economic instability. A

majority of the population works in subsistence agriculture. Shifting workers into more

productive employment requires both high economic growth, high labor demand in growing

sectors, and mobile workers.

• Meeting demographic pressures. Child dependency rates will remain relatively high for the

foreseeable future, putting additional pressure on the earnings of working household members.

Moreover, the capacity of education systems will be stretched by growing cohorts of school age

children – a key issue, given the lack of skills in Madagascar and the role of education for

building international competitiveness and increasing productivity and earnings. Crucially,

rapidly growing cohorts of new labor market entrants will put substantial pressure on the

economy to create jobs in agriculture and nonagricultural sectors. However, to reduce poverty,

these cohorts need to find jobs which provide earnings beyond what subsistence agriculture can

offer (such as shifting out of agriculture subsistence and low productivity agriculture into the

informal non-farm sector as well as higher productivity in agricultural activities).

• Stabilizing macroeconomic and political confidence and reinitiate economic growth after thesecond severe political crisis in a decade. In 2001, Madagascar was hit by a severe political and

ensuing macroeconomic crisis. However, the economy recovered and between 2003 and 2009,

Madagascar experienced much higher growth rates than in previous decades. In particular,

foreign direct investment and tourism revenues increased. The positive momentum was

dramatically halted and partly reversed as a second and similar political upheaval began in early

2009. During the previous crisis, the second and tertiary sectors were badly affected by

economic volatility and urban poverty increased, while agriculture provided something of a



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buffer because of its capacity to provide subsistence for households and because of higher

international prices for rice which positively affected earnings. Whether the primary sector

retains the capacity to act as a safety net is not clear. Rebuilding internal and external

confidence in the economy and reversing the negative employment, earnings and poverty

effects is a necessary but difficult task for Madagascar.

4. It is hence critical to understand: (i) the current structure of the Malagasy labor market and thelinks with poverty; (ii) the job creation and poverty reduction links in response to the 2001 crisis; (iii) the

constraints to job creation in higher earning sectors; and (iv) how to improve labor earnings for the

poor, by raising agricultural productivity, and by facilitating earnings growth for the poor. The report is

organized around these themes.

B. Labor markets conditions in Madagascar in 2005

5. Employment rates are high and unemployment rates are low: Access to a job is not the

problem. In 2005, 86 percent of the adult population (ages 15-64) was employed. Unemployment rates

reached a mere 2.6 percent nationally, although it was significantly higher in the large cities (theregional capitals). In rural areas, as many as nine in ten adults held a job, men and women alike, and

largely on the farm.

6. But access to a job with higher productivity and earnings is very limited. Only about 15 percent

of the jobs were waged jobs, which offer the higher earnings. Instead, four out of five workers, and

nearly nine in ten of the poor workers, were in the agricultural sector, which accounted for only one

third of GDP, and where earnings were about one third of non-farm waged work. Almost all of the

remaining workers were in the tertiary sector, while the secondary sector accounted only for 3 percent

of all jobs. Overall, this structure points to plenty of low productivity employment with very limited

earnings opportunities. Tellingly, the poverty rate was actually significantly higher among the employed

than the unemployed workers.

7. The work force was and remains largely uneducated. Reflecting the high proportion of low

productivity work, the Madagascar adult population (and, consequently, work force) was largely without

formal education: 54 percent had not completed primary, twenty-eight percent had primary level

diplomas, and only eighteen percent had post primary qualifications. Female workers, and workers in

agriculture, had the highest shares of unqualified workers.

8. Rural labor markets are characterized by subsistence farming and high vulnerability. Few

households are producing higher value added products like fruits, cash crops, or other vegetables. A vast

majority of Malagasy households are thus economically undiversified and exposed to climatic variations,

be they predictable (the soudure, or dry season) or unpredictable (floods and droughts).

9. Urban labor markets, in contrast, are characterized by lower employment rates, larger

differences between men and women’s participation rates, and higher unemployment rates. Thedifferences between small urban centers and large urban centers are more significant than between the

former and rural areas, however. Unpaid family work dominates the employment structure in small

urban areas, while informal non wage work dominates the employment structure in larger cities.

10. Earnings are highest in the urban public wage sector and lowest in agriculture. Earnings

increase significantly with education. The returns to higher levels of education are higher in the public

wage sector than for wage workers in the formal private sector. However, positive returns to education



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are not limited to formal sectors: education in the informal nonwage sector shows rapidly increasing

returns.

11. A triple gender gap exists in Madagascar. Median earnings for women in nonagricultural

employment reach only two thirds of that of men. The differences are partly explained by differences in

levels of education, but women with similar characteristics as men are paid comparatively less. The

gender wage gap is highest in the informal private non agricultural sector, and this appears to be largelylinked to firm size and other characteristics. Women thus appear to face difficulties and possibly

discrimination in at least three areas: access to education, access to higher paying jobs and same pay in

those jobs, and access to financial capital and other institutions that favor firm growth.

C. Growth and employment dynamics in response to the 2001 economic

and political crisis

12. Between 2001 and 2005, employment rates increased, but poverty rates stagnated and labor

productivity fell. The period between 2001 and 2005 (for which there is comparable household-level

data) covers a sharp crisis (end- 2001 and 2002) and significant recovery (2003-2005). In response to thecrisis, affecting in particular activity in urban areas, employment rates increased, reflecting an inflow of

workers into activities of subsistence character rather than real new job and earnings opportunities. As a

result, labor productivity fell by eleven percent and the overall poverty rate remained virtually

unchanged at nearly 70 percent.

13. The shift into agriculture accounts for the employment increase and the labor productivity

contraction. The manufacturing sector collapsed in the wake of the crisis, shifting out nearly 300,000

workers, and the tertiary sector saw no new net job creation. However, over one million additional jobs

were created in agriculture on a net basis. This shift into lower productivity activities lowered overall

labor productivity.

14. However, earnings growth was pro-poor, favoring the very poorest quintiles. Because the

crisis affected urban areas, which are more affluent, and therefore the non-poor, it resulted in some

earnings convergence. Earning fell in urban areas, but increased in rural areas; they almost doubled for

the poorest quintile, and fell only for the richest quintile. With the exception of finance, agricultural

earnings increased the most, possibly as a result of increase in the price and production of rice

combined with a sharp depreciation of the currency.

15. The cost of the crisis in urban areas, and on the non-poor is visible in a more significant

increase in adult and child employment rates for the non-poor (child labor rates of poor children

actually fell) and in the dramatically increased unemployment rates in large cities and secondary

urban areas, where they tripled and doubled respectively. In 2005, the non-poor households had a

higher share of agricultural income than in 2001, and poorer households had a slightly lower share of

agricultural income. Earnings inequality increased in agriculture (because of an increase of higher

earnings farming) but fell in the non-agricultural sectors. Again it is not possible to say whether

agricultural households became less poor and urban households poorer, or whether poor and non-poor

workers shifted into new activities.



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D. Constraints to labor demand in the non-agricultural sector.

16. A high earning job with adequate social protection in Madagascar is found in the waged and

formal sector. To promote job creation in the formal sector, the employment strategy must be based on

multi-sectoral reforms that create a favorable environment for job creation in the private sector. Jobs

are created when new firms are created and existing firms expand. This requires a multi-sectoral

strategy that is based on macroeconomic stability, encourages investment, allows for the mobility of

workers from declining to growing sectors, creates a highly skilled and flexible work force, and provides

support for workers while creating incentives to find employment. Therefore, removing the constraints

to private sector development and job creation in the formal sector is necessarily a priority.

17. The policies that might increase higher earning jobs in Madagascar span much beyond labor

market policies and include policies to maintain macroeconomic balances and encourage private

investment, regulatory policies for other markets (finance, products), and policies for education and

skills development. In fact, firms in Madagascar identify labor regulations among the less important

concerns in conducting business. Nonetheless, Madagascar’s employment regulations compare

unfavorably with other similar countries. A ban on temporary contracts for permanent jobs and a

relatively high minimum wage complicates hiring and complex and numerous exemptions in the

regulatory framework complicate the application of law, limit transparency, and increase

unpredictability of the business environment.

18. The above regulations may influence the size of the informal sector (as firms opt out of

formality) but will by the same token not affect the functioning of informal sector work – where the

vast majority of Madagascar’s work force is employed. Issues that affect labor demand in informal non-

farm enterprises, although they offer lower earnings, may therefore also need a lot of attention. Given

the link between education and earnings as well as possible skills shortages, skills development in the

informal sector is one such area to look at. Hence, while labor regulations are possibly constraining

formal activity, other policy areas – including general framework for doing business - are likely to be

more important obstacles to private sector led growth and job creation in Madagascar.

19. However, if Madagascar succeeds in expanding higher productivity and formal sector activity,cumbersome regulations may in fact become a binding constraint. A complex and unpredictable overall

regulatory framework for business is also likely to lower the employment creation of firms with higher

overall growth potential in the formal or informal sector. Labor regulations need to be reviewed in the

context of creating more, more productive, and higher earning jobs.

20. Public works programs, seen as a means of encouraging labor demand in the low skill end,

reducing household vulnerability and combat underemployment or seasonal unemployment, have

become more frequent in recent years. International experience shows that well designed and well

implemented PW programs can simultaneously mitigate household income shocks, reduce poverty, and

provide infrastructure cost effectively. Thus, public works programs in Madagascar could potentially

help reduce household vulnerability during the soudure, and assist those households that cannot resort

to farming when other options disappear – including poor in urban areas, and landless in rural areas.Even with high overall economic growth, many households will be subject to income shortfalls due to

seasonal variation in agriculture or other shocks.

21. However, programs are currently not functioning adequately either as safety nets or as

infrastructure programs. An evaluation of several PW programs in Madagascar over the period 2005-

2007 shows that (i) PW programs need to be harmonized and coordinated across different agencies



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(ii) much better monitoring and evaluation needs to be in place to ensure cost effectiveness

and (iii) technical competence strengthened to ensure output quality.

22. Most importantly, targeting needs to be improved. Normally, poor households select into

programs because they offer earnings opportunities. However, if the wages are set above market wages,

as is the case in many programs in Madagascar, also non-poor will choose to work in the programs,

crowding out job creation for the poor and diluting the safety net functioning. In addition, projectsappear not have been directed at the poorer regions (where both income and infrastructure needs

would be greatest).

E. Raising earnings potential and lowering vulnerability in the informal

sector

23. Formal sector job creation will not suffice for Madagascar. First, the formal sector is simply too

small to be able to expand sufficiently to absorb even new entrants on the labor market, let alone all of

the existing informal workers even over the medium term. And second, the poor may not be able to

access jobs, even with rapidly expanding labor demand: the poor live in rural areas and are largelyunskilled, while high earning jobs are urban and require skills. And finally, the low earnings sectors can

act as an important safety net when the formal sector is subject to shocks – as inflows into the

agricultural sector after the crisis in 2001 illustrate.

24. Efforts must therefore also center on increasing productivity and earnings and minimizing risk

in the low earnings jobs sectors. First, by increasing agricultural productivity and earnings, food

consumption would increase and households would also have the free labor and resources to diversify

into other types of activities. Second, the rural non farm sector could potentially provide both higher

and less volatile income and generate more jobs in rural areas.

25. More commercial farming and higher technology content increases agricultural productivity,

but also raises demand for unskilled labor, and lowers poverty and food insecurity. A majority of the

population will remain in agriculture over the foreseeable future. The agricultural sector is essentially

non-commercial and characterized by low productivity and high volatility, which in turn is linked to high

poverty levels. Food security margins are very small, and malnutrition and mortality increases visibly

during the dry season. Non-poor households have higher productivity, are more likely to sell their

products on the market. A study of contract farming suggest that households that can tap into larger

international firms see higher and less volatile income, build more assets, and experience shorter lean

periods during the dry agricultural season. Policy must therefore focus on raising labor productivity

which will indirectly result in the creation of higher earning jobs outside the agriculture subsistence

sector.

26. The rural non-farm sector is associated with higher earnings and lower household poverty,

and education levels of firm owners have strong leverage effects on job creation and earnings for

workers in the firms. Only 30 percent of rural households are involved in non-agricultural activities,

their firms are generally small and informal, and dependent on unpaid family labor. Even at this

rudimentary level the non-farm sector offers better opportunities than subsistence farming, and leads

to higher earnings and lower poverty risk for households. Higher education of firm owners results in

larger firms, more equipment, more creation of paid jobs, and higher earnings for those jobs. Revenues

paid to hired labor increase many-fold with education levels of the owners.



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27. Improved access to education, capital, and markets is likely to help further non-farm activity

and job creation. Importantly, public goods in the form of security, lower transportation costs, and

greater access to broadcast media are also associated with higher labor demand.

F. Conclusions: Improving labor market outcomes for the poor

28. Efforts to sustainably reduce poverty should center on improving earnings for the poor. This

implies a broad agenda: (i) restoring macroeconomic and political stability, improving the investment

climate more broadly and removing constraints to labor demand in sectors that can offer higher

earnings (ii) removing obstacles that prevent workers in low earning sectors from shifting into higher

earning sectors (iii) help increase productivity in low earnings sectors – agriculture, household

enterprises, urban informal sector - where most of the poor work.

29. A weak investment climate is hampering activity and employment growth in both the formal

and informal sector. While labor regulations do not appear to be a major binding constraint for business

operation, there is some evidence that formal sector hiring is relatively expensive. Evidence from

elsewhere suggests that it is at once more efficient and equitable to concentrate on protecting workers(e.g. through means of income support during unemployment) than jobs (through cumbersome hiring

and firing regulations.)

30. Public work programs need to become better targeted safety nets and more efficient. Within

the area of social protection, well designed public sector work programs could reduce vulnerable

household’s exposure to earnings short falls and at the same time contribute to much needed

improvements in infrastructure. However, programs need to be much better targeted to the poor, by

setting wages below market level to encourage self selection, and by using poverty mapping for better

geographical coverage. They need to be coordinated across different agencies, and accompanied by

appropriate monitoring and evaluation systems. Finally, the technical quality of the infrastructure

produced needs to be assured by strengthening capacity among implementing agencies, concentrating

implementation responsibility in agencies which posses the capacity, or ensuring external support.

31. Earnings growth in the informal rural sector and urban sector is the most likely route out of

poverty. Most of Madagascar’s poor depend on subsistence agriculture. While the formal urban sector

is small, higher productivity agriculture, rural non-farm activities, and the informal urban sector offers

higher and more stable earnings than subsistence farming. Policy needs to focus on how to improve

productivity in these sectors, and help the poor shift into those sectors – by increasing their education

and skills in childhood, youth and throughout their working life, by increasing their physical mobility, and

by improving access to capital and markets through improved financial markets and infrastructure.

32. More knowledge is needed. The research program has centered on rural labor markets, where

most of the population lives, and on understanding the basic functioning of the labor market and the

characteristics of workers. As such, it fills an important knowledge gap, but more analytical work is

needed to generate the underpinnings for solid policy advice on labor markets and poverty reduction

strategies. Some key areas of analytical and policy focus that require additional work are:

• Informal sector activities and labor markets in urban areas. The urban informal sector is the main

employer of rural immigrants and of the incumbent poor in urban areas. As such, it can have a

critical impact on poverty reduction. At the same time, political, macroeconomic and externally

imposed crises often have a stronger impact on urban than rural labor markets. However, while it is

clear that urban labor markets suffered greatly during the political crisis of 2001, there is still a



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knowledge gap as to how labor markets work in urban areas, who are the most vulnerable, what the

defining characteristics are of more successful firms, occupations and workers, and the extent and

consequences of rural-urban migration.

• Vulnerable groups and mobility constraints. Generally, new labor market entrants, both youth and

immigrated workers from rural areas, face higher risks and worse prospects in terms of accessing a

job, especially with some decent level of earnings; the evidence suggests that women faceconsiderable discrimination in Madagascan labor markets. At the moment, while we know that

mobility is limited, it is not yet fully clear why this is the case, although discrimination and education

appear to be important factors. The causes, consequences and remedies for the limited mobility

need to be identified.

