High margins in product markets and upward wage pressure in labour markets have resulted in uncompetitive domestic costs of production in a number of sectors. This erodes external competitiveness and as a consequence excludes part of the population from formal economic activity. It also ends up constraining a country’s ability to diversify exports.
Entry-level wages are also sometimes above the productivity levels of less experienced workers and new entrants to the labour market. This discourages labour demand. Sustainable job creation that significantly reduces unemployment can be achieved with labour and product market reforms that specifically target labour intensive production processes.