SAMARA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMICS

DETERMINANTS OF URBAN UNEMPLOYMENTS IN

THE CASE OF CIRO TOWN

A RESEARCH PAPER SUBMITTED TO PARTIAL

FULFILLMENT OF THE REQUIREMENTS FOR BA DEGREE
IN ECONOMICS

BY: mohamed

ADVISOR: (Mcs)

SAMERA ETHIOPIA

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Table of Contents
Chapter One................................................................................................................................................1
1 Introduction.........................................................................................................................................1
1.1 Background..................................................................................................................................1
1.2 Problem statement......................................................................................................................2
1.3 Research Objectives(s).................................................................................................................2
1.3.1 General Objectives...............................................................................................................2
1.3.2 Specific Objectives...............................................................................................................2
1.4 Hypothesis...................................................................................................................................3
1.5 Significance of the study..............................................................................................................3
1.6 Outline of the study.....................................................................................................................3
Chapter Two................................................................................................................................................4
2 Literature review.................................................................................................................................4
2.1 Theoretical Literature review......................................................................................................4
2.2 Empirical Literature review..........................................................................................................5
Chapter Three..............................................................................................................................................8
3 Research Methodology........................................................................................................................8
3.1 Study area description.................................................................................................................8
3.2 Data and data sources.................................................................................................................8
3.3 Model specification and estimation technique............................................................................8
3.3.1 Binary logistic Model Specification......................................................................................8
3.4 Description of the variables.........................................................................................................9
REFERENCE............................................................................................................................................10

LIST OF TABLE
Table 2. 1 unemployment level and unemployment rate in developing countries...............................6
Table 2. 2 activity status of Ethiopia 1984 and 1994...........................................................................7

Table 3. 1: Description of the variables..............................................................................................9

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 ABSTRACT
This research paper focuses on determinants of urban unemployment in Ciro town which is
highly significant for the policy makers of the town to obtain information on the issue and can
help further researcher as a supplementary document.

The general Objective of the study is to assess unemployment condition existing in the town
where as specific objectives of the study constitutes: Assessing trends of unemployment
condition existing in the town, examining causes as well as consequences of unemployment in
the town and estimating average duration that one can stay being unemployed in the town.

To do so data has gathered primary source through questionnaires and from books and statistical
bullet published by central statistical authority (CSA) as secondary sources.

A descriptive method of data analysis has been used to explain the study in manageable way.

After analyzing the data using this method, the researcher reached the conclusion that
unemployment condition of the town; has an increasing trend but decreasing rate. Job
experience, absence of vacancy, skill requirement as well as the sex preference are the main
causes of unemployment and maximum of fifteen months are calculated to be average duration
of on unemployed person from primary data.

Interdependency, town congestion and increased number gangsters and thieves are concluded
also to be consequences of unemployment in the town. To alleviate there macroeconomic
condition the study recommends: Improving educational system, training and provision of a
credit facility to the unemployment, employing balanced urban development strategy, etc.

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 Acronyms
ILO –International labor organization
CSA-central statistical agency
WB-world bank
LDC-least developed countries
DC-developed countries

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 Chapter One

1 Introduction
1.1 Background
Unemployment is widely regarded as a major social and economic global problem that attack
both developed and developing countries. Specially, the developed nations had come across the
worst unemployment problem in 1930 called “great depression “in USA in which number of
people were looking for a jobs. However, this problem in developed countries has lately reflected
in great magnitude in developing countries with the increasing urban population particularly after
the national independent and the population setting in urban areas of developing countries
(Ishumi, 1984).

In the first decade of independence, development planning in Africa was strongly influenced by
the theory and independence of the industrialized countries. The major towns were in investment
and growth go out.But it was unfortunately an optimistic protection which over look the failure
of modern urban industries to generate significant number of job opportunities to absorb the
great number of rural to urban migrant.

The above facts are closely related to the case of Ethiopia according to CSA (2004).The
population of Ethiopia estimated to be over 71million growing at 3% normally living under
subsistence economy. Due to the poor performance of the economy, the country is facing
poverty, unemployment etc. Besides these, World Bank (2004) reported that the population
living below poverty line was 44.2% at national level and 37% in urban ones in 2000. Like any
developing countries, unemployment problem is one of the serious issues in Ethiopia of the
3405056 total economically active urban population of the country, about 783,161(22.9%) was
unemployed in 2004.Also of the 4,603,861 total economically active urban population
782,660(16.7%) was unemployed in 2005(CSA).

Generally, unemployment is macroeconomic problem that affects people more directly and
severely, for most people, the loss of job means a reduced living standards and psychological
distress (Mankiw2007).