• Income protection. Public works is only one of several possible options that can work in

combination to protect and preserve income for the most vulnerable in the population – and as

discussed, in the past, PW’s have not served a safety net function. Following upon the existing

knowledge of poverty and labor markets, a next step is to improve the efficiency and coverage of

the existing social protection system with a view to ensure adequate coverage, efficiency, relevance

and financial sustainability of the system. As large parts of the population are at significant risks for

chronic or seasonal food insecurity, a well functioning safety nets system in particular is critical.Other means of providing safety nets beyond public works/cash-for-works therefore need to be

explored. The recent review of the Social Protection system in Madagascar (“Social Protection:

Helping households manage risks and protect assets current”, May 2010) provides valuable

suggestions to develop a coherent system, strengthen institutional set-ups, expand successful

programs and pilot appropriate new programs.

• Education and skills development. The formal sector is still embryonic and the informal sector

provides employment for a vast majority of the population. Therefore interventions to improve

education and skills development need to be balanced with interventions in economic and labor

market policies to promote a favorable climate for private investment and job creation. Since

education and skills development are influencing wages and earnings directly by raising the

productivity of the worker and indirectly by promoting entry into more lucrative forms of employment, Government needs to continue improving the quality of basic education while opening

access to post-basic education and improving articulation between formal education and training

programs. In other African countries, the returns to skills in the informal sector have been shown to

be on the increase. Skills development in the context of informal sector work is thus critical for

raising productivity and earnings potentials in this sector while at the same time preparing workers

for shifting into formal sector activities as these gain importance. Drawing on the knowledge base

that is being created by the World Bank in the Africa region, further work is needed to better

understand how workers in Madagascar are prepared with skills for informal sector employment

and how government can encourage further investments in skills alongside a menu of other

interventions that would raise productivity and earnings in the sector. It will be therefore necessary

to look closely at the unique character of skills development in the informal sector and the rolesplayed by schools and employers as providers of skills.

• Updating the labor market overview. The reports in the work program were using data from 2005

as their latest observation. An update of this information is now much overdue, and at a minimum a

basic estimate of employment rates, unemployment rates, the sector structure of employment and

earnings developments is needed. As is discussed in Annex 2, the analytical underpinnings of policy

advice could be much stronger with improvements in survey methods and data.



xii

• Labor market institutions. Finally, the investigations suggest that labor markets are segmented in

Madagascar, with high preferences for public sector jobs, to which the poor cannot get access, with

a very limited formal sector, and with – as mentioned - a gender divide in earnings. A review is

needed of the institutional constraints that cause segmentation and limit mobility between different

segments. For example, the wage setting mechanisms and the role of different labor market

institutions in maintaining the public wage premia need to be reviewed, as well as the role of

economical and social constraints to women participating on equal terms in the work life.



1

1. Introduction

1.1. Understanding labor markets in Madagascar – A research program

Raising labor earnings is key to poverty reduction

33. A majority of Madagascar’s population is poor. Their main source of income is earnings from

their own, largely unskilled labor. Understanding employment and earnings conditions is therefore

essential to understanding the causes and cures of poverty. Improving earnings for the poor, by helping

them access jobs with higher earnings, is the most important and most sustainable means of reducing

poverty in Madagascar as indeed in any country.

34. To address the challenges of growth and poverty, the previous Government of Madagascar

initiated a bold development strategy for 2007-2012—the Madagascar Action Plan. The MAP, a

second-generation Poverty Reduction Strategy, was prepared in a participatory way and outlines eightstrategic commitments: (1) responsible governance; (2) connected infrastructure; (3) educational

transformation; (4) rural development and a green revolution; (5) better health, family planning, and the

fight against HIV/AIDS; (6) a high-growth economy: (7) a cherished environment; and (8) national

solidarity. As part of the high-growth commitment, the government recognized the goal of full

employment as a key challenge (Box 1-1).

Box 1-1: Employment in the Madagascar Action Plan (MAP)

In the MAP’s commitment to a high-growth economy – the sixth strategic commitment - full employment has

been identified as one key challenge. In this policy area, the government’s goals have been identified as follows;

1 A well qualified labor force that is able to respond to the needs of the economy

2. Substantially higher labor productivity

3. Move towards full employment

The strategy to achieve these goals is four-pronged:

1. Stimulate job-generating sectors.

2. Reform labor laws

3. Develop a National Manpower Plan to align labor to the needs of the economy.

4. Provide vocational training to support the priority industries that contribute to the high growth economy.

5. Shift mindset to support efficient economic activity.

Source: Government of Madagascar



2

Lack of information on labor market developments prompted a broad research program

35. Recent and hitherto unused data are available to better understand labor markets, growth

and poverty links. Until recently, labor market diagnostics in Madagascar were largely outdated, with

the last overview of labor markets dating from 1993, or focused exclusively on the formal sector in

urban areas which involves only a small part of the labor force and virtually none of the poor. Yet,

Madagascar has recently developed sources of micro-data which are well suited to looking at how labor

markets and poverty interact.

36. In view of this lacuna in knowledge, and of the data and tools now available to fill the gap, the

World Bank launched a comprehensive research program on the functioning of the labor market in

Madagascar in 2007. Focused policy incentives require updated analysis to understand which

interventions will be most effective. The research program, hence, was intended to support the policy

agenda by providing relevant and updated information on the labor market conditions. The proposed

analytical program aimed at closing the large knowledge gap on labor market conditions, and supported

the policy debate currently surrounding the implementation of the Government MAP. Accordingly, the

analytical work program intended to provide output along four themes: A. labor diagnostics and

macroeconomic issues; providing an up to date labor market diagnostic and an analysis of the role of

employment for shared growth; B. The rural economy and labor market arrangements, more particular

non-farm enterprises; C. The formal economy: and constraints to labor demand. In addition a fourth

cluster -D. Selected issues- focused on topics of relevance that emerged during consultations with the

government and partners, including the efficiency of public works and gender issues in the labor market.

37. This report synthesizes the main messages from the research program and proposes a way

forward in terms of both policy and complementary analytical work. The report builds mainly on

several reports and policy briefs which focused on a wide range of issues: such as the links between

employment and poverty reduction, rural labor demand, commercial farming, gender issues and the

institutional framework for job creation (listed in Box 1-2). For context, the report also brings in recent

economic work, notably the Country Economic Memorandum prepared in 2009 and associated policy

briefs as well as a report on Post-Basic Education. The purpose of this report is (i) summarize the variousoutputs of the labor market analytical work program that was prepared during 2007-2009 (ii) develop a

story-line around these components, and (iii) identify gaps that need to be addressed in further analysis.

It should be noted that thorough labor market diagnostics for 2001 and 2005 are provided in two of the

main outputs of the program: Stifel (2007), and Hoftijzer and Paci (2008). Rather than repeating in detail

the diagnostic exercise, the synthesis report has focused on bringing in additional components of the

work program into the story line so as to provide value-added to the World Bank’s knowledge of labor

markets and poverty in Madagascar. Moreover, in spite of the breadth of the research program, there

are still many outstanding issues for understanding the interaction between labor markets and poverty

in Madagascar, and the report points to some avenues for further work.



3

38. The onset of a severe political crisis in Madagascar complicates the forward looking policyagenda. The timing of this report presents challenges. The economic and political setting underwent

dramatic changes in early 2009, which are not reflected in the data, and which are likely to significantly

affect both policy priorities and economic conditions. However, since the work program covers the years

after the 2001 crisis, the report may be particularly timely in providing a good understanding of what

the potential effects of the crisis may be on poverty and labor markets.

1.2. Summary of main messages

Key findings

39. Madagascar is not lacking jobs, but most of the labor force is working in jobs which offer

inadequate pay. A vast majority of poor adults are working. Most of them are in subsistence farming,

and virtually all non-farm activities are in the informal sector. Subsistence farming is the least productive

of all sectors and offers the lowest earnings. The high earning and low risk jobs in Madagascar, in

contrast, are in the formal private or public sector.

40. Over the short and medium term, the majority of the poor would only increase their earnings

through earnings improvements in the agricultural sectors or in the informal non-agricultural sector.

Box 1-2: Background Reports for the Labor Market Research Program

1. Labor market diagnostics

(i) Making Work Pay in Madagascar: Employment, Growth, and Poverty Reduction

(ii) Gender Disparities in the Malagasy Labour Market,(iii) Evaluation des Conditions du Marché du Travail à Madagascar, 2001-2005

(iv) Marchés de Main d’oeuvre, Economie non agricole et Stratégies de Moyens d’Existence des Ménages en

milieu rural à Madagascar

(v) The Demand for Hired Labor in Rural Madagascar

2. Agriculture

(i) Contrats de production agricole à Madagascar : Vue d’ensemble

(ii) Contrats de production agricole à Madagascar : Les déterminants de la participation

(iii) Contrats de production agricole à Madagascar : Effets sur le bien-être des ménages contractants

(iv) Contrats de production agricole à Madagascar :Effets sur la productivité rizicole des ménages contractants

3. Enabling framework

(i) Deploying the Financial Sector for Employment Creation and Poverty Reduction in Madagascar

(ii) Madagascar Employment Institutions and Policies: A Background document

(iii) Madagascar: De jure labor regulations and actual investment climate constraints

4. Safety nets

(i) Travaux publics à haute intensité de main d’œuvre (HIMO) pour la protection sociale à Madagascar :

problèmes et options de politique

Source : Annex 1



4

The formal private sector is predominantly high skill focused, while the poor overwhelmingly lack

education. Since the private and public sectors are small relative to the size of subsistence farming and

informal sector activities, they would also have to expand at unreasonable rates to absorb even a small

share of the poor workers in Madagascar. The public sector, further, could not reasonably be expected

to account for a majority of employment creation over the medium or longer term. Access to better

paying jobs in the informal non-farm sector as well as higher productivity in agricultural activities is the

best bet for Madagascar’s rural and urban poor.

41. Agriculture will retain a key role for a majority of the population for the foreseeable future.

Seventy percent of the population lives in rural areas, where almost everybody of working age is

employed, and a vast majority of workers are in agriculture. As a consequence, agriculture will retain a

main role for the rural population for years to come. In addition, agriculture took on an important role

as a safety net – also for people in smaller urban agglomerations – at the outset of the political crisis in

2001 when secondary and tertiary activity collapsed. Increasing agricultural productivity would help

increase earnings for this large share of workers, but would also free labor resources for off farm

activities and increase rural local demand.

42. Non-farm activities offer better jobs than farm activities for the rural poor. For agricultural

families who face both predictable variations (seasonal) and unpredictable variations (unforeseenweather shocks), non-farm enterprise (NFE) work provides a pathway out of extreme poverty as it

provides both higher earnings and diversifies income sources vis-à-vis more vulnerable farm income.

However, at the moment NFE, work remains limited in Madagascar: only one in three rural households

is involved in a non-farm activity.

43. Lack of skills in the work force and complex and rigid regulations for hiring may be binding

constraints for formal job creation. De jure labor market regulations in Madagascar are rigid and

complex by international comparison. Although these constraints are not likely to be de facto binding

for the overwhelming majority of informal firms in urban or rural areas, they may constrain the creation

of higher earnings jobs (and as such contribute to a shift into informal job creation instead). Lack of skills

remains one of the key constraints to private sector development.

44. Level of education and gender determine earnings and access to higher earning occupations.

There is a significant gender gap in earnings in Madagascar. Women’s earnings in informal non-

agricultural activities are much lower than that of men; they have lower education levels but in addition

their returns to education are lower and they are more often confined to low paying occupations. Equal

access to schooling is an obvious first step towards closing this gap. Since a majority of informal

nonagricultural work is nonwage, i.e. self-employed, women’s earnings relative to men may also be

constrained by lack of access to credit.

Policy recommendations

45. Moving forward, the Madagascar government needs to take a comprehensive approach to jobcreation, including actions to restore confidence and economic stability, improve the investment

climate, enhance worker mobility, and improve safety nets. The first and foremost task of the

government is to restore political and macroeconomic confidence in the Madagascar economy. Beyond

this, policy needs to simultaneously encourage the expansion of higher labor productivity jobs which will

underpin higher earnings, help the poor shift out of low earning sectors and focus on improving earnings

potentials in low earnings sectors.



5

• Given the important role of non-agricultural activities in both raising and stabilize the earnings

potentials, a careful review of best practice in supporting interventions, ranging from skills development

to the role of credit and better infrastructure, is needed.

• The high poverty and vulnerability among Madagascar’s working population points to the

importance of adequate safety nets, including public works programs that provide a cost effective safety

net for poor workers facing income shortfalls during the soudure or other times of important incomeinsecurity. Design and implementation of the current PW programs could be improved as follows: (i) the

wage-setting mechanisms need to be readjusted and geographical targeting improved to avoid leakage

to non-poor workers (ii) approaches need to be harmonized and coordinated among agencies (iii) the

technical capacity of implementing agencies needs to be improved to ensure that the quality of

infrastructure meets minimum standards and (iv) monitoring and evaluation systems need to be put in

place to ensure cost effective interventions and development of best practice. But other types of

interventions to sustain income for the poor and vulnerable need to be examined as well, requiring a

review of the social protection system in its entirety.

• While most of the population will remain dependent on farming, ways to increase agricultural

productivity, including ways to move to higher value crops, remain critical in Madagascar.

• Little is still known about e.g. the nature and potential of the urban informal sector as a provider

of earnings for the poor, or the causes of the segmentation present in Madagascar’s labor market.

Additional work could usefully fill the knowledge gap.

1.3. Organization of the report

46. The report is organized as follows. The second chapter provides an overview of the Madagascar

economy and the main challenges in the short and medium term. The third chapter describes the labor

market structure in Madagascar, recent trends in employment, growth and poverty, and the role of NFE

activities. The fourth chapter addresses job creation and productivity. It looks at constraints to formal

job creation, as well as issues in terms of increasing productivity and incomes in the informal and

agricultural sectors. It also looks at options for improving productivity, income opportunities and income

security of the poor, namely through increases in skills that pay off in the labor market, and through

public works as a safety net strategy. The fifth chapter, finally, concludes by providing a summary of the

main policy conclusions for the short and medium term and outstanding issues that should be addressed

in future analysis.



6

2. The Madagascar Economy

47. Madagascar is a very poor, rural and agricultural country, facing significant challenges in terms

of high pressures for job creation emanating from a rapidly growing working age population, anundiversified economic structure, and a largely unskilled population. Although economic growth

increased in recent years, with promising development in various new sectors, overall progress has

suffered important setbacks due to two very political crises with important economic consequences in

2001 as well as in 2009. This chapter provides an overview of the overall economic context for job

creation. It describes the main features of the economic structure, level of economic development, and

recent trends which are important to understand labor markets developments. It outlines the main

challenges facing Madagascar in terms of poverty reduction and economic development more generally.

2.1. Country context

48. Madagascar is one of the poorest countries in the world: in 2007, only ten countries were

poorer. Gross per capita annual income (GNI) reached 340 US$, well below the average Sub-Saharan

country or non-African low income country. The undiversified economic structure with a large

dependence on agriculture is both evidence and cause of sluggish economic growth, and has also proven

vulnerable to shocks – be they related to climate (droughts) , political events (e.g. the crises in 2001 and

2009), or external funds (exports, investment, tourism and foreign aid).

49. The population is largely rural and dependent on subsistence farming. Seven in ten persons

live in rural areas, and the largest city, the capital Antananarivo, is host to less than ten percent of the

population. Rural families are largely dependent on subsistence agriculture as four in five workers are in

agriculture, and unpaid family workers make up the vast majority - 86 percent – of rural workers.

50. Young populations imply high dependency burdens. High population growth is reflected inhigh age dependency ratios. Over two in five persons – around 43 percent of the population – are

children under the age of 15. Each working adult working must consequently earn enough to provide for

almost one extra person. Alternatively, children have to enter the labor market to become family

providers as well.

51. Seven in ten Madagascans are poor, and the poor are largely rural. Although the share of poor

in the population fell from 71.3 percent in 1999, a high 68.7 percent were still living below the national

poverty line in 2005. And although urban and rural poverty converged as rural poverty fell and urban

poverty increased, poverty was still significantly higher in rural than in urban areas, at 74 compared to

52 percent. Primary sector activities accounted for 92 percent of all jobs for the poorest twenty percent

of the population in 2005.

52. Madagascar has made important progress on non-consumption measures of welfare. Life

expectancy has increased by 8 years since 1990 and is higher than the Sub-Saharan average, child

mortality is lower, and access to schooling has improved considerably. Yet, also in international

comparison, Madagascar remains one of the poorest countries in the world, with more than two thirds

of the population living on less than 1.25 dollars per day, compared to the Sub-Saharan and other low

income country averages of 50 and 36 percent (Table 2-1).



