DUALISTIC NATURE OFEMPLOYMENT IN SOMALIA •Somalia has very low labor force participation, likely driven by the limited viability ofagricultural and low non-agricultural labor demand.•There is also evidence of a dual labor market: i) a small pool of good jobs, typicallyaccessed by the better educated, and ii) a larger, but still limited, pool of low-quality,low-pay jobs that individuals do out of necessity. These better jobs are often within thegovernment, international organizations, or NGOs.•Policies should focus on increasing human capital and overall labor demand. Somalia’slabormarketdisplayssomeuniquetraits for its level of income.Somalia has extremelylow labor force participation (LFP), especially whencomparedtootherlow-incomecountrypeers(Figure 1). LFP is also low across all demographicgroups, especially among women and the nomadicpopulation. The only groups with higher LFP aremen and those with tertiary education; however,they account for only 4 percent of the working-agepopulation. Interestingly, there is no difference inLFP across poverty status (Figure 2). There are severalpotential causes for the extremely low LFP. Firstly,Somalia has limited agricultural employment (around30 percent of all employment), which often absorbsa large share of labor in low-income countries.¹ InPublic Disclosure Authorized addition, there is limited demand for non-agriculturallabor.Thisisdemonstratedbythefactthatunemployment is larger than underemployment inSomalia, which is again the opposite of what normallyoccurs in low-income countries.² Further, over half ofthe individuals who are inactive and want to workbut do not actively search for work cite a lack ofopportunities as the reason. These factors combine to create a dual labor market. Regression analysis and qualitative work suggest twotypes of individual work: i) those who can access a smallpool of good jobs, typically with tertiary education orsocial connections, and ii) a larger pool, but still limited,of low-quality, low-pay jobs which individuals, such as female IDPs, take out of necessity. Individuals withother sources of income, such as remittances or anotherwage earner in the household, less often participate inthe labor force. These better-quality wage jobs can beclassified based on whether they are entitled to paidleave or if they have a written contract. The scarcity ofthese better jobs is demonstrated by the fact that theyaccount for only 14 percent of all employment and 1percent of the working-age population. considered better quality wage jobs. However, thesetwoemployersaccountforthree-quartersofallemployment (Figure 3 and Figure 4). Lower-qualityemploymentismostlyfoundinretailtrade(17percent), other services (17 percent), construction(15 percent), and transport (15 percent), with 54percent employed by private non-agricultural entitiesand 23 percent by other households. Policiesshouldaimtoincreaselabordemandandimprovehumancapitalthroughbettereducationaloutcomes.To improve labor marketoutcomes,labordemandandsupplymustbeimproved. On labor demand, establishing a conducivebusiness environment and supporting infrastructurewill help the growth of the private sector, which inturn can provide greater employment opportunities.Policies that aim to increase overall economic growthwould also need to support this. The government canalso consider using large-scale urban public works asa demand shock for low-skilled labor. Additionally,forlaborsupply,socialnormssuchasattitudestowards women working and inter-clan dynamics addadditional frictions to the labor market. The educationsystem should be expanded in the medium term toincrease enrollment. This must be done inclusivelyto ensure that marginalized groups can accumulatehuman capital. This could also be incentivized throughconditionalcashtransfersorthroughsubsidizingschoolfeesformarginalizedgroupssuchasthepoor and IDPs. Household enterprises also continuetoofferanimportantsourceofemploymentinSomalia, so policies that improve access to credit andcustomers may be beneficial. Thebetter-qualityjobsarebetterpaidandtypicallywithinthegovernment,internationalorganizations,orNGOs.Overthree-quartersof these jobs are occupied by men, and they arelargely concentrated in urban areas and are largelyindividuals from the richest urban households. Overhalf of the employees in these better jobs haveatleastcompletedsecondaryeducation,despiteonly14percentoftheworking-agepopulationhaving this level of education. Further, householdswith a member working in one of these better jobshave a lower poverty rate (32 percent) comparedto the national average. Over one-third are in thesocial sectors, and around one-quarter are in theadministrative services sub-sector. These jobs arethe best paid, with the largest median monthly andhourly wages. Further, although they account for asmall share of overall employment, over half of allinternational organization jobs (66 percent) and NGOjobs (50 percent) are considered better-wage jobs. Incom