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© 2023 International Monetary Fund
WP/23/46
IMF Working Paper
African Department
Unbearable Costs: When Is Inflation Impeding Job Creation? Evidence from Sub-Saharan Africa Prepared by Ibrahima Camara, Rasmane Ouedraogo and Amadou Nicolas Racine Sy*
Authorized for distribution by Amadou N. R. Sy
March 2023
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: Covid-19 and war-induced commodity price fluctuations, and broadening price pressures have led to a surge in inflation in many sub-Saharan Africa (SSA) countries. To adjust to increasing costs, firms have resorted to several measures including shuttering offices, reducing businesses, laying off, and freezing hiring, thus putting at risk job creation and raising concerns of youth unemployment. This paper explores the effects of inflation on private employment growth in SSA using a large firm -level dataset from the World Bank's Enterprise Surveys. We find a non-linear relationship between inflation and job creation in SSA, with job creation being negatively correlated with inflation rate when the latter is above 14 percent. This finding holds regardless of the sector of activities of firms and the exchange rate regime. In addition, the paper finds some differential effects based on the type of products. An increase in fuel prices tends to be more detrimental to job creation than food prices. The study also provides evidence that the state of implementation of structural reforms matters. The results show that inflation reduces job opportunities mostly in countries with bad or no structural reforms.
| JEL Classification Numbers: | J21, E31, O55 |
| Keywords: | Inflation; Jobs; reforms; sub-Saharan Africa |
| Author's E-Mail Address: | icamara99@gmail.com; rouedraogo@imf.org; asy@imf.org |
| JEL Classification Numbers: | J21, E31, O55 |
| Keywords: | Inflation; Jobs; reforms; sub-Saharan Africa |
| Author's E-Mail Address: | icamara99@gmail.com; rouedraogo@imf.org; asy@imf.org |
Title Page
WORKING PAPERS
Unbearable Costs: When Is Inflation Impeding Job Creation? Evidence from Sub-Saharan Africa
Prepared by Ibrahima Camara, Rasmane Ouedraogo and Amadou N. R. Sy1
Table of Contents
I. Introduction
II. Data sources
III. Empirical Methodology
IV. Results
A. Baseline results
B. Fuel and food prices
C. Transmission channel: impact of inflation on firms' sales
D. Role of structural reforms
E. Sensibility tests
F. Robustness checks
V. Policy implications and conclusion
References
The author(s) would like to thank Hany Abdel-Latif, Mokhtar Benlamine, Vu Chau and participants of the African Department Seminar Series for helpful comments and suggestions.
The author(s) would like to thank Hany Abdel-Latif, Mokhtar Benlamine, Vu Chau and participants of the African Department Seminar Series for helpful comments and suggestions.