The impact of economic liberalization on labour market: the case of textile industry in Tanzania

In 1984 Tanzania adopted trade liberalization as a step towards economic liberalization. The momentum of economic liberalization was enhanced by the first Economic Recovery Programme of 1986. The objective of the economic liberalization has been to increase efficiency and competitiveness in order to ensure economic growth, especially by allowing free play of market forces. In the process all markets including the labour market have been either fully or partially liberalized. The state of Tanzanian economy has changed significantly as a result of liberalization. Economic growth has been restored, investment growth, and contribution of the manufacturing sector to the total GDP have increased.-The state of all markets including the labour market have changed. It is from this background that this study has been influenced to focus on labour market, in this process of liberalizing the economy. The study employs the period 1984-1994.as the sample period. The analysis is estimated by the conventional "Ordinary Least Squares technique". The Labour market in Tanzania has been affected by both, the changes that have occurred within the labour market and changes that have occured in other markets. This study has observed that from the time liberalization started, the quantity of labour demanded has been falling in an alarming rate. Both the incidence and duration of unemployment have increased. The former overprotected and over expanded public enterprises have been contracting, thus laying-off a good number of workers. The pressure of increased competition of foreign products, increased cost of production especially as a result of devaluation, and increased desire to produce efficiently have all been outlined by this study as the causes of such sort of unemployment. The regression results obtained support the claim that after the removal of government control, profit and output have been influencing employment. The regression analysis has shown that in the absence of government intervention, output is positively related to the quantity of labour demanded. It has also been shown that exchange rate has been influencing expenditure of industries depending on intermediate imports. This study has concluded that the unemployment caused by economic liberalization is high and has both short term and long term effects. This study ha found that competition has been unfair to some firms particularly the textile firms. The study thus recommend to the government of recheck the speed of adjustment. Gradual rather than sudden adjustment could be the best option, and protection should be given to some sectors which are still in need of protection, and let other sectors which can do without protection go on their own. The role of the informal sector has also increased as far as employment is concerned, due to the fact that those who are retrenched in the formal sector have been joining the informal sector. The study thus suggests the need for a government to adopt policies that will ensure good performance of the informal sector, so that it can perform its increased role as the major employer.