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1.2 Problem statement
Unemployment is involuntary idleness of a worker seeking work at prevailing wages (Webster’s
third new dictionary). Unemployment’s one of the most serious and persistent problem in
developing courtiers. The problem is becoming worst in almost African countries regardless of
their strategy and political structure they follow (Ishumi, 1984). Unemployment situation
existing in Ethiopia is the same due to the population growth, the unbalanced economic growth
and job opportunity in urban areas. Only a small percentage of the immigrants were able to find
job in the urban modern sectors. This problem of unemployment is exacerbating from time to
time. Consequently, evil crimes and gang of thieves seems to be raising them joblessness (Ayele
kirus,2003).

Chiro is one of the town that has a massive unemployment and according to previous research
done in this town unemployment is determined by households age, duration of life, and
educational level. In addition to confirming this study the researcher adds to the previous study
by studying current and past employee situation by trends, causes, and sector absorption of lab
our force since the previous research does not consider this issues. Accordingly, the researcher
assess the study according to the following research questions.

 What is the cause of unemployment in the town?

 What is the trend of unemployment in the town?
 How long an individual remain unemployed on average?
 What are the consequences of the unemployment in the town?

1.3 Research Objectives(s)

1.3.1 General Objectives
The general objective of the study is to access the condition of unemployment in Chiro Town.

1.3.2 Specific Objectives

The study is focusing on the following specific objectives:-

 To examine the trends of unemployment in the town.

 To examine causes of unemployment in the town.

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  To assess how long an individual remain unalloyed in the town on average.
 To examine (forward) consequences of unemployment in the town.

1.4 Hypothesis
At the end of this research, we will be able to

 identify the key factors contributing to urban unemployment in Ciro Town,

 analyze the impact of economic policies on employment rates, and
 Propose effective strategies to reduce unemployment and improve job
opportunities for urban residents in Ciro Town.

1.5 Significance of the study

The study is significant to the town policy makers to reduced unemployment problem and to
enhance the per capita income of the residents and also for the further researchers by laying
down a corner stone through making available relevant and useful dataThe study is significant to
the town policy makers to reduced unemployment problem and to enhance the per capita income
of the residents and also for the further researchers by laying down a corner stone through
making available relevant and useful data

1.6 Outline of the study

This proposal paper is organized and classified into three chapters. The first chapter is the
introduction part which contains the background, the statement of the problem, objective of the
study, hypothesis, significance, and outline of the study. The second chapter will be concerned
with review of related literature this part contain both the theoretical and empirical literature. The
third chapter will focus on methodology and model specification with estimation and
interpretation of the results

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 Chapter Two

2 Literature review
2.1 Theoretical Literature review
Many economists and institutions defined unemployment differently for instance (Smith, 2000)
wrote” unemployed are those who have no jobs while, they are actively searching for a job and
are willing to be employed at the on going wage rate”. On the other hand the current at the with
International definitions of unemployment stipulates, that is sufficient for a person to be engaged
in an economic activity for at least one hour during the reference period to be classified as
employed .In this framework unemployment is considered to be an extreme situation of total lack
of work.

The CSA 2006 Survey, as quoted from ILO, 1983 defined the standard international definitions
of unemployment based on three criteria. These are:-

I “without” those neither in paid employment or self-employment

II. “currently available for work”, those available either for paid employment or self-
employment.

III.” seeking “work those who had taken specific steps such as registration at a public or private
employment exchange, application to employees etc.

Todarro,1994 under the little of “labor underutilization and some definitional distinction
distinguished five kinds of underutilization of labor based time, intensity of work and
productivity.

1. Open unemployment: both voluntary and involuntary unemployment.

Voluntary unemployed persons are those unwilling to accept jobs for which they could qualify,
probably they have means support other than employment whereas the involuntary unemployed
are those who are willing to work but unable to find jobs.

2. Under employment is a situation in which workers works less than they would like to work.

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3. The visibility active but underutilized those who would actually classify as neither
unemployed nor underemployed by the above definitions given.

A, Disguised unemployment: those people who seen occupied on forms or employed in

government on a full. Time basis through the services they render may actually require
much less than full time.

B. Hidden unemployment : those who are engaged in second choice non employment activities
perhaps job opportunities may not available at the level of education already attained or for
women due to social norms.

C. The prematurely retired: this is evident and prematurely growing civil service because in
many countries retirement ages are falling

4. The impaired: those who may work full time but who intensify effort is seriously impaired
through malnutrition or lack of common preventive medicine.

5. The unproductively: those who can provide the human resources necessarily for productive
work but who struggle long hours with in adequate complementary resource.

2.2 Empirical Literature review

In many countries, different students have been conducted on the topic of unemployment with
different perspectives and case studies. Some of them are discussed as follows for Europe of
understanding the main economic analysis.

