Sectoral Growth Patterns and Unemployment in Uganda

Abstract

Uganda’s labour market is typically characterized by extensive productivity and earning variations with large amounts of labour trapped and toiling in low-productivity subsistence activities. A policy aimed at reallocating such underemployed labour to higher productivity activities plays a role in tackling the unemployment problem and is a top priority for policymakers. This study examines the asymmetric effects of differential sectoral growth on unemployment in Uganda, considering both the size and composition effect of sectoral growth. The results of this study indicated that a positive shock in agricultural sector value added has a positive causal effect on unemployment. Also, a positive and negative shock in the industrial sector does not affect the level of unemployment. Finally, both a positive and negative shock in the service sector value added has a negative effect on the unemployment level. Another interesting finding of this study is that both the size and composition of sectoral growth matter in addressing the unemployment problem in Uganda. Therefore, both positive and negative shocks should be forecasted and incorporated in government planning frameworks for short, medium, and long particularly during manpower planning. However, sectors with higher labour intensity should be prioritized in budgetary allocations, the government should devise means of reducing underemployment of labour trapped in low-productivity agriculture and other small-scale production activities to create meaningful employment.