The Onset of Demographic Dividend Period and the Effects of Labour Force Growth on Ethiopian Rural Economy : A Study of Growth Policy Options

The purpose of this study is to analyse the effects of labour force growth on the Ethiopian rural economy during the start of the first demographic dividend. The study focuses on the sources of rural economic growth: employment generation and productivity levels which lead to improved income and reduction of poverty. The changes in rural employment structure and the level and determinants of household grain production are analysed based on detailed national labour force survey and agricultural sample enumeration covering 6,5 million households in three regions of the country. Since 1995, five years after the start of a decline in population growth rate, Ethiopia has entered into the period of the demographic dividend. Moderate decline in the fertility rate and the echo of the baby boom generation of the 1975/76 land reform were the major driving forces for the onset of the demographic dividend. In 2008 the country has a total population of 79 million, the second largest population in sub-Saharan Africa, and 48 percent of the adult population is in the age group 15-29. In the rural area the labour force is estimated about 32 million and each year one million people are added in the labour force. 90 percent of the rural labour force is employed in agriculture and the rest is employed in the non-farm service sector. Of those employed in the agricultural sector, 46 % are engaged in elementary occupation (mostly wage labour) while 44% are semi-skilled self employed smallholders. The rural labour force is not self sufficient in food-grain production due to large family size and low land productivity. Due to the dominance of child-rich households and the young age characteristic of the labour force agricultural production increase was achieved mainly through area expansion. Currently area expansion reached to a stage leading to low marginal productivity of household labour. Government strategy is to promote improved technology and commercialization of small scale farming. However, the child rich households do not have saving to adopt the technology and their preference is to meet basic needs and not to produce for the market. The conclusion of this study is that small farms cannot be the engine of agricultural growth at a time when labour force growth is characterized by young age and household types of higher consumption requirements. In the rural areas there are not sufficient conditions of drivers of improved technology use and commercialisation: there is lack of asset accumulation, a low per capita production, and a lower degree of urbanization. There is a sequence and timing in rural development. This study suggests a policy of reducing the growing rural labour force through emigration and creation of new urban spaces in rural areas. Urbanization of rural areas through large scale migration of rural labour can reduce household poverty. Household consumption per capita rises as household members move out of the low productivity of agricultural activities and engaged in small scale manufacturing and service sectors. For those households remaining in the agricultural sector, emigration of the labour force creates an enabling environment for the recombination of factors of production