7

Table 2-1: Key social indicators for Madagascar

Madagascar

1990 2008*SSA

Low

Income**

GNI per capita, Atlas method (current US$) 230 420 1659 648

Population ages 0-14 (% of total) 45 43 42 35

Population growth (annual %) 2.9 2.6 2 1.6

Rural population (% of total ) 76 71 62 70

Urban population growth (annual %) 5.2 3.8 4.0 3.2

Life expectancy at birth 51 59 53 63

Child mortality rate 168 112 127 77

Expected years of schooling (girls) 6 9 8 9

Adult literacy rate -- 71 63 70

Poverty headcount ratio at $1.25 a day (PPP)

(% of population)

72 68 51 36

* Or earliest and latest available. ** Excluding SSA. Source: World Bank (2009).

53. Agriculture retains a key economic role. Roughly half of national value added originates in the

broad services sector (54 percent), followed by the agricultural sector (34 percent), while the industrial

sector remains small at 13 percent (Table 2-2). As is characteristic for a low income country, agriculture

and livestock farming are the two main sub-sectors, followed by services, trade, and transports. The

secondary sector remains fragmented with many small industries, including food and beverages and

export processing zones (EPZ). Madagascar’s main sources of growth in recent years have been

agricultural products, including vanilla (Madagascar supplies half of the world’s total vanilla supply),

clothing from the EPZs, mining, and tourism. Rice is the main agricultural crop, although Madagascar

remains a net importer.



8

Table 2-2: The role of agriculture in Madagascar

Subsectoral output shares, 2006 (%)

Madagascar SSA Low

Income

Agriculture, fisheries, forestry 34 12 25

Agriculture 16

Cattle farming and fisheries 15

Other 3

Industry 13 33 28

Food 2

Beverages 2

Other 8

Services 54 55 47

Services 13

Trade 11

Transports 11

Other 19

Source: Hoftijzer and Paci (2008), World Bank (2010)

2.2. Recent economic developments

54. Madagascar’s poor income levels are the result of low but volatile economic growth, further

eroded by high and steady population growth in the past (Figure 2-1a). Indeed, had Madagascar been

able to sustain GDP growth rates of about 5 percent over the past decades, per capita income levels

would now be nearing those of middle income countries like Thailand or Tunisia (Morrisset, 2009).

55. Recent years saw an increase in trend growth, however . Between 2000 and 2007, GDP

increased by 3.6 percent on average, much above the rates registered in previous decades (Figure 2-1b).The fact that Madagascar’s performance remained below the average of low income countries and Sub-

Saharan countries, is entirely due to the devastating and long lasting economic and social repercussions

of the short-lived political crisis towards the end of 2001. Foreign capital flows dried up, exports

faltered, infrastructure was destroyed, and economic activity severely disrupted. Although economic

activity was quick to rebound, recovery was nonetheless arduous because the contraction had been so

massive. It is estimated that in real terms, it took six years for GDP per capita to return to pre-crisis

levels (Figure 2-1c). Excluding the crisis and recovery years, i.e. 2002, in which the economy contracted

by 13 percent, and 2003, in which it rebounded by 10 percent, economic growth would have averaged

5.3 percent between 2000 and 2007, however.

56. The political crisis of 2001, which erupted after the presidential elections, affected primarily

stability in urban areas. The tertiary and secondary sectors therefore bore the brunt of the economiccontraction, and urban workers were most seriously affected. The primary sector instead acted as a

safety net for large parts of the population, including those living in urban areas. However, it is worth

noting that the agricultural value added has increased slower than the rural population, resulting in

lower per capita agricultural income (Figure 2-1 d).



Figure 2-1: Inc

Population and GDP growth (actual

GDP per capita, constant 2

Source: World Bank (2009). Mdg “no c

57. The economy rebounded

added growth averaged 2.3 perc

tertiary sectors, which had been

sectors to recover were the EPZ (

sectors, largely reflecting the sub

management program. By 2006, o100 % relative to 2001. The tourism

rapidly as the political crisis subsi

Meanwhile the government agen

which focused on tourism, mining

reasing growth, important setback, and recovery

and trend) GDP growth, Madagascar and co

000 USD Agriculture output (in constant U

value added per rural habitant

risis” refers to average growth rates excluding the crisis year (

year (2003).

uickly as political stability returned. Between 20

nt for the primary sector, and 7.2 percent for t

most affected seriously by the down turn (Table

picking up from a free fall in growth in 2002) an

tantial boost in investments in an ambitious roa

utput in EPZ and Public Works had increased by rsector, which had gained importance since the 19

ed, as did foreign direct investment, notably in

a centered on promoting the so called “integra

nd manufacturing sectors.

9

parators

SD) and agricultural

002) and the rebound

3 and 2006, value

he secondary and

2-3). The fastest

the public works

d habilitation and

spectively 25 and0s, also picked up

he mining sector.

ed growth poles”



10

Table 2-3: Crisis and recovery

Average annual output growth,

sub-periods (%)

Crisis-recovery:

output relative to

2001 (%)

1999-2001 2002 2003-2006 2006

Agriculture etc. 2.9 -1.3 2.3 107.9Agriculture 2.9 0.8 3.3 114.8

Cattle farming and

fisheries

1.1 2.6 2.5113.3

Industry etc. 6.3 -20.7 7.2 104.3

Beverages industry 10.7 -13.2 5.6 107.5

Food industry 1.4 -10.3 5.3 109.7

EPZ 28.3 -40.0 24.0 125.4

Energy 1.2 -31.1 5.4 85.0

Services sector 5.5 -15.0 7.2 112.2

Services 10.4 -19.3 7.1 106.2

Trade 3.6 -7.4 4.3 109.5

Transports 2.9 -21.1 8.2 107.8

Administration 0.6 2.0 3.2 115.6

Public works 10.9 -15.1 24.2 201.4

Source: Adapted from Hoftijzer and Paci (2008)

58. The agricultural sector provided a critical safety net during and after the 2001 crisis. The

agricultural sector stagnated in 2002, but did not contract unlike the rest of the economy, and grew

moderately between 2003 and 2006. In effect, farming acted as a significant subsistence buffer during

and after the crisis. First, it

provided possibilities for

subsistence farming as other

earnings opportunities in the

second and tertiary sectors

withered. Second, rising world

prices for food rice prices

made it more profitable to be

in the agricultural sector. This

is witnessed in an increase in

rice production in particular in

2004 and 2005 (Figure 2-2).

59. Due to the 2001 crisis,

poverty levels in Madagascar

fell only marginally between 1999 and 2005. Between 1999 and 2001, rural poverty stagnated at 77

percent, while urban poverty was reduced from 52 to 44 percent of the population in 2 years only.

However, these achievements were wiped out with the 2001 crisis, and by 2005, urban poverty had

returned to 1999 levels. The overall small reduction in poverty, from 70 to 68 percent of the population,

was thus due to a fall in poverty among the rural population, from 77 to 73 percent in 2005.

Figure 2-2: Important producer price rises in 2004

Source: Hoftijzer and Paci (2008)

-20

-10

0

10

20

1999 2000 2001 2002 2003 2004 2005

%

-5

0

5

10

15

Producer pr ice growth (%) Production growth (%)



2.3. Madagascar’s Challe

60. Madagascar is rich in nat

labor. Mining opportunities, inter

interest in Madagascar by foreign

welfare indicate the pervasivenesshealth indicators. But in spite of b

challenges to reduce poverty and e

61. Demographic pressures w

been falling since the 1990s wh

Demographic pressures will remain

• First, youth age dependen

number of young depende

2020, accounting for nearl

population is increasing m

child population still req

additional dependents in t

• Second and related, the c

increase each year on a n

education systems to acco

• Third, and critical from the

– will increase by 125,000

the population and 30 pe

sufficiently good jobs for t

with earnings that permit

pressure on the economy

productivity growth and ea

Figure 2-3: Net po

ges

ural resources and possesses abundant and co

national tourist inflows, and handicraft skills hav

investors. Although consumption and non-consum

of poverty, important progress has been made inoth assets and achievements, Madagascar is face

nsure sustained growth over both the short, mediu

ill remain high over the foreseeable future. Popu

n it peaked at 3 percent, but still reached 2.6

intense, with three important repercussions (Figur

y rates will fall but slowly: UN population estimat

nts (under 15) will increase by 140,000 per year

y 25 percent of total population growth. Althoug

ore rapidly than the dependents, the continued r

ires three working persons to provide for the

e population by 2030.

hort of 5-14 years, approximately the school age

t basis by 90,000 children, which will put consid

modate this high inflow with quality education.

point of view of this study, the group of young wo

persons each year, accounting for 22 percent of all

cent of all of the increase in the working age po

his group of hitherto unskilled and certainly inexp

reduction of poverty for them and their families,

to create jobs in agriculture and nonagricultural s

rnings increases.

pulation increase per year (thousands) by age gro

Source: UN (2009)

11

paratively cheap

garnered strong

ption indicators of

e.g. schooling andd with substantial

m and long term.

lation growth has

percent in 2007.

e 2-3),

s suggest that the

etween 2010 and

the working age

pid growth in the

mselves and two

cohort, will alone

rable pressure on

kers – aged 15-24

of the increase in

pulation. Creating

erienced workers,

ill put substantial

ectors which offer

p



62. The economic structure re

domestic savings and investmen

fluctuating external capital flows in

vulnerable to events external to M

63. The most immediate chall

poverty impact of the political cundermine the economic and soci

growth of 7.5 percent in 2009, cur

bears many of the characteristics o

less repercussions at this stage. Alt

increased quite considerably for a

replace other earnings. On the one

crisis, and given that seventy per

farming - they are not strongly aff

out of poverty. Moreover, unless

the absorptive capacity of agricultu

64. And importantly, while f prepared to return after the stabili

2007 and 2008 - this second ruptu

were to affect FDI and tourism arri

withdraw to levels registered in t

external resources would be seri

secondary and tertiary sectors are

Figure 2-4: External fl

FDI in million USD (columns) and touris

in thousands (line)

ains undiversified, employment is concentrated

t levels are low. As a result, public finances a

the form of aid and foreign direct investment. The

dagascar but also to economic and political stabilit

enge facing Madagascar, however, is to mitigate

risis that is currently unfolding and which threl achievements since 2001. From a pre-crisis proj

rent assessments point to negative growth rates.

f those of the 2001 crisis, it is not clear whether it

hough no data exist for 2002 and 2003, it is likely t

short time, especially in urban areas, where no f

hand, agriculture remains more sensitive to clima

cent of the population live from farming – most

cted by the crisis. On the other hand, agriculture

the inflows into agricultural employment have re

re must have reached its limits.

oreign donors, foreign investors and internatiozation of the country in 2002 – although tourists, i

re may have seriously damaged international confi

als proportionally as the political crisis did in 2002

he 1990s (Figure 2-4). Coupled with a withholdin

usly reduced. And urban poverty is likely to in

ost seriously affected by the crisis.

ows – FDI, tourism, and aid – what impact of the c

m arrivals Aid per capita (current

Source: World Bank (2009)

12

in agriculture, and

re dependent on

se flows are highly

y.

he economic and

tens to seriouslyction of economic

lthough this crisis

will have worse or

hat poverty in fact

arm activity could

ic than to political

of it subsistence

ffers little escape

ersed since 2005,

nal tourists werefact, waited until

dence. If the crisis

both flows would

g of external aid,

crease further, as

rises?

S$)



13

3. Labor markets structure and dynamics

65. Madagascar’s labor markets bear the marks of low income countries: almost everybody is

working, because they are obliged to, but they earn little from their work. This implies that participationrates and employment to population ratios are high, especially in rural areas, and for women as well as

for men, while virtually nobody can afford to be unemployed. However, wage work, which usually offers

better conditions than self-employment and unpaid family work, is limited, one out of five children is

obliged to work to support their families, and poverty rates among workers are high. This chapter

provides an overview of the key labor market indicators in Madagascar and the links between jobs,

earnings and poverty. It also discussed labor demand from the perspective of the investment climate, as

well as the role of public works in creating and sustaining labor demand and protecting earnings.

3.1. Key facts and figures

High access to jobs, low access to good jobs

66. Access to job is not an issue: in 2005, 86 percent of the adult population held a job. A high 88

percent of the population aged between 15 and 64 was active in the labor market, and almost all of

them were working (Table 3-1). Unemployment rates reached a mere 2.6 percent.

67. Higher earning jobs are scarce, however, and the adult poor are predominantly employed in

low earning jobs. The key determinant of living standards is therefore not whether a person holds a job

or not, but what kind of job he/she holds. Wage work – where median earnings are more than twice as

high as in the nonwage sector - made up only 15 percent of total employment, meaning that the

majority of workers were confined to occupations with lower and more volatile earnings. Tellingly,

poverty rates were more than 20 percentage points higher among the group of employed (65 percent),than in the small group of unemployed (42 percent); overall poverty among the employed increased

between 2001 and 2005 while unemployment rates fell. In Madagascar, with its predominantly rural

character, working on the farm to obtain food or otherwise holding any job is necessary to secure

subsistence minimum. Because of the precarity of the situation for most families, one in five children

aged 6-14 years is at work. Only those with sufficient resources can afford the opportunity cost of not

holding any form of job while looking for a better one.



14

Table 3-1: Basic labor market indicators for Madagascar, 2001-2005

IndicatorLevel Change

2001 2005 Absolute Percent

Employment and unemployment

Labor Force 83.5 88.1 4.6 6%

Employment-to-population ratio* 82.5 85.8 3.3 4%

Unemployment rate 1.2 2.6 1.4 113%

Child labor rate 24.3 18.8 -5.5 -23%

Women's Employment Rate 77.8 83.2 5.4 7%

Poverty rate among unemployed 44 42 -1.5 -3%

Wage and salaried workers

Median monthly earnings** 88.1 71.5 -16.6 -19%

Poverty rate 33 47 14.0 42%

Non Wage workers

Median monthly earnings** 25.3 71.5 46.2 182%

Poverty rate 77 69 -8.3 -11%

All workers

Median monthly earnings** 30.8 35.3 4.5 15%

Poverty rate 69 65 -4.0 -6%* The individual is employed if he has a permenent job or he has worked at least one hour in the week prior to thesurvey

** Earnings levels for 2001 are expressed in thousands of MGA and divided by 0.6476 (= 197,720 / 305,300 = 2001

poverty line / 2005 poverty line) in order to make comparison between 2005 and 2001. Source: Stifel (2007)

68. The predominance of low quality jobs is evident in the high employment-to-population ratios

in rural areas where poverty is higher and where 80 percent of the population lives. Nine in ten persons

in the adult population was employed in 2005, women to the same extent as men. These jobs, however,

largely consist of work on the family farm – 86 percent of the population in rural areas were family

workers. In urban areas, employment rates were lower but still at 72 percent and there were more

significant gender differences in employment rates, as two in three women worked, compared to four in

five of men. Although the incidence of wage work was higher in urban areas than in rural areas, 60percent of the employed population worked as self employed or family workers.



15

Table 3-2: Employment* - Working age population

Employment-to-population ratio Group share among employed workers

Group Level Level

2005 2001 Change 2005 2001 Change

(in%) (in%) (in %points) (in%) (in%) (in %points)

National 85.8 82.5 3.3 100.0 100.0 100.0Gender

Female 83.2 77.8 5.4 50.0 48.8 1.2

Male 88.6 87.5 1.1 50.0 51.2 -1.2

Urban 72.3 65.9 6.4 20.1 19.8 0.3

Gender Female 65.3 57.2 8.1 47.4 47.1 0.2

Male 80.0 76.3 3.7 52.7 52.9 -0.2

Rural 90.0 87.9 2.1 80.0 80.3 -0.3

Gender Female 88.9 85.0 3.8 50.7 49.2 1.5

Male 91.2 90.9 0.3 49.3 50.8 -1.5

* The individual is employed if he has a permenent job or he has worked at least one hour in the

week prior to the survey. Source: Stifel (2007)

69. Agriculture is the by far most important income source, but also the one with the lowest

productivity. The role of agriculture cannot be overstated. In rural areas, where 80 percent of the jobs

are, nine in ten persons work in the primary sector (Figure 3-1). In secondary urban centers, which

absorb an additional 12 percent of workers, three in four jobs are also in agriculture. Only in the largest

cities does the service sector dominate the job market – four in five jobs are in the services sector, and

the industrial sector is virtually concentrated in large cities as well. Almost nine in ten of the poor are

working in agriculture, but even among the non-poor, two in three workers are in agriculture. However,

agriculture accounts for about one third of GDP only, implying that a vast majority of the workers are

captured in the sector with the lowest productivity levels, and the lowest potential for earnings.



