Sociology and Anthropology 2(6): 207-218, 2014 http://www.hrpub.org DOI: 10.13189/ sa.2014.020601 Unemployment and Labor Market in Urban Ethiopia: Trends and Current Conditions Fitsum Dechasa Kibret Center for Environment and Development, Addis Ababa University, Addis Ababa, Ethiopia Corresponding Author: laryfdk@yahoo.com Copyright © 2014 Horizon Research Publishing All rights reserved. Abstract Ethiopia is one of the African countries with the highest rate of urbanization. Such high growth rate of Ethiopian urban centers presents enormous challenges to the nation. One of the developmental challenges facing urban Ethiopia today is unemployment. While there is little improvement in urban unemployment reduction, the overall performance in employment creation remained sluggish. Despite the growth in the labor force, employment growth is inadequate to absorb labor market entrants. The great concern here is, therefore, whether there should be substantial growth in job creation in urban areas to absorb new labor market entrants. This calls for a careful assessment of the current urban unemployment and labor market situation and efforts being done towards employment creation. On this ground, this essay focuses on conceptual, theoretical and policy-relevant description of unemployment and labor market situation in urban Ethiopia. Accordingly, urban unemployment, despite declining trend is still high, the problem being more prevalent among female and youth group. It shows great difference across regional urban level. The review on urban labor market situation of Ethiopia based on ILO KILM shows that urban labor force participation rate and employment rate do not show that much improvement; only about half of the urban labor force is employed as of March 2012. About one third of the total employed individuals were engaged in informal sectors showing the significant role of informal sector in urban Ethiopia as an important part of economic life which tends to absorb a considerable amount of the growing urban labor force. There are different policies and strategies introduced and implemented by the government for employment generations on both the demand and supply side in the public and private sectors. However, the employment creation role of both public and private sectors have been constrained by different factors among others are privatization, tax rate, lack of or inadequate finance/credit and infrastructure/facilities. For these the suggestions made are addressing the poor labor market situation of female; implementing labor-intensive employment creation strategies for the growing young skilled labor force; and arranging access to organized market, credit institution, modern technology, formal training and providing institutional protection for informal sectors. Keywords Urban Unemployment, Labor Market, Employment Creation 1. Introduction 1.1. Background Unemployment is one of the several socio-economic problems prevailing in virtually all countries of the world. It has long been one of the several features of the urban phenomenon in many countries though some countries have suffered the worse rate of unemployment than others [21, 19]. The problem has a serious effect not only on the living standards of the people (negative effects on the psychology, socio-economic and physical well-being) but also on the socio-economic status of a nation [19]. Today, in most of the developing countries the problem of unemployment is a central concern of development; and more recently the discussion has focused on unemployment in urban sectors [24]. Many urban centers in developing countries are challenged by high rates of unemployment. Moreover, despite the huge unemployed labor force, urban centers of these nations experience high rate of rural-to-urban migration, exacerbating the unemployment problem of urban areas [2]. A spatial perspective of Africa’s labor market outcomes witness higher rates of unemployment in urban areas than in rural ones [6]. As in many other developing countries, the urban labor market in Ethiopia is typically characterized by huge inefficiency and underdevelopment. Labor supply by far exceeds labor demand and many men and women are looking but unable to find job and stay unemployed (open unemployment) [26]. In urban Ethiopia the labor force grows with an increasing proportion while the opportunity of employment is inadequate to absorb the labor market entrants and thus, unemployment presents a particular challenge. Though there is some improvement the country