Nature and trends of unemployment in developing countries

Historically, the economics of developed countries have been described in terms of coniferous
transfer of economic activity and people from rural to urban areas. As urban industries
expanded new employment opportunities were created, and over the same period. Labor saving
technical progress in agriculture reduced rural manpower needs. (Todarro,1994).

The dimensions of the unemployment’s problem in developing countries go beyond simple lack
of work opportunities. The state of unemployment is different from new developed countries
unemployment problem in the third world have much complex causes and dimension of

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 unemployment in third world countries. It is associated with poverty low living standard, etc that
have not experienced in the now developed countries (Ibid,2003).

Developing countries in general and African countries in particular have been experiencing long
high unemployment rates the rise in urban unemployment in the regions has been paralleled by
increasing urban poverty. It is this phenomena of “Urban poverty” that forced development
theorists to depart from pass thinking that development constituted to the increase in output in all
sectors of the economy. On the contrary rapid increase in population led to a rapid increase in
poverty and unemployment (Teshome,1998).

The empirical data by Todarroo (1994) presented as follows to confirm the above facts that both
the unemployment level and rate is higher in developing countries. The figures also suggests the
problem of UN employment is exhibiting as increasing trend over time in those countries.

Table 2. 1 unemployment level and unemployment rate in developing countries.

Indicator 1960 1970 1980 1990

All developing
countries
Unemployment 36,406 48,798 65,620 88,693

Unemployment rate 6.7 7.4 7.8 8.2

Africa
unemployment 8,416 12,831 15,973 21.105
Unemployment rate 7.7 9.6 9.6 9.9
Asia
unemployment 24,258 31,440 43,029 59.485
Unemployment rate 6.8 7.1 7.7 8.3
Latin America
Unemployment 3,258 4,527 6.618 3,103
Unemployment rate 4.7 5.1 5.8 5.5

Population growth and unemployment

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Population growth without balance economic growth in developing countries is deeply
influencing the labor market and exacerbating the unemployment. In LDCs the demand for jobs
considerably increases with high growth rates, to raise income, both levels and rates investment
has to grow much faster than the growth rate of the labor force, but there is lack of physical and
social capital. In LDCS along with structural and technical liquidities renders the supply of out
case inelastic and arise in population leads to greater unemployment and open employment (ILO,
1990) reported that the age structure of the population also indicates how a growing populations
influences unemployment. The age structure of the population in developing countries is
dominantly the youth for instance 40% of the population is below 14 years age. This implies that
the number of young people entering the layout force is exacerbating the problem of
unemployment. As projections in Africa indicate that until 2010average some 8.7 million new
entrants will enter the labor market every year for whom jobs have be found.

In Ethiopia labor force is defined as those persons aged 15 years and above. UN like the labor
force age limit convention by different countries, Ethiopia limits lower age 15 years. The extent
of labor force activity rate according to the 1984 and 1994 national housing censuses’ is shown
below, (CSA,2000) The table below shows activity status of Ethiopia.

Table 2. 2 activity status of Ethiopia 1984 and 1994.

Total Total number

population (in
Indicator Activity status Activity rate
Million)
Age >15 Active Inactive

1984 40.1 20.5 13.7 6.8 66.8

1994 53.1 36.6 26.6 10.1 72.4

Source: based on 1984 1994 population census.

Out of total economically active population 13.7 million in 1984 about 1.2% was unemployed,
while 2.9% of 26.5 million of economically active population were unemployed in 1994.

The rate of unemployment in the urban areas about 2.9% in 1984 and it becomes 2% in 1994
where a rural rate of unemployment was about 1% (Ibid)

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 Chapter Three

3 Research Methodology
3.1 Study area description.
Western Hararghe is one of the Zones of the Ethiopian Region of Oromia. Western Hararghe
takes its name from the kingdom or former province of Hararghe. West Hararghe is bordered on
the south by Somale Region, on the west by Arsi, on the north by the Afar Region, and on the
east by East Hararghe. It has 17 Woreda, total area approximately 8,989 square kilometers and
located at a distance of 317 km in east of Addis Ababa. According to CSA population 2018
population projection has total population of 1,639,587 residents and among these 820,595 is
male and 818,992 are female (Western Hararghe Administration office, 2020).

3.2 Data and data sources

The required data for the study would be gathered from different bodies, in the form of primary
data and secondary data.

Primary data

This data would be obtained by means of questionnaires and interview or personal observation
will also added to get more curios information about unemployment conditions in Chiro town.

Secondary data

Secondary data would be collected from different documents, books and which have already
been collected by someone and which have be passed through statistical process.