Figure 3-1:

Sourc

70. The Madagascar work for

received no education at all, only

have university education (Figure

primary sector where only one in t

the highest skills intensity; still, o

more. Overall, women have lower

to fifty percent of males.

istribution of employment by economic sector

e: Hoftijzer and Paci (2008) and Stifel (2007)

e is largely uneducated. More than half of the w

20 percent have post-primary levels, and only thr

3-2). Unsurprisingly, education levels are consist

en workers has post-primary qualifications. The in

nly 56 percent industrial workers have secondar

levels of education – nearly 60 percent have no ed

16

rking adults have

e percent in total

ntly lower in the

dustrial sector has

level degrees or

cation, compared



Figure 3-2: Edu

71. How does Madagascar c

presents three important labor

income. As seen, high employmen

universal among the poor low inco

employment to pop ratios, low un

with Uganda and Rwanda in termsof wage work.

Table 3-3:

GNI p

capita,

Ghana 630

Mali 580

Sierra Leone 440

Zambia 440

Rwanda 420

Uganda 320

Ethiopia 280

Average 444

Madagascar 420

Source: Stifel, W

ation levels by gender and sector of work (2005).

Source: Stifel (2007)

mpare with other countries at similar income

arket indicators for eight African countries wit

ratios and moderate unemployment ratios are co

me countries. Compared with these countries, M

employment, and lower share of wage workers. It

of high employment ratios, low unemployment rat

adagascar and comparator African countries

er

USD

Employment to

population

ratio, 15+(%)*

Unemployment

rate (15+)*

Wage wo

(% of all

65 10.4

47 8.8

65 3.4

61 12.9

79 0.3

83 3.2

81 17.0

69 8.0

86 2.6

rld Bank (2010). *For Rwanda and Madagascar, refers to 15-6

17

levels? Table 3.3

similar levels of

mmon though not

dagascar has high

compares, in fact,

es, and low shares

rkers

mpl)

18

14

8

19

23

15

46

20

15

.



Rural labor markets – accounting

72. Because a majority of the

sector, labor markets in Madagas

percent of the rural population is i

agricultural work as their primary j

majority is thus subject to varyin

season with no agricultural activi

produced are rice and tubers, mo

household producing rice or tuber

cash crops like vanilla, coffee, and

Figure 3-3: Percentage of wo

73. Poverty largely manifests

discussed in more detail in section

diversification. As a result, familie

poor than others.

Urban labor markets

74. Urban labor markets diffe

Labor markets in urban areas a

characterized by lower employm

Antananarivo and Toamasina. Ge

rural areas (Figure 3-4 a).

75. There are important diffe

areas. The latter approach rural a

much higher share of formal, wag

for 80 percent of the jobs

population is rural, and almost all of them are i

car are largely about agriculture, especially for t

nvolved in primary activities in a first or second jo

ob, nearly all of which is non-wage work on the fa

degree to climatic conditions and the plight of t

ty, and when food shortages are likely to occu

tly for self-consumption. A majority of agricultura

(86 and 75 percent, respectively), compared to o

loves (Figure 3-3).

kers in agriculture whose household produces the

Source: Bellamare and Stifel (2008)

a lack of opportunities outside subsistence fa

4 below, subsistence farming provides little earni

s locked into low productivity activities are much

r from rural labor markets in employment inten

count for only 20 percent of workers. Overall,

ent rates, around 70 percent, especially in the

der differences in employment are also more pr

rences between large urban areas compared to

reas in sector composition and dynamics, while t

ed, and nonagricultural jobs (Figure 3-4 b). Indee

18

n the agricultural

e poor. About 93

; 89 percent have

ily farm. The vast

he “soudure”, the

. The main crops

l workers live in a

nly 20 percent for

specific crop

rming. As will be

gs and no income

more likely to be

ity and structure.

urban areas are

largest cities of

onounced than in

secondary urban

he former have a

, the large urban



centers are the only areas with a

jobs amount to only 20 percent of

of the country.1 Importantly, unem

in the largest cities are unemploy

these cities. This seems logical on t

so ‘can afford’ to forego labor ear

unemployed. Second, certainly in

centers, larger cities may not offer

disappear in the tertiary and seco

cannot be “employed’ in the agricu

Figure 3-4: Employment structur

a. Employment-to-population ratio on

(Rural included for comparison)

Higher earning jobs and how and

76. Jobs with high earnings

formal private and in the public se

first, higher earnings, and second,

sector which offers some form of s

for workers in larger cities. The

different locations, with the largest

1Includes those informally employed (

working as own account workers in th

significant portion of formal work, and even so, t

he population, meaning that informality is nearly u

ployment rates are much higher – 12 percent of th

ed, meaning that 40 percent of the pool of une

o accounts. First, the population in larger cities is

ings while searching for a job – i.e. they can bea

ontrast to rural areas and perhaps also in contras

the option of farming as an alternative job. Thus, a

ndary sector, they have no option but to look for

ltural sector from one day to the next.

differs – especially in large cities where non-agric

activities dominate.

urban zones b. Distribution of jobs by occupat


where to get them

re concentrated in the non-agricultural sector,

ctor (Figure 3-5). The formal sector holds two imp

better protection, since the formal sector here is

ocial protection to its workers. Median earnings ar

e are big differences in median earnings for th

cities paying higher salaries.

.g. without contract, or benefits) in the formal or infor

informal (e.g. unregistered) sector.

19

e share of formal

niversal in the rest

active population

ployed resides in

more affluent and

the cost of being

t to smaller urban

job opportunities

another one and

ultural and wage

ion

especially in the

rtant advantages:

defined to be the

generally highest

formal sector in

al sector, and those



Figure 3-5: Earnings are high

Monthly earnings, wage w

77. Education is key to accessi

outside the agricultural sector

nonagricultural jobs in the first p

education (Figure 3-6). The pre

particularly strong in the formal no

Figure 3-

with particularly important di

Monthly earnings, wage workers ('000

r in large cities, and higher in nonagricultural, for

rkers Monthly earnings, nonwa


ng better jobs. Earnings increase progressively wit

and as seen above, education may be the

lace, given that a majority of the workers in a

ium to tertiary levels of education is present

n-wage sector.

6: Earnings increase with education levels,

ferences in the formal sector and the informal no

Ariary) Monthly earnings, nonwage worker


20

al activities

e workers

education levels,

key to accessing

riculture have no

everywhere, and

wage sector.

('000 Ariary)



21

78. A more formal investigation confirms the role of education in accessing higher earnings.2 The

probability of escaping agricultural low paying jobs is first and foremost decided by educational

attainments, regardless of gender, or area of residence. For women in rural areas, estimates suggest

that even primary education can open up a path into the non-agricultural sectors. The effects are

considerably stronger for higher levels of education. And the impact on education for sector of work

appears even stronger for men. Similarly, the probability of being employed in the formal sector

increases substantially with higher levels of education.

79. Returns to education are high and increase exponentially with schooling. Earnings also

increase with education levels, together with experience (see Annex 5). Returns are higher in the wage

sector than in the non-wage sector, at all levels. They also increase exponentially with a high premium

on having reached upper secondary or post secondary levels of education. Importantly, however,

returns to education have fallen since 2005, at all levels. (Table 3-4).

Table 3-4: Returns to education (basic wage equation)

Wage,

non-ag

Non wage,

non-ag

Ag

Primary education 0.232 0.116 0.084

Lower secondary

education 0.480 0.260 0.218

Upper secondary

education 0.693 0.428 0.438

Post secondary

education 1.054 0.715 0.877

Source: Stifel (2007), see Annex 5

80. Gender differences are partly, but not fully explained by differences in education or

experience, however. Median earnings for women in nonagricultural employment – whether nonwage

or wage – are 32 percent below those of men. As seen in Figure 3-7 a below, the female earnings curve(the distribution of female earnings) in the non-agricultural sector is skewed more to the left than the

male one, especially in the informal, non regulated sector. Overall, women also have less access to

higher earning sectors, such as nonwage self employment and non-agricultural wage work

(Figure 3-7: Female earnings are lower than men, and they have less access to good jobs sectors. Figure

3-7:b). These differences are partly explained by differences in levels of education and experience

between women and men, partly by differences in returns to education and experience (which would

suggest some form of discrimination or at least segmentation), and partly unexplained. Differences in

return for workers with otherwise identical characteristics hints at segmentation of the labor market, for

various possible reasons – barriers to labor mobility, e.g. due to geographical distance, or excess

demand for certain preferential jobs which then are rationed. (Differences in characteristics like

schooling can of course also be evidence of discrimination, but not in the labor market.).

2It should be noted that estimates of returns to education are very sensitive to specification issues. The estimates

reported here relate to a basic wage equation that did not include interaction terms (age, economic sector, etc.)

and should therefore be interpreted with caution.



Figure 3-7: Female earnings ar

a. Madagascar: Density Estimates of

Agricultural Wage Earnings, Men and

Formality Status

81. Returns to (higher levels

private sector workers. Segment

(artificially favorable terms in publi

grounds) that lead to non-competi

sector. Thus, while many people h

them to get a job in the preferredrationed. Although segmentation

education from secondary educat

public sector than in the formal

different incomes, because they ha

82. The gender gap in wages

also suggest that differences in ea

occupations– which may be the fi

extent explained by differences

characteristics. Access to self-emp

which permits women firms to gr

discrimination.

lower than men, and they have less access to go

aily Non-

Women by

b. Percentage rural and female work

status

Source: Hoftijzer and Paci (2008), Stifel (2007).

f) education are higher in the public wage sect

ed markets imply that some institutional constr

c sectors, very high minimum wages, discriminatio

tive wage setting in one sector and excessive dem

ave the skills and other productivity-related char

ector, there are not enough such jobs, and the jobcannot be formally established, estimates sugge

ion especially, but also postsecondary education,

private sector. Workers with similar characteristi

ve different access to certain sectors.

is highest in the informal private non agricultural

rnings between s women and men in self-employ

irst pathway out of poverty for agricultural work

in human capital, but even more so by di

loyment on different terms, including less access

w, may therefore be a potential and hitherto ov

22

d jobs sectors.

ers by occupational

r than for formal

ints are in place

on ethnic/gender

nd for jobs in this

cteristics to allow

are consequentlyst that returns to

are higher in the

cs thus earn very

sector. Estimates

d non-agricultural

rs – are to some

ferences in firm

o financial capital

rlooked source of



23

3.2. Trends 2001-2005: Growth, employment and poverty and the links

between the two

83. In tracking poverty and labor market changes in Madagascar, data for two points in time are

available: the year 2001, and 2005.3 Changes in this period are affected by two events: first, the short

but severe crisis in 2001 that primarily affected urban incomes, and second, increases in world riceprices that primarily affected rural incomes but also secondary urban areas. Given the economic crisis it

must be remembered that the changes witnessed by 2005 may reflect “extraordinary” adjustments to

that crisis as well as longer term structural changes, and the two need not work in the same direction.

84. Employment increased. The employment and poverty trends between 2001 and 2005 are not

immediately intuitive, given the sharp dip in output and then recovery. First, employment rates

increased, from 82.5 to 85.8 percent. In a poor country like Madagascar, and given the high initial rates,

this is likely to reflect an increase in subsistence employment and inflows of inactive workers into

employment as a household crisis management strategy. Unemployment rates increased but remained

very small, touching about 2.6 percent of the population. Women’s employment rates increased more

than those of men while, encouragingly, the share of children at work fell at the same time (Table 3-5).

85. Poverty rates stagnated and labor productivity fell, however. In all likelihood this stagnation in

poverty is hiding more substantial dynamics in between the years, with an increase in poverty in 2002

and 2003, and a recovery thereafter. Although no data are available, simulations suggest that poverty

may have increased from 70 to 73 percent in 2002.

Table 3-5: Higher employment, especially among women,

but stagnating poverty and labor productivity.

2001 2005

Employment-to-population ratio* 82.5 85.8

Unemployment rate 1.2 2.6

Women's Employment Rate 77.8 83.2

Child labor rate 24.3 18.8

Labor productivity (2001=100) 100.0 0.89

Poverty rate among employed 69.0 65.0

Overall poverty rate 69.7 68.7


86. Wealthier households responded to the crisis by increasing labor supply. The increase in

employment rates was due to non-poor households putting more workers on the labor market in order

to provide for their families. For poorer families, the sole factor responsible for the rise in labor income

was the increase in average hourly earnings. In contrast, the household employment rates and the hoursworked fell for the poor. For the better off households the decline in income is attributed to a fall in

hourly earnings. This appears to have been mitigated by increasing the number of household members

who work.

3Although survey data exist for 1999, data are generally inconsistent with 2001 and 2005 surveys and will

therefore not be presented here.



24

87. The primary sector accounted for the employment increase. A closer look at sectoral

developments shows that the primary sector, which through its subsistence and rural character was

shielded from the predominantly urban crisis, accounted for all of the increase in employment, with the

tertiary and secondary sector especially shedding labor (Table 3-6). As a result, there was an inflow of

workers to the least productive sector, in particular in secondary urban areas, but also in rural areas,

where the share of agricultural activities was already very high.

88. However, the poorest quintiles saw a shift out of agriculture and into tertiary sector activities.

In Madagascar, almost everybody is poor and poverty rates thus refer to income changes in the fourth

expenditure quintile of the population, i.e. the second richest quintile. In fact, the very poorest workers

shifted out of agriculture and into tertiary sector activities. As a result of these shifts, the number of

working poor fell in primary activities, but increased in tertiary activities. The manufacturing sector, in

contrast, was reduced by more than half as nearly 300,000 workers left the sector on a net basis

between 2001 and 2005. It is worth noting the increase in public works, from 0.6 to 1.4 percent of all

employment during this period.

89. Poverty rates also fell in the primary sector and increased in the tertiary sector. Poverty fell

quite significantly in primary activities – although the sector remains the by far poorest, poverty rates

fell from over 83 percent to 72 percent. At the same time, poverty rates increased significantly in thetertiary sector, most likely reflecting worsening situations in the urban areas in the aftermath of the

economic and political crisis.

Table 3-6: Output and employment, shares of total, 2001 and 2005

OutputEmployment,

total

Employment,

poorest quintile

Employed poor

(% of all workers)

2001 2005 2001 2005 2001 2005 2001 2005

Agriculture 34.0 34.3 73.9 80.1 95.1 92.0 82.7 71.5

Industry 13.4 12.7 6.8 2.5 1.7 0.7 34.2 30.6

Services 52.6 53.0 19.3 17.4 3.2 7.3 30.9 42.4

Public works 2.1 3.3 0.6 1.4 -- -- -- --

Administration 4.8 5.2 2.9 2.4 -- -- -- --

Other tertiary 45.7 44.5 15.8 13.6 -- -- -- --


90. Earnings growth was pro-poor. The increase in earnings between 2001 and 2005 was clearly

pro-poor and favoring rural areas, where most of the poor lived, and where activities went untouched

by the political crisis (Figure 3-8 a). Agricultural earnings, which account for a vast majority of household

income for the poor, increased the most (with the exception of the high earning finance, insurance and

real estate sector (Figure 3-8: Earnings developments between 2001-2005 b).

91. The earnings compression that took place was driven by an increase in non-wage agricultural

earnings (Figure 3-8 c) and by a small shift out of agriculture and into non-agricultural sectors.

Importantly, even if earnings in those sectors fell as the chart below suggests, they still offered higher

earnings than the agricultural sector. It is not clear what accounts for the increase in agricultural

earnings (especially since overall labor productivity fell at the same time) but it is assumed to have been

drive to a large extent by an increase in the price and production of rice combined with a sharp

depreciation of the currency. As seen below, the non-poor shifted into rice, grains and tubers



(basic staples) to a more significa

(Figure 3-8 d).

