Employment, transition and education returns in Uganda

Abstract

Creating sustainable employment opportunities and enabling a successful transition to work are essential goals for a functional labour market. Sustainable employment not only helps reduce poverty but also fosters social stability and economic growth. The employment landscape in Uganda, is marked by a mix of shrinking, expanding, and stagnant sectors, indicating varying levels of job creation across different sectoral activities. While education is recognized as a potential equalizer in employment and earnings distribution, evidence from Uganda is still limited. This study was thus set to address three key objectives: (i) examine Uganda’s employment creation at the national, sectoral, and sub-sector levels (ii) identify the drivers of the length of the school-to-work transition in Uganda, with a focus on job creation; and (iii) analyze the private education returns in Uganda both at national and sub-national levels. To achieve objective one, a multivariate double log-linear regression and autoregressive distributed lag (ARDL) models were employed, and found no significant evidence of sectoral employment shifts in Uganda. The findings revealed that job creation in Uganda is heterogeneously different at different levels. At the national level, the employment intensity of growth was found weak, reflecting the persistence of jobless growth. The agriculture sector exhibited the lowest employment growth intensity, followed by the industry and service sectors. Sub-sectors such as trade and repairs, arts, entertainment & recreation, cash crops, food crops, construction, and manufacturing demonstrate the highest employment growth intensity. Factors such as labour productivity, domestic savings, inflation, labour supply, government expenditure, and foreign direct investment influence employment intensity of growth. There is need for government to prioritize investments and promote self-aid projects in sub-sectors that are more employment-intensive. To achieve objective two, both parametric and non-parametric duration models were employed, and revealed that the time it takes Ugandans to secure their first job is weakly linked to the country’s job creation capacity and the nature of the occupations available. Uganda’s limited job creation environment and economic fragility contribute to a prolonged school-to-work transition. Interestingly, individuals working as technicians experience shorter unemployment durations compared to professionals. It is recommended that government addresses the stigma surrounding technical and vocational education and training (TVET) to increase the number of technicians who exit unemployment more rapidly. To achieve objective three, the Mincerian framework and pooled regression models were utilized and the findings revealed that an additional year of education leads to a 15% increase in earnings in Uganda. However, by accounting for endogeneity using Instrumental Variables (IV), the study uncovers a more substantial earnings premium of 20.7% per additional year of schooling. Subnational results revealed considerable heterogeneity in returns to education across different regions of Uganda. These findings highlight the critical role of education in enhancing individual income, improving income distribution and addressing regional disparities. Therefore, investing in education remains a paramount strategy for fostering economic development and reducing income inequality in Uganda.