Returns to labour in Malawi: How do we compare?

Greenwell Matchaya*

My recent posts in this paper and other fora have discussed the need for legal reforms as a means to achieving greater societal good, enhancing the adjudication of socio-economic rights and ensuring that Malawians are truly governed justly and convicts are sentenced in accordance with guidelines that do not defy logic. On the economic front, I have written, firstly, on the need and ways for enhancing national savings as a means to greater economic progress, drawing parallels with our neighbours in the Southern African Development Community-SADC, and secondly, on the need for radical structural change in the agricultural sector as another important means towards pro-poor economic development. Today, I would like to discuss the issue of returns to our labour in Malawi as a way of showing how much we need to improve to be at par with the other SADC countries and beyond. Although this note does not discuss policy options in any detail, I hope that it can create further awareness and stimulate curiosity about the need for change.

Returns to labour which I will call labour productivity or output per worker is an important approximation of how much it pays to work in a particular setting, or others would say it relates to how much one’s labour is worth in that setting. An analysis of labour productivity for a cross section of countries drawn from sub-Saharan Africa shows that in the SADC region Malawi trails most countries. In other words, the value of an average person’s labour in Malawi is lower than the same person’s labour if it were to be sold elsewhere in the region. The first thing to note of course is that labour productivity for the SADC region on average stands at US$ 7,000 per worker and trails the world average of circa US$25,500 as at 2015 (a semi-decadal average measure at 2005 prices). The SADC region however performs better relative to the Sub Saharan average labour productivity (US$5800) which is understandable as Sub-Saharan average constitutes every country down the Sahara, rich or poor, and the SADC has a higher concentration of low middle income countries.

Lamentable though is the fact that while the SADC average stood at about US$7000 per worker as at 2015, Malawi’s productivity average over the same period stood at an underwhelming US$649 per worker that is, almost 10 times less than the SADC average. Of course a SADC average would also be influenced by outliers including South Africa and Botswana, among others, which are among the increasing number of middle income countries in the SADC. Comparing Malawi with other low income countries, one notes that Malawi’s productivity of labour trailed that of Zimbabwe (US$868), Mozambique (US$1099), Tanzania (US$1068) and the neighbouring Zambia (US$2300). The only countries that Malawi bested included Madagascar (US$560) and DRC (US$502). It has to be mentioned that Madagascar has had no government for some time until recently, whereas the DR Congo has been a theater of resource inspired war sponsored by a multiplicity of governments in Africa and in beyond for a long time, so that we shouldn’t really celebrate doing marginally better than them in this respect.

The average of SADC’s low income countries grouped together stood at about US$800, far more than that of Malawi, whereas that of SADC’s middle income countries stood at as high as circa US$11700.  It may be consoling to mention that although the figures for Malawi are daunting, there has been a slight improvement since the year 2000. At the turn of 2000s, the average productivity for the year 2000 stood at about US$523 implying that there has been a change of US$120 or so in labour productivity of a Malawian worker in Malawi over a 15 year period.  I should be quick to say however that this is a very slow increase in productivity and Malawi can, and should do more.

The value of labour is often influenced by a number factors which at basic level include the prices of goods produced by the workers, and how much more output each worker produces for each unit of labour expended.  Obviously, even these two components promise a series of other factors that could dictate the trajectory and size of productivity at any given point in time. The part on prices speaks about the need to ensure reliable markets for our goods and a general derive therefore to reduce costs of doing business, which are high in Malawi. As a nation we must be creating markets or market access for the goods we produce in order for producers to gain better values on their investments.

On the other hand, for the marginal product of labour to increase, we should be thinking about investing in improvement of the quality of labour (through on job training programs and general skills development etc), complimentary inputs including other physical capital, technological progress, infrastructure etc. As an example, since a huge chunk of Malawians are employed in the agricultural sector, to improve labour productivity there, improving agricultural prices, investing in modern technology (for example transgenic technology), irrigation, mechanization, would all be useful for making a difference in terms of labour productivity.

*The author is an economist with interest in many areas of development including the interface between economic development and the rule of law