Figure 3-8:

a. Earnings growth, by location a

Median earnings, 2001 and 2005

Source: Panel a and b: estim

92. Employment developmen

(Figure 3-9). For example, adult

increased for the non-poor, and e

rural areas (although, as seen a

Moreover, urban unemployment r

employment rates did not fall for

poorest quintiles (not shown here)

nt extent than the poor, who already depended

Earnings developments between 2001-2005

nd quintile b. Earnings growth, by sector.

Change (in percentage points) in agricuproducing crops between 20

ates based on household surveys, panel c and d: Bellamare and

s point to the impact of the crisis on the urban

mployment rates, unemployment rates, and chi

ployment rates increased more significantly in u

ove, this increase reflected an increase in agri

ates increased significantly, especially in large citie

the poor, child labor rates were significantly red

child labor rates in fact fell by one third.

25

on these staples

ltural households1-2005

Stifel (2008)

and the non poor

ld labor rates, all

ban areas than in

ultural activities).

s. And while adult

ced. For the two



Figure 3-9: Employment-to-pop

Employment to population rates, 2001

93. Poverty rates fell for the s

informal wage workers in all urba

rural and secondary urban areas

urban centers. In rural and second

the informal non-agricultural secto

45 degree line). This is an importa

the employed in Madagascar. Pov

the informally self-employed in lar

lation rates as well as unemployment rates increa

poor.

-2005 Open unemployment rates, 2001


elf-employed in rural and secondary urban areas,

areas, and for informal firms in the largest cities

re remarkably similar, pointing to the rural natur

ary urban areas, the self-employed in the agricult

rs, experienced poverty reductions (shown below a

t result, given that these workers together accoun

rty increased, however, for informal workers in ur

est cities (Figure 3-10).

26

sed for the non-

-20005

but increased for

. Developments in

of these smaller

ral sectors and in

s points below the

t for 82 percent of

ban areas, and for



Figure 3-10: Poverty

Ag wage=agricultural wage workers.

form – Wage workers in the non-agric

Informal non-farm enterprise. N

94. The share of relatively b

poorest workers in informal nonf considering the spectrum of earni

became higher for workers in the

earnings, on the whole, than ag

improvements for the poorest. In

below the poverty line) increased

likely to have shifted out of subsi

contrast, the richer quintiles are l

productivity agriculture, offered by

changes – reductions for the largest groups of wor

onag Wage Inf = Wage workers in the non-agricultural, inform

ultural, formal sector. Ag nonwage = Agricultural self-employe

FE form =Formal non-farm enterprise. Source: Estimates base

tter off workers in agriculture increased while

arm sectors increased. Figure 3-11 below showsgs and expenditures below the poverty line. As s

informal non-farm sector. Since non-agricultural s

riculture, the shift out of agriculture is consist

contrast, the relatively better off households (

gricultural income shares. Thus, a small share of t

stence, low productivity agriculture and into non

ikely to have shifted into both subsistence farmi

e.g. increasing rice prices.

27

kers.

al sector. Nonag wage

/enterprise. NFE inf =

on Stifel (2007)

the share of the

the importance of en, poverty rates

ctors offer better

nt with earnings

any of them still

he very poorest is

farm activities. In

g and more high



Figur

by major so

95. Poor households’ income

a decomposition of the forces of

(largely positive) were due to hig

contrast, they could reduce the n

earnings increased and more wor

hampered by lower access to job

rural and urban non-poor, in contr

came from increasing labor supply

e 3-11: Changes in the share of income

urce and by expenditure quintile, 2001-2005.

Source: Estimates based on Stifel (2007)

increased largely because of higher compensatio

change in household labor income shows that

er hourly earnings and to a smaller extent high

umber of hours worked (Figure 3-12). For the u

kers were put on the labor market, but overall

arkets (shorter working weeks and higher unemp

st, hourly earnings fell and they worked less; the

of the households.

28

per hour. Finally,

or the rural poor

r participation. In

rban poor, hourly

labor income was

loyment). For the

nly positive factor



29

Figure 3-12: Hourly earnings increased for the poor, and fell for the non-poor.

Sources of change in weekly household per capita labor income in rural

and urban areas for the poor (top), and the non-poor (bottom)

(2001-2005, percent)


96. Earnings inequality increased in the agricultural sector, but fell in the non-agricultural sectorsand occupations. As a result of these shifts between and within sectors, income distribution was

compressed in the non-agricultural sector, but widened in the agricultural sector. For example, the Gini

coefficient increased by 74 and 44 percent among the agricultural self-employed and family workers,

but fell by 16 and 25 percent among the non-agricultural corresponding groups (Table 3-7).

-250 -150 -50 50 150 250

Participation

Unemployment

Weekly hours

Hourly earnings

Rural Urban

-250 -150 -50 50 150 250

Participation

Unemployment

Weekly hours

Hourly earnings

Rural Urban



30

Table 3-7: Inequality fell in the non-agricultural sectors but increased in agriculture.

Gini coefficient Theil index

2001 2005 change 2001 2005 change

Total 67 69 2 123 225 101

By sector

Agriculture & fishing 50 72 22 48 280 232

Manufacturing 51 40 -12 57 30 -27

Electricity and

utilities63 35 -28 104 22 -81

Construction 52 33 -18 51 18 -33

Commerce 69 54 -16 122 61 -61

Transportation &

communication68 39 -29 180 30 -150

Financial etc. 43 36 -7 33 24 -9

Public administration 37 44 6 29 49 20

Other services 53 49 -5 58 42 -16

By occupation

Agriculture

Wage workers 60 36 -24 72 27 -45Self-employed work 52 90 38 48 367 319

Unpaid family 46 66 20 38 229 191

Non-Agriculture

Wage workers 48 43 -5 50 40 -10

Self-employed work 68 57 -11 104 72 -32

Unpaid family 77 58 -19 183 67 -116

Source: Estimates based on household data from 2001 and 2005



31

4. Job creation and income protection

97. Madagascar’s labor market bears all the marks of a low income country: extremely high

dependence on agriculture and informal non-agricultural activities, especially for the poor. Focusing onlyon formal job creation is therefore insufficient – the formal sector cannot absorb all of the informal and

agricultural workers, and even if it could, many of the poor workers may not possess the skills necessary

to work in more formal occupations. Thus, an inclusive approach to employment creation must also

consider how to help increase worker productivity and earnings in the informal and agricultural sectors,

and how to improve mobility from lower to higher earnings jobs, from agricultural to informal non-

agricultural, within the informal non-agricultural sector, and into the formal sector.

4.1. Labor demand in the formal sector and the business environment

98. The formal economy is very small. Even with a generous definition, the formal economy inMadagascar accounts for only 43 percent of all non-agricultural employment, and only in larger cities is

there a sizeable formal private sector. Informality is associated with lower productivity, smaller

turnover, and lack of investment as well as an incentive to remain small. Hence, ensuring that of

regulations, including labor regulations, are suitable and not overly restrictive and thereby encouraging

informality, will be an important policy area for consideration.

99. Madagascar’s investment climate is generally comparable with other African and low income

countries, but is significantly worse in some areas, notably labor regulations. According to the World

Bank’s Doing Business Indicators, Madagascar’s overall investment climate ranks just above the average

for Sub-Saharan Africa and for low income countries (African and non-African). The most striking

example is that Madagascar ranks among the world’s easiest countries for starting a business (number

12, in fact) but the worst of all 183 countries in closing a business. But it does appear that it is morecostly and complicated to employ workers in Madagascar than in comparable countries (Table 4-1).

Table 4-1: Doing Business Rankings, by topic

Economy

SSA

Average

Low income

Average Madagascar

TOTAL Ease of Doing Business Rank 139 141 134

Starting a Business 126 118 12

Dealing with Construction Permits 117 124 108

Employing Workers 119 114 152

Registering Property 123 118 152

Getting Credit 120 123 167

Protecting Investors 113 115 57

Paying Taxes 112 120 74

Trading Across Borders 137 141 111

Enforcing Contracts 117 113 155

Closing a Business 127 135 183

Source: World Bank Doing Business Indicators, 2010



32

100. Labor market regulations appear not to be a binding constraint for more than the formal

sector. The policies that might increase higher earning jobs in Madagascar span much beyond labor

market policies and include policies to maintain macroeconomic balances and encourage private

investment, regulatory policies for other markets (finance, products), and policies for skills formation. In

fact, firms in Madagascar identify labor regulations among the less important concerns in conducting

business (Figure 4-1). Nonetheless, labor regulations may affect certain types of firms disproportionately

and in fact encourage informality under some circumstances. Small firms complain as much as larger

firms about labor regulations but are, unlike larger firms, able to operate informally.

Figure 4-1: Labor regulations are not considered a major obstacle compared to other issues in

Madagascar’s Investment Climate Assessment.

Source: Gaelle (2008)

101. Madagascar has strict hiring regulations and comparatively high minimum wages.

Madagascar’s labor market regulations are intended to raise the quality of jobs. Under certain

circumstances, however, too stringent regulations may lead to a reduction in such jobs because firms

choose to operate in the informal sector altogether, employ more capital intensive techniques to avoid

labor costs, or are constrained from growth (value added and employment) altogether. Madagascar’s

employment regulations score a relatively high 63 out of 100 in the Doing business indicators

(Figure 4-2). The most important areas are the difficulty of hiring people, both relating to the ban on

temporary contracts for permanent jobs, and a relatively high minimum wage relative to value added

per worker and median earnings. In contrast, firing regulations are quite flexible, and non-wage benefitsare within international standards.

102. Complex and numerous exemptions may increase transactions costs for firms. Madagascar’s

regulatory framework contains many sector/case by case exceptions. This results in complications in

applying the law, as well as a lack of transparency. Tax exemptions favor only formal firms and do not

affect the large portion of informal firms whose lack of resources (human and other) may pose

significant obstacles to their development.

Proportion of firms reporting obstacle as major/very severe

0% 10% 20% 30% 40% 50% 60% 70% 80%

Business licensing

Labor reg

Transportation

Telecommunications

Access to land

Skills and educ

Customs reg

Legal system

Crime theft disorder

Electricity

Eco_reg policy uncertainty

Tax admin

Tax rates

Anti_competitive informal practice

Corruption

Access to financing

Macro instability

Cost of financing



33

Figure 4-2: Doing Business in Madagascar (greater numbers indicate less flexibility)

Source: Pierre (2008)

103. The above regulations may influence the size of the informal sector (as firms opt out of

formality) but will by the same token not affect the functioning of informal sector work – where the

vast majority of Madagascar’s work force is employed. Issues that affect labor demand in informal non-

farm enterprises, although they offer lower earnings, may therefore also need a lot of attention. Given

the link between education and earnings as well as possible skills shortages, skills development in the

informal sector is one such area to look at. Hence, while labor regulations are possibly constraining

formal activity, other policy areas – including general framework for doing business - are likely to be

more important obstacles to private sector led growth and job creation in Madagascar.

4.2. Quality of jobs in the informal sector

104. Poverty reduction cannot rely on formal job creation only: the poor may not be able to access

those jobs. A good, high earning job with adequate social protection in Madagascar is found in the

waged and formal sector. Removing the constraints to job creation in the formal sector is therefore

necessarily a priority. However, the poor may have little chance of accessing such jobs in the short and

medium term, for two reasons. High earning jobs tend to be concentrated in the urban areas, andperhaps even more importantly, require certain levels of education (whether as a rationing/sorting

mechanism, signaling device or essential for the job requirements). Madagascar’s poor live

predominantly in rural areas and have little or no schooling.

105. Moreover, the formal waged jobs sector is too small to be able to expand sufficiently to

absorb all of the poor workers. The waged nonagricultural sector, even including informal employment,

encompassed only 12 percent of all employment in Madagascar in 2005, while almost eighty percent,

0

10

20

30

40

50

60

70

80

difficulty of hiring index rigidity of hours index difficulty of firing index rigidity of employment

index

nonwage labor cost of

salary

firing costs weeks of

wages

Sub-Saharan Africa Madagascar Francophone Africa



34

over six million people, of the employed population were unpaid household enterprise (family) workers

in the agricultural sector. Even ignoring working age population growth, creating six million new jobs in

the waged sector would imply a six-fold expansion. Such shifts are not realistic even over the medium

term, and would require unrealistic growth levels in the formal sectors.

106. Efforts must therefore also center on increasing earnings in the low earnings jobs sectors.

While removing constraints to formal job creation are important, there must consequently also be abroader development agenda for increasing productivity and earnings opportunities across low earning

sectors and reduce household income vulnerability. Moreover, as the 2001 crisis showed, low earnings

sectors can act as important safety nets when formal activity is hit by serious shocks. The following

sections explore three areas: agricultural productivity and earnings, the informal non farm sector, and

government public works programs to provide income security.

Increasing productivity in agriculture

107. A majority of the poor are in fact likely to remain in the agricultural sector for the foreseeable

future. As mentioned earlier, the agricultural sector accounts for four fifths of all employment in 2005.

In fact, these numbers represented an increase in both relative and absolute terms: between 2001 and

2005, agriculture share in total employment increased from 73 to 80 percent, equivalent to an increase

by over one million workers in agriculture. This large inflow of workers was not accompanied by high

income growth, however, and as a result, labor productivity fell in the sector.

108. The agricultural sector also appears to effectively have acted as a safety net during the 2001

crisis. As discussed above, the political crisis had severe effects on economic activity in urban areas, but

left agricultural output virtually unscathed. As a result, the agricultural share of income in non-poor

families – those in the fourth and fifth expenditure quintile – increased by 14 and 24 percent

respectively.

109. The agricultural sector is still a volatile sector, characterized by rudimentary production systems,

little investment, and dominated by subsistence farming. Although the agricultural sector may providesome cushion for food security during non-agricultural shocks, it remains vulnerable to climatic

conditions and the duration of the soudure. In spite of some important agricultural exports of cash crops

(vanilla being the primary example) agricultural production is characterized by very low levels of

commercial farming. Farming is focused on subsistence – and the margins for falling below subsistence

minimum are small. Overall caloric consumption, malnutrition and child mortality has been shown to

vary systematically with the dry season (Dostie et al, 2000).

110. The poor and the non-poor produce similar crops. As shown in Table 4-2: below, the

differences in crops structure between poor and non-poor households is almost insignificant. In

response to the crisis, predominantly non-poor workers shifted into agriculture, most likely partly to

ensure food consumption, and partly in response to higher rice prices.4 The differences in crops

structure between poor and non-poor households is quite small and has if anything converged between2001 and 2005, especially for more basic food staples such as grains and tubers. This seems consistent

with the suggestion that agriculture played a role to guarantee food security for the non-poor

households, keeping them above the poverty line.

4The overall impact of price changes in agriculture is complex, as it will affect net buyers, net sellers, and workers

differently.



35

111. Poverty is related to lack of opportunities outside subsistence farming. However, although

crops structures have become more similar, non-poor households are more likely to sell their products

on the market. Indeed, while the percent of poor farmers selling products fell, that of non-poor farmers

selling rice and tubers rose between 2001 and 2005, from 49.7 percent to 54.4 percent for rice, and 54.7

percent to 61.7 percent.

Table 4-2: Convergence in crops structure

* Percent of working age adults (15-64) employed in agriculture whose household produces each crop.

Rice Grains Tubers Beans Legumes Fruit

Cash

crops*

National

2005 85.9 36.0 75.3 44.1 26.5 18.4 21.1

2001 83.5 28.6 63.8 22.9 7.6 10.8 24.4

%-point change 2.4 7.4 11.5 21.2 18.9 7.6 -3.2

Non-Poor

2005 88.3 37.6 72.1 46.3 28.8 17.0 17.8

2001 83.5 23.7 55.0 25.3 12.3 11.6 20.3

%-point change 4.8 13.9 17.1 21.0 16.5 5.5 -2.6Poor

2005 84.9 35.3 76.6 43.2 25.5 19.0 22.5

2001 83.5 29.6 65.7 22.4 6.6 10.7 25.2

%-point change 1.4 5.7 11.0 20.8 18.9 8.4 -2.7

Urban

2005 79.9 34.8 73.3 39.5 25.4 13.1 17.7

2001 77.5 23.1 47.2 24.7 7.8 7.1 13.0

%-point change 2.4 11.7 26.0 14.8 17.7 6.0 4.8

Rural

2005 86.7 36.1 75.6 44.7 26.6 19.1 21.6

2001 84.1 29.2 65.5 22.7 7.5 11.2 25.6

%-point change 2.5 7.0 10.1 22.0 19.0 7.9 -4.0

* "Cash crops" include vanilla, coffee, cloves, etc.. Source: Stifel et al. (2007).

