The Nature of Unemployment in Urban Ethiopia

With around 50% of the urban men between age 15 and 30 unemployed, Ethiopia has one of the highest unemployment rates worldwide. This paper describes the nature of unemployment among young men in urban Ethiopia. We analyse the determinants of incidence and duration and find that most variables have the same effect on both. Unemployment is concentrated among relatively well-educated first time job seekers who come from the middle classes. Mean duration of unemployment is close to four years and is higher for those aspiring to a public sector job. The unemployed have realistic reservation wages. Those living in Addis are less likely to become unemployed, and ethnicity has no effect. We find that both the incidence and duration of unemployment are negatively related to household welfare. Since we cannot reject that the latter is endogenous, this suggests that households use their savings and cut back consumption to cope with unemployment. Those with a father working as a civil servant have shorter durations, suggesting that this provides an information advantage. The medium of job search also has a strong effect indicating that information is costly. Social networks only help after one has become unemployed. Our results are robust to changes in the macro environment. We explain why people do not take up a job while waiting in unemployment.