Structural Change in African Countries: Focus on Urban Wages

Since independence, governments in sub-Saharan African countries have sought industrial diversification, yet agriculture still accounts for nearly half of total employment. While the literature has emphasized slow productivity growth in agriculture and manufacturing, recent evidence reveals patterns inconsistent with this view. Firm-level studies show that, conditional on GDP per capita, urban wages in Africa are significantly higher than in other regions, implying unusually large urban–rural wage gaps. This paper argues, drawing on recent theoretical models, that these wage gaps may signal either limited rural-to-urban labor mobility or strong labor demand in the urban non-tradable sector, both of which can suppress the expansion of the manufacturing sector. Understanding these mechanisms requires closer attention to the urban non-tradable sector—largely composed of informal activities—which is central to explaining Africa’s pattern of urbanization without industrialization.