112. Contract farming is correlated with higher and less vulnerable incomes. The opportunities for

higher yielding agriculture - converting households to net sellers on the market - are thus essential to

the rural population. Indeed, a study of contract farming (CF), which refers to the case when a larger

producer contracts out cultivation to small scale producers, shows systematic differences between

households with access to such contracts and others (Figure 4-3). CF households were richer, had more

assets, and experienced fewer liquidity constraints, and also experienced shorter period of soudure.

Although causality is difficult to establish, one reason for this link may be the higher and less variable

productivity of CF farms compared to others, which in turn can be linked to resources, and to the fact

that they can tap into the technology and know-how of larger firms.



36

Figure 4-3: Density functions: Per capita income and period of drought season (“soudure”) for CF and

non CF households.

Source: Bellamare and Stifel (2008)

113. While the 2001 crisis provides something of a special case, inflows of workers into agricultureis normally not likely to be connected with poverty reduction. Instead, such inflows generally reflect

lack of opportunities elsewhere, and is consequently related with lower labor productivity, increased

underemployment and unpaid work. Given the prevailing low labor productivity in agriculture, poverty

reduction policies are best aimed at increasing productivity, or yield per workers, rather than

employment per se, in the agricultural sector.

114. Adoption of better technology increases yields and raises demand for unskilled agricultural

labor and improved agricultural technologies and, consequently, higher crop yields, are associated with

lower food prices, higher real wages for unskilled workers, and better welfare indicators overall,

including lower poverty and food insecurity (Bartett and Minten, 2008).

Promoting off farm activities

115. Agricultural productivity can also have positive spill-over effects for the non-farm sector in

rural areas. Higher agricultural productivity can release labor for work in non-farm sectors, create the

income and local demand for non-farm activities, and potentially the resources (both time and money)

needed for investment in non-farm activities. More productive and commercial products can also create

the linkages to non-farm activities including agro-processing and other services needed for

commercialization and/or transformation of agricultural products.

116. The non farm sector is often associated with lower poverty and better risk management in

rural areas in developing countries (Box 4-1:). Thus, the second avenue for improving earnings, is to

encourage shifts of labor from agriculture to off farm activities. Again, because of the very limited size of the formal sector, it is unlikely that these will be formal jobs. Indeed, the vast majority of jobs are likely

to remain in the informal sector. However, they still offer better earnings opportunities and crucially,

better risk management.



37

Box 4-1: Rural non farm activities in developing countries

- Are associated with lower poverty and income risk: There is an empirical regular abd positive relationship

between nonfarm activity on the one hand and higher welfare and lower poverty in developing countries. In the

absence of well functioning asset markets, non farm activities fill an important income diversification purpose for

households subject to high climatic and/or price variability.

- Are linked to better earnings: Outside of agriculture, the nonfarm sector is often seen as an important pathwayout of poverty (Lanjouw, 2001). Indeed, although agriculture is dominant, nearly 20 percent of active adults in

rural areas are employed in some form of nonfarm activities in Madagascar. The nonfarm sector may in fact

provide an important pathway out of poverty for rural households: nonfarm workers in rural areas are less likely to

be poor, and have higher earnings than agricultural activities. Households that have been able to diversify income

sources and therefore rely on some nonfarm employment are generally better off than those that rely on

agriculture only.

- Are often linked to higher agricultural productivity: The more dynamic and successful processes of rural

industrialization (parts of China, Vietnam, Taiwan) have been linked to increases in agricultural productivity which

has increased rural income for investment and for consumption of non-farm goods.

- Have a dual character: However, they are also often of a dual character, incorporating both high productivity

activities and low productivity (residual) activities which act largely as a safety net, often for the poorest, during

seasonal agricultural inactivity. The dynamics of employment in these sectors in response to agricultural

productivity growth may not be the same and they also interact with one another. Higher agricultural productivity

may, for example, result in inflows of workers from residual low productivity non farm activities into agriculture as

well as into higher productivity non farm activities, tightening rural labor markets overall

- Are the focus of economic policy in many countries and an evaluation of best practices is needed: The past

decades have seen a strong recognition of the important role of the non farm economy and with it a multiplication

of initiatives to support it. A review of such initiatives is sorely needed. However, it is clear that the earnings

potential in non farm enterprises would be helped by access to better economic infrastructure, skills development,

information and financial services.

Source: Barrett et al (2001), Feder and Lanjouw (2001), Johansson and Ronnas (1993), Lanjouw and Lanjouw

(2001), van Adams (2008), Fox and Sekkel Gaal (2008)

117. The non-farm enterprise sector in rural Madagascar is still limited in size and consists of very

small enterprises. While the non-farm sector provides an avenue to very dynamic income generation

patters in rural areas, this is clearly not yet the case in Madagascar. Only 30 percent of household are in

anyway involved in non-agricultural activities in rural Madagascar. Average earnings are small, firms

largely operate informally, and some of them are seasonal. They are dominated by agribusiness and

trade, and four in five workers come from the family and are thus not paid an explicit wage. Four in five

firms are headed by a man, with women headed enterprises being smaller, more likely to be informal,

etc. Owners are largely uneducated – but less so than the average rural worker.

118. Yet, the non-farm sector offers better earnings potential than the agricultural sector. Even at

its very rudimentary level, the non farm sector does offer better jobs than the farm sector does. This is

clear from the strategies pursued by households. Among better off households livelihood strategies are

much more likely to depend on non-farm income, entirely or in combination with farm work. Only two

percent of the poorest 20 percent depend exclusively on non-farm activities compared to 13 for the

richest quintile. For the same reason, poverty rates are considerably lower for those who have some

opportunity for non-farm activities (Figure 4-4).



38

Figure 4-4: Non-farm opportunities are negatively associated with poverty

Percentage of households by livelihood strategy and consumption quintile

(Rural areas, 2005)

Poverty headcount index rates and poverty depth, by household livelihood strategies

(Rural areas, 2005)

Source: Adapted from Stifel et al., 2007

119. This negative association between NFEs and poverty is due to the higher earnings they offer.

Estimates suggest that even for unskilled self-employed, the earnings per months in the non-farm

enterprises are almost three times as high as in farming (Table 4-3).

120. There are important effects of education on job creation. More educated owners are more

likely to run larger firms than uneducated ones, and to invest in equipment. As a result, they are also

much more likely to employ hired labor from outside the family. And importantly, revenues paid to

hired labor increase many-fold with education levels of the owner (percentage wise more rapidly than

0

10

20

30

40

50

60

70

80

90

100

Poorest Q2 Q3 Q4 Richest

Non-laborincome

Non-farm only

Family farm &non-farm

Family farm only

Any farm wage

0

10

20

30

40

50

60

70

80

90

Any farm wage Family farm only Family farm & non-farm Non-farm only

Headcount index

Depth



39

those of the owner, in fact). The firms of especially well-educated owners are therefore likely to offer

jobs with higher (if not high) earnings that Madagascar’s rural poor could benefit from.

Table 4-3: “Better” job creation in the non farm sector (rural Madagascar, 2001)

None Primary SecondaryPost-

secondaryNonfarm enterprises

% owners by education level 61 19 14 7

Earnings per month labor (MGFx1000) 200 675 943 734

Family labor months per year 13 15 12 13

Hired labor months per year 3 3 8 7

Av wage paid for hired labor (MGFx1000) 23 63 181 332

Farming

% owners by education level 79 15 5 2

Crop revenue per month labor (MGFx1000) 68 72 56 29

Family labor months per year 29 26 25 32

Hired labor months per year 4 4 9 9

Source: Randrianarisoa et al., 2009.

121. Improved access to public goods – education, security, communications – and credit is likely to

stimulate job creation in rural areas. Estimates suggest that labor demand in NFEs is increasing with the

education levels of the owner, and with the value of equipment owned by the enterprise. Capital – both

physical and human – thus appears to be complementary to labor, and stimulating capital investment by

smaller firms may unlock more job creation. But in the specific case of Madagascar, public goods can

also play a role: physical security, lower transportation costs and greater access to broadcast media is

also associated with higher labor demand.

122. The low skill levels of the population acts as a constraint to both individual earnings growth

and country wide productivity improvements. Although access to basic education has expanded, the

post primary levels remain largely unreformed and the follow-through to higher levels of education

limited (World Bank, 2009). While no information is available on skills development for those who leave

school (and most likely end up in the informal sector), evidence from elsewhere shows that different

approaches, focusing both on raising quality at formal secondary and post secondary levels, and

assisting in skills development on the job, in the informal sector, can pay off in terms of higher

productivity.

4.3. Policies to improve productivity and income for the poor

Education and skills5

123. Improving Madagascar’s low levels of education will be critical on two accounts: for improving

productivity, international competitiveness and economic growth, as well as broadening access to

higher income opportunities for the vulnerable parts of the population. The challenges are huge. The

5This section draws heavily on World Bank (2008).



40

primary completion rate increased rapidly from below 35 percent in 2002-3, but in 2006-7, it was still

under 60 percent. About half the children who enroll in grade 1 leave without completing the primary

cycle. The gross enrollment ratio in senior secondary education (SSE) is just 10 percent, and enrolment

in TVET and in tertiary education less than 3 percent - among the lowest performing countries in the

world. Wastage is high with high drop-outs at all levels – even in TVET and university, about one third

and 40 percent of the students respectively leave their studies in the first year. Overall, education levels

have fallen among the younger cohorts over time, pointing to the pervasive problems in the education

system over time. Meanwhile, public resources are limited, especially at the post-primary level and

government as well as donor funding are focused on ensuring universal primary completion. Analysis

suggests that poor governance as well as financial inefficiency lie at the core of the problem.

124. Both enrolment and completion is marked by strong regional disparities and the poor fare

much worse than the non-poor. In many districts, primary enrolment rates do not reach beyond 30

percent. Household data show that only 9 percent of children from the lowest income quintile reached

lower secondary education, and only 1 percent reached senior secondary education in 2005.

125. The result is a major share of children out of school and young adolescents with low levels of

education. Household data show that in 2005 about 850,000 youth aged 11 to 18 years had dropped

out of school after receiving some education and another 500,000 had never been to school.

126. These children and youth need a targeted and differentiated approach with alternative,

flexible and age-appropriate learning opportunities, depending on their needs. For those children

without any education, literacy programs may be necessary. Those who have not completed primary

education could be targeted for completion; for the older groups, youth could be offered a combination

of training for labor market skills and primary completion courses.

Figure 4-5: Over 1.3 million children out of school.

Source: World Bank (2008)

127. A broadening of skills to develop non-cognitive and generic skills is needed to support

Madagascar’s growth and labor market outcomes. There are three areas in which reform is required: (i)

educational content (structure, curriculum, teaching, and process) and linkages with the economy; (ii)

0

100000

200000

300000

400000

500000

600000

700000

800000

11-15 years 16-18 year olds

Primary complet ion Incomplete primary

Never in school



41

cost-effective increases in coverage; and (iii) the enabling framework for reform (finance, governance,

and sub-sector management). With respect to labor market and productivity, a stronger focus on

transversal skills will be needed. Madagascar’s existing system is highly academic, in the case of SSE and

higher education, or narrowly specialized and trade/occupation oriented, in the case of TVET. In order to

link education with labor markets, productivity and income opportunities, a focus on skills for the labor

market – many of them non-cognitive, non-technical, and transversal across jobs – need to be

developed in the education system. This includes for example the development of communication and

teamwork skills, of resourcefulness, of IT literacy, of problem solving and personal drive and

responsibility, and capacity for future learning in different contexts.

128. Experience elsewhere suggests that careful expansion of post-basic education, focusing on

improving quality and relevance, is the soundest approach for improving “real learning”. Thus, a

majority of youth will still have to develop their life and working skills ‘on-the-job’, most likely in the

informal sector. In countries with large informal sectors, apprenticeships can be a major form of skills

provision in the informal sector. In order to assist both employers and employees in upgrading skills,

initiatives can and should be targeted also to this sector (Box 4-2).

Strengthening Public Work Programs for income protection

129. High labor intensive public work programs (PW) have become increasingly frequent in

Madagascar in recent years. As an example, in 2005 and 2006 alone, the total number of person-work

days created by four agencies implementing PW programs amounted to 1.1 million. There is a need to

consider alternative sources of income during the soudure, which lasts around 3-4 months and as long

as seven months in some poorer areas. There is also a need to reduce the vulnerability of those

households which cannot resort to farming when hit by an income shock. This group includes the

landless in rural areas and the poor in larger and denser urban centers where farm land is not available.

130. Generally, PW programs are implemented either in response to a one time co-variate shock

such as during economic crisis, or in respect to repeat shocks which hit specific groups disproportionally

such as flooding in specific areas, or seasonal unemployment in agriculture. These programs provide

temporary jobs for works with essentially two objectives (i) increasing income for workers and their

families and/or help smooth their consumption through difficult times (ii) creation of public goods in the

form of improved or new infrastructure. As safety nets, these programs differ from generic labor

Box 4-2: Apprenticeships and skills development in Ghana

The mere size of the apprenticeship system shows that it needs to be taken seriously – it is the by far dominant

source of technical and professional skills development in Ghana. In the beginning of the decade, the number

of apprentices (as recorded by household data) was four times as high as the number of enrolled students in

formal professional and technical training. It is also self-financed and self-regulated, and provide good

prospects for post training employment as well as earnings. The practical and hands-on approach is a great

asset in contexts where formal education tends to be overly focused on theory. But the potential of informal

sector training to scale up and modernize is limited by (i) limited access to new technology (ii) the poor levels of

education of the apprentices (iii) the lack of quality standards. The reforms should reach out to the informal

sector to increase access to technology, assist in upgrading master craftsmen skills and pedagogy, and in the



42

intensive low skill focused infrastructure programs which do not target specific groups (del Ninno et al.,

2009).

131. Experience shows that well designed and implemented PW programs can mitigate household

income shocks and help relieve poverty. As safety nets, they can reach the poor families quickly

through the self-selection mechanism (only those in need will enter) and may reduce the stigma of plain

income transfers. As infrastructure projects they are also significantly cheaper than more capitalintensive projects, create more jobs, use more local materials and require less foreign exchange. Indeed,

a unit of road built with labor intensive methods in Madagascar costs one fifth of that of a capital

intensive project, used more than twice as much labor, only two thirds of foreign exchange and twice as

much local material.

132. PW programs could be powerful and effective policy tool to reduce vulnerability and provide

public goods or services; however, a new approach is needed to establish program objectives and

increase their efficiency. Given that many Malagasy households are poor or vulnerable to poverty and

subject to a range of shocks and that infrastructure remains underdeveloped, PW programs can be an

important public instrument. An evaluation of fifteen programs implemented during 2005-2007 by three

different agencies suggested that the performance of PW programs in Madagascar remains below

potential, however (Andrianjaka and Milazzo, 2008). In order to improve the outcomes of the PWprograms Madagascar could fruitfully draw on the experiences of other countries to ensure that the PW

programs fulfill their role as cost effective safety nets for the poor (Error! Reference source not found.).

More specifically the evaluation in Madgascar shows that:

133. PW programs need to be harmonized across different funding and implementing agencies. PW133. PW programs need to be harmonized across different funding and implementing agencies. PW

programs have been implemented by several agencies, with different objectives and approaches. This

implies that both social protection policy and to some extent infrastructure policy is uncoordinated and

dispersed, and design, monitoring and evaluation is not harmonized.

134. The programs need to be better targeted to the poor. As shown in Figure 4-6 a below, poor

households that face an income shock tend to work more. Living on subsistence minimum, they are

unable to moderate their consumption much and are certainly less likely to do so than richer

households. Instead, they need to find more income to pay for the most basic needs. However, the

share of poor households which have access to PW programs is smaller than for richer households: in

fact, the richest twenty percent of households have the highest probability of all of participating in the

PW programs. Demand for jobs in the PW programs clearly exceeds the supply, non-poor households

compete with poor households for jobs, and may be more successful in accessing one.