3.3 Model specification and estimation technique

3.3.1 Binary logistic Model Specification

Unemployment status of urban dependent variable of the model that is dummy variable
that take value 0 = if urban youth is employed and 1= if urban respondent isemployed.
The response variable is dichotomous. If the ith individual is employed, the response
variable (Yi) takes the value 1 otherwise it takes the value 0. The main variable of interest
is unemployment, a latent variable, where the individual may be classified as either
employed or unemployed.
Y= 1, if the ith person is employed

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 0, unemployed
Gujarati (2004) the logistic model would be written in terms of the odds ratio and log of
odds ratio, which enable one to understand the interpretation of the coefficients. In this
study, the odds ratio is the ratio of the probability that the will be employed (Pi) to the
probability that he/she will be
unemployed (1-Pi). 𝑝𝑖 = 𝑓(𝑧𝑖) = 𝑓(𝑎 + 𝐵𝑖𝑥𝑖)

=
Since, (𝑧𝑖) = 𝑓(𝑎 +𝐵𝑖𝑥𝑖) the above formula can be rewrite as shown below for easily
understanding
1 𝑒𝑍𝑖
1-pi=1+𝑒𝑍𝑖, pi=1+𝑒𝑧𝑖

()= 𝑒
1−𝑝𝑖𝑝𝑖 where Zi= 𝛽𝑜 + ∑ 𝑘
𝛽𝑖𝑥𝑖 +𝜀𝑖
𝑖=1

𝑝𝑖
Ln(1−𝑝𝑖)=𝛽0+𝛽1𝑎𝑔𝑒 + 𝛽2𝑎𝑔𝑒2+𝛽3𝑔𝑒𝑛 +𝛽4𝑚𝑔𝑠+𝛽5𝑒𝑑𝑢𝑠 +𝛽6ℎℎ𝑖 + 𝛽7𝑠𝑛𝑑 + 𝛽8𝑚𝑒 +𝛽9𝑓𝑒
+𝛽10𝐸𝑥𝑝 + 𝛽11𝐴𝑐𝑟𝑑 +
𝛽12𝐴𝑖𝑛𝑓𝑜 +𝛽13𝐴𝑗𝑜𝑏 + 𝜀i
3.4 Description of the variables
Table 3. 1: Description of the variables

Variables Description Variable type and Value Expected sign

Employment status Employment status of the Dummy variable, 1 if employed, 0 Dependent
respondent otherwise. variable
Age of respondent(age) Age of respondent Continuous, amount in number Positive
Age square(age2) Respondent age square Continuous, amount in number Negative
Gender (gen). Gender of the respondents Dummy variable, 1 for male and 0 Positive/negative
female
Availability of Availability of job in their Dummy variable, 1 if there is Positive
job(Ajob) town. available job and 0 otherwise
Migration status (mgs) Migration status of Dummy variable, 1 if migrant, 0 Positive/negative
the respondents otherwise.
Educational status Categories of education Categorical, 1 if illiterate 2, positive
(edus) attained by respondent. primary education 3, Secondary
education 4 Higher education.
Household income Household income Continuous, amount in number. Positive

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(hhi) they earn on yearly
basis.
Social Network Respondent access to Dummy variable, 1 if have social Positive
Density (snd) information networks and 0 if has no social
network.
Mother's Education Mothers education in terms Dummy variable, 1 if literate and 0 Positive
(me) attending the school or not. otherwise.

Father's Education(fe) Fathers education in terms Dummy variable, 1 if literate and 0 positive
attending the school or not otherwise.

Marital Status(ms) Marital status of Categorical variable, 1 if Single,

the respondents (2) if Married, (3) if Divorced and
(4) if Widowed.
Work Experience(Exp) Work experience they Continuous variable, expressed in Positive
acquired on work. number.
Access to Credit Availability of credit from Dummy variable, 1 if the Positive
(Acrdt) formal sources of respondent has accesses to credit,
financing. and 0 otherwise.
Availability of Availability of information Dummy variable, 1 if information is Positive
information(Ainfo) regarding job in the area. available and 0 otherwise

REFERENCE
 BerhanuNega, BetekadaDegafe(1999/2000), annual report in
Ethiopian economy volume I.
 Borjas George J. (2008),labor economic 4 th edition, MC Grow hill
printing press, new York city.
 CSA (2005), national labor force survey.
 - G.Mankiw (2006) macroeconomic, 6th edition, Harvard university.
 - McConnell (1995), and Bruce S. labor economic, 4 th ,edition, mc
grow-hill new York.
 PilterSernels(2004), the nature of unemployment in urban
Ethiopian, Harvard University.
 Pr.Todarro,(2006), economic development 7th edition, new York
university

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  Stephen Smith (2003),labour economic , 2 nd edition, great Britain,
TJI digital printing press.

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