135. Wages need to be set low enough for the self-selection mechanism to work, and geographical

targeting could be improved with more detailed poverty mapping. As safety nets, PW have the

advantage that each poor household does not need to be identified ex ante, as the work should offer

sufficiently attractive opportunities for them to choose to participate in the program. This mechanism

requires that wages are not set above market wages however, as higher wages will attract also non-poor

workers, and/or workers who hold a less paid job, thus crowding out other forms of employment rather

than contributing to net job creation for the poor. As Figure 4-6 b shows, the PW programs in

Madagascar have generally set the unskilled wage higher than the market wage. Thus, excess demand

for PW employment has been created, and jobs have consequently been rationed and rotated in order

to accommodate the excess demand. In turn, this rationing and rotation has meant that the duration of

the work is too short to meaningfully reduce poverty or compensate for income shocks. In addition,

projects have not always been directed at the poorest regions. The geographical targeting could be

improved by a more detailed poverty mapping which would present clear risk profiles.



43

136. Design and implementation should ensure that the output of the PW project (infrastructure as

a public good, environmental impact) is of sufficient quality. The evaluation suggests that the output of

the project was below par in many instances, due to lack of capacity of implementing agencies or lack of

planning. Well functioning infrastructure is an important factor for increased economic activity and

higher value added growth, and can potentially have important trickle-down effects on poverty. To the

extent that the projects do not fulfill their secondary objective, any positive second-round effects of

PWs cannot be expected. Without the production of a useful public good, PW programs are a

comparatively expensive mechanism for transferring public funds to the poor.

Figure 4-6: Poor targeting of PW programs

a. Percentage of households who resorted to specific

strategy to deal with an income shock

b. PW wages as percentage of market wages

Source: Adapted from Andrianjaka and Milazzo, 2008

137. Projects need to be closely monitored and a standardized system of evaluation put in place.

Data are often not been available on financing, output, number of jobs etc. for many projects; many do

not have a clear quantitative outcome which can be monitored, and information is not centralized.

There is a need for survey forms to know the socio-economic profile of workers who are participating;

for data related to project management (input, output, costs), and for linking with the general statistical

system. Criteria for choosing implementing agencies do not appear to exist, but would be necessary to

improve the outcomes.

0

5

10

15

20

25

30

35

40

45

50

Poorest Q2 Q3 Q4 Richest

Worked more Reduced food cons PW

1 0 0 %

1 4 6 %

1 0 3 %

8 3 %

8 3 %

1 7 4 %

4 8 7 %

7 2 %

1 7 6 %

7 9 %

7 9 %

7 1 %

7 2 %

2 9 1 %

0%

100%

200%

300%

400%

500%

600%

Unskilled Skilled



44

138.

Box 4-3: Public Works Programs – Elements Required for Reaching the Poor

Self-targeting by setting the wage rate at an appropriate level. It is crucial to ensure the program wage is setin relation to the project goals. In a context where poverty targeting appears particularly challenging, and

where financial and administrative capacities remain limited, relying on self-targeting is attractive. However,

this will only be possible if the market wage is above the minimum wage. Indeed, the publicly funded program

wage cannot be lower than the minimum wage and would hence be higher than the local wage for unskilled

labor, thus likely to attract the non-poor to the public works program. So if the minimum wage is equal or

above the market wage and restrictive employment laws prevent setting the wage below the minimum level,

the possibility of using self-targeting is hindered and other targeting mechanisms need to be introduced. The

use of pure self-selection might also be insufficient in reaching vulnerable groups in poor areas or when

demand for participation is very large and some form of employment rationing is needed. The fact that youth

are particularly vulnerable to unemployment may also suggest adopting targeting methods to reach these

categories specifically. In addition, setting the program wage too low also presents the risk of excluding poor

households that have higher opportunity costs of labor – if the program wage is below the reservation wage or

the risk of missing program objectives (e.g., nutrition objective if the program wage is far below the cost of the

minimum basket).

Provision of quality public goods is crucial. Based on international experience, public works should only be

promoted as a social safety net instrument if the public goods generated have a positive impact on the

community and are built at a cost similar to that charged using hired contracting procedures. It should not be

introduced as strategies to provide social transfers to “deserving” poor. Public works projects may include

traditional infrastructures or public environmental improvement projects (e.g., sanitation projects to roll back

malaria, natural disaster risk reduction projects), but also social activities (e.g., South Africa’s home-based care

workers and early childhood development workers) or economic activities (e.g., small businesses and

cooperatives). The public goods produced if relevant, well executed, and maintained, could have an important

role in alleviating constraints to higher returns for poor people, regardless of their participation in the program.

Since 2004, the WFP has promoted synergies between food-for-work programs and school feeding and

nutrition programs (e.g., building classrooms, storage rooms, latrines, etc.). Community projects benefiting

women are also given priority by the World Food Program.

To address chronic poverty, public works programs should run throughout the year with varying degrees of

intensity. A program run during agricultural slack seasons only, when the opportunity cost of labor is low,

would provide “consumption-smoothing” for poor households but no assurance of finding a job whenever it is

needed. A program operating throughout the year with varying degrees of intensity will provide both

“insurance” and “consumption-smoothing” for poor households. In countries with widespread levels of

unemployment and underemployment, standard short-term public works programs proved unable to lift the

chronic poor out of poverty. Brazil, Argentina, India, and Bangladesh represent some good practice examples

where the program served the functions of assurance, consumption-smoothing and poverty reduction. To

ensure additional coverage, the number of days worked can be rationed and a rotation system applied. For

instance, India provides a legal guarantee of 100 days of employment a year to any rural household willing to

do public work for a statutory minimum wage, and Ethiopia assists over 7 million chronically food-insecure

people – about 10 percent of the population – through its Productive Safety Net program’s employment

schemes and food or cash transfers. This being said, high labor intensive public works projects can also be

effectively used in the aftermath of natural disasters for the rehabilitation and reconstruction of damaged or

destroyed infrastructures.

Source: Grosh et al., 2008; del Ninno et al., 2009.



45

5. Improving labor market outcomes for the poor in Madagascar

139. Seven in ten Malagasies are poor, and largely because adults cannot access productive

employment. While most of them are obliged to work to survive, they do not have a job that offerssufficient earnings for them and their families to cover the most basic needs. A majority are locked into

subsistence activities in agriculture. Their livelihoods remain extremely vulnerable to shocks in the form

of natural disasters (floods, droughts) or political and security problems. Rural populations regularly face

income and food insecurity during the soudure. Poor workers are more unskilled than other workers,

and generally more remote from markets and information. They need a growth, employment and

poverty strategy that encourages the creation of more productive and earnings generating jobs, and

assists the poor in shifting out of activities with low and erratic earnings and into jobs with higher

earnings.

140. The policy agenda to help reduce poverty through the labor market is broad : (i) restoring

macroeconomic and political stability, improving the investment climate more broadly and removing

constraints to labor demand in sectors that can offer higher earnings (ii) removing obstacles for workersin low earning sectors to shift into higher earning sectors (iii) help increase productivity in low earnings

sectors – agriculture, household enterprises, urban informal sector - where most of the poor work.

Policy makers need to consider how to increase labor demand growth in sectors with higher productivity

that offer higher earnings (essentially non-agricultural formal and informal sectors), to helping the poor

equip themselves for higher productivity jobs that require higher skills development, and to assist those

who remain in vulnerable occupations and face considerable income insecurity. More immediately, the

question will be how to mitigate the impact of the prolonged political and economic crisis which began

in 2009.

141. A weak investment climate is hampering activity and employment growth in both the formal

and informal sector. The political and ensuing macro-economic instability is a major threat to a healthy

private sector in Madagascar, and the potential for direct and indirect job creation from foreign directinvestment and tourism revenues. While labor regulations do not appear to be a major binding

constraint for business operation, there is some evidence that formal sector hiring is relatively

expensive. A complex and unpredictable overall regulatory framework for business is also likely to lower

the employment creation of firms with higher overall growth potential in the formal or informal sector.

These features need to be reviewed in the context of creating more and better jobs for a majority of the

population. The experience of other countries suggests that social protection measures wielded through

the labor market are better directed at protecting workers (through adequate safety nets) than jobs to

encourage flexibility and job creation and provide wide and well targeted coverage.

142. Public sector work programs need to become better targeted and more efficient. Within the

area of social protection, well designed public sector work programs could reduce vulnerable

household’s exposure to earnings short falls and at the same time contribute to much neededimprovements in infrastructure. However, these programs need to be designed and evaluated as safety

net programs rather than active labor market programs (as they are ineffective in creating sustainable

employment). Thus programs need to be much better targeted to the poor, by setting wages below

market level to encourage self selection, and by using poverty mapping for better geographical

coverage. They need to be coordinated across different agencies, and accompanied by appropriate

monitoring and evaluation systems. Finally, the technical quality of the infrastructure produced needs to



46

be assured by strengthening capacity among implementing agencies, concentrating implementation

responsibility in agencies which posses the capacity, or ensuring external support.

143. The informal rural and urban sector will be the main provider of higher earnings. Most of

Madagascar’s poor depend on subsistence agriculture. Even in the best of circumstances, few of them

are likely to find their next job in the formal sector: it is too embryonic to absorb millions of informal and

agricultural workers, and many of the poor may lack the necessary skills to work there. But compared tosubsistence agriculture, higher productivity agriculture, rural non-farm activities, and the informal urban

sector offers higher and more stable earnings – even if these earnings do not qualify as high. Given the

positive impact of contract farming and the importance of market access for earnings for rural farm

households, policy should aim at improving technology, information, and physical access to markets. Job

creation in rural non-farm enterprises thrives with improved access to public goods including security

and transports and information communications. Given the multitude of NFE programs over the world,

it would be useful to review the existing experience and distill best practice interventions in terms of

impact and cost effectiveness.

144. Education systems need strengthening. A more productive work force is critical both to higher

value added growth and to higher earnings over time. At the same time the returns to education are

high in Madagascar. Access to basic education has improved over time. The investment in providinggood quality education and training needs to remain a priority. In view of budgetary and capacity

constraints, it would be advisable to focus first on increasing quality of the training offered at higher

levels before setting quantitative goals and consider the options for continued training throughout the

working life, in informal and formal systems.

145. More knowledge is needed. The research program has centered on rural labor markets, where

most of the population lives, and on understanding the basic functionings of the labor market and the

characteristics of workers. As such, it fills an important knowledge gap, but more analytical work is

needed to generate the underpinnings for solid policy advice on labor markets and poverty reduction

strategies. Some key areas of analytical and policy focus are:

• Informal sector activities and labor markets in urban areas. The urban informal sector is the

main employer of rural immigrants and of the incumbent poor in urban areas. As such, it can

have a critical impact on poverty reduction. At the same time, political, macroeconomic and

externally imposed crises often have a stronger impact on urban than rural labor markets.

However, while it is clear that urban labor markets suffered greatly during the political crisis of

2001, there is still a knowledge gap as to how labor markets work in urban areas, who are the

most vulnerable, what the defining characteristics are of more successful firms, occupations and

workers, and the extent and consequences of rural-urban migration.

• Vulnerable groups and mobility constraints. Generally, new labor market entrants, both youth

and inmigrated workers from rural areas, face higher risks and worse prospects in terms of

accessing a job, especially with some decent level of earnings; the evidence suggests that

women face considerable discrimination in Madagascan labor markets. At the moment, whilewe know that mobility is limited, it is not yet fully clear why this is the case, although

discrimination and education appear to be important factors. The causes, consequences and

remedies for the limited mobility need to be identified. The group of youth, their needs and

prospects need to be carefully examined.

• Income protection. Public works is only one of several possible options that can work in

combination to protect and preserve income for the most vulnerable in the population – and as

discussed, in the past, PW’s have not served a safety net function. Following upon the existing



47

knowledge of poverty and labor markets, a next step is to review the existing social protection

system with a view to ensure adequate coverage, efficiency, relevance and financial

sustainability of the system. As large parts of the population are at significant risks for chronic or

seasonal food insecurity, a well functioning safety nets system in particular is critical. Other

means of providing safety nets beyond public works/cash-for-works therefore need to be

explored. The recent review of the Social Protection system in Madagascar (“Social Protection:

Helping households manage risks and protect assets current”, May 2010) provides valuable

suggestions to develop a coherent system, strengthen institutional set-ups, expand successful

programs and pilot appropriate new programs. The World Bank is planning further work for

helping the Government improving the efficiency and relevance of the safety nets programs.

• Education and Skills development. The formal sector is still embryonic and the informal sector

provides employment for a vast majority of the population. In other African countries, the

returns to skills in the informal sector have been shown to be on the increase. Skills

development in the context of informal sector work is thus critical for raising productivity and

earnings potentials in this sector while at the same time preparing workers for shifting into

formal sector activities as these gain importance. Drawing on the knowledge base that is being

created in the Africa region of the World Bank, the role of schools and employers as providers of skills, and the best avenue for government support should be looked at. Again, this is strongly

related to the issue of vulnerable youth in the labor market.

• Updating the labor market overview. The reports in the work program were using data from

2005 as their latest observation. An update of this information is now much overdue, and at a

minimum a basic estimate of employment rates, unemployment rates, the sector structure of

employment and earnings developments is needed. As is discussed in Annex 2, the analytical

underpinnings of policy advice could be much stronger with improvements in survey methods

and data.

• Labor market institutions. Finally, the investigations suggest that labor markets are segmented

in Madagascar, with high preferences for public sector jobs, to which the poor cannot get

access, with a very limited formal sector, and with – as mentioned - a gender divide in earnings.A review is needed of the institutional constraints that cause segmentation and limit mobility

between different segments. For example, the wage setting mechanisms and the role of

different labor market institutions in maintaining the public wage premia need to be reviewed,

as well as the role of economical and social constraints to women participating on equal terms

in the work life.



48

Bibliography

1. Reports prepared for the Instat/World Bank/IDRCWorkshop on Labor Markets in Madagascar,

Antananarivo, Madagascar, June 2008

Stifel, D., Rakotomanana F.H. and Celada, E., 2008: ”Evaluation des Conditions du Marché du Travail àMadagascar », 2001-2005

Stifel, D., 2007 : “Marchés de Main d’oeuvre, Economie non agricole et Stratégies de Moyens

d’Existence des Ménages en milieu rural à Madagascar »

Gaëlle, P., 2008: Madagascar: De jure labor regulations and actual investment climate constraints

Andrianjaka N. and Milazzo A., 2008: “Highly Labor-Intensive Public Works in Madagascar: Issues and

Policy Options”, World Bank Social Protection Discussion Paper # 836,

Randrianarisoa J-C., Barrett, C., and Stifel, D., 2008: “The Demand for Hired Labor in Rural Madagascar”

Hoftijzer M. and Paci, P., 2007: “Making Work Pay in Madagascar: Employment, Growth, and Poverty

Reduction”Marc F. Bellemare, M.F. and Stifel, D., 2008: “Contract Farming in Madagascar: A Survey of Six Regions”

2. Additional Bibliography

Barrett, C.B. and Minten, B., 2008: “Agricultural Technology, Productivity and Poverty in Madagascar,”

World Development , 36(5), 797-822.

Barrett, C.B., Reardon, T. and Webb, P., 2001: “Nonfarm Income Diversification and Household

Livelihood Strategies in Rural Africa: Concepts, Dynamics and Policy Implications.” Food Policy

26, 315-331.

Lanjouw, J.O. and Lanjouw, P., 2001: "The rural non-farm sector: issues and evidence from developingcountries," Agricultural Economics, vol. 26(1), 1-23.

Lanjouw, P. and Feder, G., 2001: “Rural Non-Farm Activities and Rural Development: From Experience

Towards Strategy”, Rural Development Strategy Background Paper #4, Washington, DC: World

Bank.

Adams, V. A., 2008: "Skills development in the informal sector", background paper for World Bank Africa

Region Economic and Sector Work to Increase Earnings and Reduce Poverty in the Informal

Sector in Africa.

Dostie, B., Haggblade, S., and Randriamamonjy, J, 2000 : Seasonality of food consumption of poor

households in Madagascar, Antananarivo: INSTAT.

Del Ninno, C., Subbarao, K., Milazzo, A., 2009: “How to Make Public Works Work: A Review of the

Experiences”, World Bank Social Protection Discussion Paper 906, Washington, DC: The World

Bank.

Fox, L., and Sekkel Gal, M., 2008: Working Out of Poverty: Job Creation and the Quality of Growth in

Africa, Washington, DC: World Bank

Johansson, S. and Ronnas, P., 1993: Rural Industrialization: A Review of Selected Asian Experiences,

Stockholm School of Economics Working Paper in Economics and Finance # 46



49

Morrisset, J., 2009: “Promouvoir l’Emploi : Au-Dela des Promesses pour une Strategie Active et

Maitrisee », mimeo, World Bank Africa Region.

United Nations, 2009a: World Population Prospects: The 2008 Revision, online database, New York:

United Nations. http://esa.un.org/unup/

World Bank, 2008: Developing the Workforce, Shaping the Future: Transformation of Madagascar’s Post-

Basic Education. World Bank, 2008b, Ghana Job Creation and Skills Development

World Bank, 2009: World Development Indicators 2009.



50

Annex 1: List of reports and authorsReports prepared for the Instat/World Bank/IDRCWorkshop on Labor Markets in Madagascar, Antananarivo, Madagascar,

June 2008

Gender Disparities in the Malagasy Labour Market Christope Nordman, Faly Hery Rakotomana, Anne-

Sophie RobilliardEvaluation des Conditions du Marché du Travail à Madagascar,

2001-2005

David Stifel, Faly Hery Rakotomanana et Elena Celada

Marchés de Main d’oeuvre, Economie non agricole et Stratégies de

Moyens d’Existence des Ménages en milieu rural à Madagascar

David Stifel

Deploying the Financial Sector for Employment Creation and

Poverty Reduction in Madagascar

Gerald Epstein, James Heintz, Leonce Ndikumana, Grace

Chang and Seeraj Mohamed

Madagascar Employment Institutions and Policies: A Background

document

André Kirchberger

Madagascar: De jure labor regulations and actual investment

climate constraints

Gaëlle Pierre

Travaux publics à haute intensité de main d’œuvre (HIMO) pour la

protection sociale à Madagascar : problèmes et options de politique

Nirina Haja Andrianjaka, Annamaria Milazzo

Developing the Workforce, Shaping the Future: Transformation of Madagascar’s Post-Basic Education World Bank Report

The Demand for Hired Labor in Rural Madagascar Jean Claude Randrianarisoa, Christopher B. Barrett,

David Stifel

Making Work Pay in Madagascar: Employment, Growth, and Poverty

Reduction

Margo Hoftijzer and Pierella Paci

Contract Farming in Madagascar: A Survey of Six Regions* Marc F. Bellemare and David Stifel

POLICY BRIEFS

The Impact on Labor and Poverty of Madagascar’s 2001 crisis Margo Hoftijzer

Gender earnings gaps in the Malagasy Labor Market Christophe J. Nordman and Anne-Sophie Robilliard

Reducing Poverty Through the Labor Market: What to Focus on in

Madagascar

Margo Hoftijzer

Assessing Labor Market Conditions in Madagascar: 2001-2005 David Stifel

Rural Labor Markets and the Non-Farm Economy

in Madagascar: 2001-2005

David Stifel

High Labor Intensive (HIMO) Public Works in Madagascar: Issues

and Policy Options

Annamaria Milazzo

Education et conditions du marché du travail à Madagascar, 2001-

2005

Diagnostics des entreprises et les contraintes sur la croissance de la

demande de travail du secteur privé formel à Madagascar

INSTAT

Allocative inefficiencies, shadow wages, and demand for hired labor

in the rural areas of Madagascar

INSTAT

Contrats de production agricole à Madagascar : Vue d’ensemble Marc F. Bellemare and David Stifel

Contrats de production agricole à Madagascar : Les déterminants de

la participation

Marc F. Bellemare and David Stifel

Contrats de production agricole à Madagascar : Effets sur le bien-

être des ménages contractants


Contrats de production agricole à Madagascar :Effets sur la

productivité rizicole des ménages contractants




51

Annex 2: DATA COMPARABILITY ISSUES

This study is based primarily on an analysis of the 2001 and 2005 “ Enquête Periodique auprès des Ménages”

(EPM). The EPM are nationally representative integrated household surveys of 5,080 and 11,781 households in

2001 and 2005, respectively. The data were collected in single rounds during the months of September through

December. The multi-purpose questionnaires include sections on education, health, housing, agriculture, household

expenditure, assets, non-farm enterprises and employment. Employment and earnings information are available inthe employment, non-farm enterprise and agriculture sections. For a measure of household wellbeing, this analysis

uses the estimated household-level consumption aggregate constructed by the Institut National de la Statistique

(INSTAT).

The following are issues encountered in assuring comparability of the indicators used.

1. Sampling: 13 strata in 2001, 45 strata in 2005. Sampling weights should make the appropriate adjustments for

comparability of summary statistics. Affected by the number of sampling units in the large urban centers, the effect

is that, while the sample is representative of large urban centers at the national level, it is not so at the province level.

Because of this issue, for example, the data suggest that the population in the city of Antsiranana fell by half.

2. Education: 2001 has a filter question – “Have you gone to school?” – while the first question in 2005 is: “Can

you read?”. Note: INSTAT uses literacy questions to classify individuals as having primary education in the 2005

data. Since we cannot do this with the 2001 data, consequently, we see a large increase in primary education and ahuge drop in “no education” in the INSTAT reports.

3. Deflation: Regional deflators for 2005 had to be adjusted to account for the differing number of strata. Instead of

using the regional deflator supplied by INSTAT which had different values for the 45 strata, we took the weighted

average of these deflators within the 13 strata used in 2001. Thus regional deflation was comparable across the

surveys at 13 strata each. Note on temporal deflation: The ratio of the poverty lines (Ar 305,300 in 2005 and Ar

197,720 in 2001) was used to inflate the 2001 monetary values to 2005 Ariary.

4. Employment :

a. Labor force definition – In 2005, “toujours” was added to the list of responses to the question “When did you look

for a job?”

b. Temporary/Seasonal employment – The number of months for such work was available in 2001, but not in 2005.This does not affect the estimates of monthly earnings for wage & salaried workers (earnings are provided in

months). It does however affect…

i. Low earnings estimates for wage & salaried workers, because an individual is determined to have

low earnings if his/her annual labor earnings fall below the poverty line.

ii. Estimates of agricultural earnings, because agricultural earnings are calculated as the residual

between household consumption and the sum of non-farm enterprise earnings, fishery earnings,

net transfers and wage earnings, all divided by the number of household members who report

agriculture as their primary or secondary form of employment. As these are all in annual terms, the

annual wage earnings for temporary workers (months times monthly earnings) must be subtracted

from household consumption. This is addressed by taking the average number of months

estimated using the 2001 data to determine annual earnings for temporary employees in both the

2001 and 2005 data.

6. Non-farm enterprise earnings: The 2005 survey asks for profits net of taxes (it also asks a separate question about

the magnitude of these taxes), whereas the 2001 does not specifically state that profits should be net of taxes. The

question on total taxes is used to subtract taxes from the NFE earnings in the 2001 data. Further, the recall period for

non-farm enterprise earnings in the 2001 survey was one month, whereas it was one year in the 2005 survey.

Although the 2005 earnings were scaled down by the number of months of operation to make them comparable to

those in the 2001 survey, there are still likely to be comparability issues. For example, the literature on household

expenditure indicates that the longer the recall period, the more expenditures are underreported (Scott and

Amenuvegbe, 1990). Similar factors may explain some of the fall in NFE reported earnings between 2001 and 2005.



52

7. Multiple jobs: Both surveys only collect information on the primary and secondary income earning activities.

Analysis of the 2004 EPM indicates that 97 percent of the employed have at most two jobs. Thus the 2001 and 2005

surveys do not capture full information on employment for three percent of the workforce who hold three or more

jobs in one year.

8. Revenues for non-wage workers from fishing activities: Revenues from fishing activities are reported in Section 6

(non farm enterprise) of the 2001 EPM. These are calculated as the sum of wages paid to household members,

profits and auto consumption, less taxes. For 2005, revenues from fishing are reported in Section 12e (Fisheries) and

are calculated as revenues from fish sold plus autoconsumption. A question concerning the cost of inputs is included

in the questionnaire but the answer is not included in the dataset. As such, revenues from fishing activities are not

comparable between the two years. Nonetheless, those employed in this sector represent about 1% of non-wage

workers in both 2001 and 2005.

9. Formality status of secondary job using the 2001 data: The questions on formality status (pension and social

security) for the second job are missing in the 2001 EPM. The assumption is that the second job is informal for 2001

which should be reasonable given that 98.3% of second jobs in the 2005 data were informal. However, the statistics

on formality status are not affected because they are calculated based just on only the primary job.



53

Annex 3: . WB doing business – labor market regulations.

Employing Workers Indicators (WB Doing Business Indicators) Answer Score

RIGIDITY OF EMPLOYMENT INDEX 63

Difficulty of Hiring Index 89

Are fixed-term contracts prohibited for permanent tasks? Yes 1

What is the maximum duration of fixed-term contracts (including renewals)? (in

months) 24 1

What is the ratio of mandated minimum wage to the average value added per worker? 0.65 0.67

Rigidity of Hours Index 60

Can the workweek extend to 50 hours (including overtime) for 2 months per year to

respond to a seasonal increase in production? Yes 0

What is the maximum number of working days per week? 6 0

Are there restrictions on night work? Yes 1

Are there restrictions on "weekly holiday" work? Yes 1

What is the paid annual vacation (in working days) for an employee with 20 years of

service? 24 1

Difficulty of Firing Index 40Is the termination of workers due to redundancy legally authorized? Yes 0

Must the employer notify a third party before terminating one redundant worker? No 0

Does the employer need the approval of a third party to terminate one redundant

worker? No 0

Must the employer notify a third party before terminating a group of 25 redundant

workers? Yes 1

Does the employer need the approval of a third party to terminate a group of 25

redundant workers? Yes 1

Is there a retraining or reassignment obligation before an employer can make a worker

redundant? No 0

Are there priority rules applying to redundancies? Yes 1

Are there priority rules applying to re-employment? Yes 1Firing costs (weeks of salary) 30.3

What is the notice period for redundancy dismissal after 20 years of continuous

employment? (weeks of salary) 4.3

What is the severance pay for redundancy dismissal after 20 years of employment?

(weeks of salary) 26

What is the legally mandated penalty for redundancy dismissal? (weeks of salary) 0

Memo: Overall rank in Doing Business -- 134



54

Annex 4: Non-Farm Enterprises in Madagascar

2005 2001

Large 2nd Large 2nd

Natio

nal Cities Cities Rural

Natio

nal Cities Cities RuralPercent of…

households with a NFE 26.6 35.7 31.5 24.5 23.0 33.1 26.3 20.8

individuals in a HH with a NFE 27.3 38.4 32.8 25.1 22.7 34.0 26.9 20.4

Months of Operation in a Year

Average months 9.5 10.6 9.6 9.3 9.5 10.7 10.1 9.1

Percent…

with 3 or fewer months 9.0 6.6 9.4 9.3 9.0 4.4 5.1 10.9

year round 57.8 74.0 59.3 54.2 53.9 70.4 62.7 48.0

Size

Average number of workers 1.5 1.6 1.7 1.5 1.7 1.7 1.9 1.7 Percent with…

2 or fewer workers 88.2 87.8 86.2 88.7 82.6 86.9 83.9 81.3

3 to 5 workers 11.2 10.9 12.2 11.1 15.3 11.6 13.6 16.6

6 or more workers 1.5 1.3 1.6 0.2 1.7 1.5 2.5 2.1

Percent with hired workers 9.2 10.4 10.8 8.6 26.1 33.6 29.8 23.6



55

Annex 5: Determinants of daily earnings for adults (15-64)

Table A: By occupational status


Variable dépendante = log (revenus journaliers)

Echantillon: adultes (15 à 64 ans)

Coef. Valeur T Coef. Valeur T Coef. Valeur TSalarié (non-agricole)

Heures de travail par jour 0,027 5,32 ** 0,017 3,53 ** 0,011 1,51

Expérience 0,035 5,70 ** 0,017 2,60 ** 0,019 2,08 *

Expérience au carré 0,000 -4,05 ** 0,000 -0,95 0,000 -2,02 *

Education

Sim ulat ion, éd. prim aire 0,232 5,65 ** 0,280 5,94 ** -0,049 -0,78

Sim ulat ion, 1er cyc le secondaire 0,480 11,03 ** 0,591 11,59 * * -0,111 -1,66 +

Sim ulat ion, 2nd cyc le secondaire 0,693 14,23 ** 0,720 13,20 * * -0,026 -0,36

Sim ulat ion, post secondaire 1,054 21,18 ** 1,170 21,44 ** -0,115 -1,56

Simulation femm es -0,320 -10,89 ** -0,285 -9,77 ** -0,035 -0,84

Constante 7,572 22,31 ** 7,799 24,41 ** -0,227 -0,49

Nb d'observations 2 993 2 558R² 0,29 0,32

Entreprise non agr ic. (non-salarié)

Heures de travail par jour 0,025 2,73 ** 0,034 3,71 ** -0,009 -0,70

Expérience 0,012 1,26 -0,001 -0,08 0,013 0,78

Expérience au carré -0,0003 -1,86 + 0,0000 -0,12 0,000 -0,92

Education

Sim ulat ion, éd. prim aire 0,116 2,02 * 0,200 2,55 * -0,084 -0,87

Sim ulat ion, 1er cyc le secondaire 0,260 3,83 ** 0,255 2,78 ** 0,005 0,04

Sim ulat ion, 2nd cyc le secondaire 0,428 4,71 ** 0,579 5,33 * * -0,151 -1,07


Simulation femm es -0,323 -6,77 ** -0,313 -5,35 ** -0,009 -0,12

Constante 7,370 18,50 ** 8,142 13,19 ** -0,771 -1,05

Nb d'observations 2 432 1 229

R² 0,09 0,17

Agriculture

Heures de travail par jour 0,002 0,54 0,053 9,18 ** -0,051 -7,61 **

Expérience -0,009 -2,69 ** -0,017 -3,11 ** 0,008 1,19

Expérience au carré 0,000 3,39 ** 0,000 2,79 ** 0,000 -0,59

Education

Sim ulat ion, éd. prim aire 0,084 5,60 ** 0,251 9,39 ** -0,167 -5,45 **

Sim ulat ion, 1er cyc le secondaire 0,218 8,70 ** 0,371 7,23 * * -0,153 -2,69 **

Sim ulat ion, 2nd cyc le secondaire 0,438 8,75 ** 0,674 8,24 * * -0,236 -2,46 *


Simulation femm es -0,023 -1,78 + 0,002 0,08 -0,025 -0,99

Constante 7,932 101,57 ** 6,942 57,64 ** 0,990 6,90 **


R² 0,09 0,18

Donné es: EPM 2001 & 2005

Note: Le s simu lations des rég ions sont inclus es, mais n e so nt pas m ontrées

Note: es tima tions corr igées po ur la sélection (Bourguignon, Fournier et Gurgand, 200 7)

2005 2001 Différence



Table B. By Gender.

Source: Stifel, 2007

Variable dépendante = log (revenus journaliers)

Echantillon: adultes (15 à 64 ans)

Coef. Valeur T Coef. Valeur T Coef. Valeur T

Heures de travail par jour 0,026 4,63 ** 0,039 4,69 ** 0,013 1,32Expérience 0,025 3,63 ** 0,055 6,56 ** 0,030 2,78 **

Expérience au carré -0,0002 -1,96 * -0,0008 -5,52 ** -0,0006 -3,03 **

Education

Simulation, éd. primaire 0,306 7,33 ** 0,167 3,21 ** -0,139 -2,08 *

Simulation, 1er cycle secondaire 0,514 11,32 ** 0,485 8,52 ** -0,029 -0,40

Simulation, 2nd cycle secondaire 0,713 14,04 ** 0,833 11,86 ** 0,120 1,38

Simulation, post secondaire 1,072 20,81 ** 1,264 18,20 ** 0,192 2,22 *

Constante 7,857 27,21 ** 6,257 19,49 ** -1,600 -3,70 **


R² 0,31 0,30

Données: EPM 2005Note: Les s imulations des provinces sont incluses, mais ne sont pas m ontrées

Note: es timations corrigées pour la sélection (Bourguignon, Fournier et Gurgand, 2007)

Hommes Femmes Différence

Documents

Labor Markets Conditions in Madagascar - Research program synthesis report (World Bank/2010)