Creating Jobs in the Middle East and North Africa
A Commentary by Masood Ahmed, Director, Middle East and Central Asia Department, International Monetary Fund
Published in Asharq Al Awsat, May 20, 2011
The social and political turmoil in the Middle East and North Africa has given renewed urgency to the need to counter chronic joblessness, particularly among young people. Labor market data in the region are scarce, but available statistics covering six countries—Egypt, Jordan, Lebanon, Morocco, Syria, and Tunisia—indicate that average unemployment stood at 11 percent in 2008, barely below the average of the past two decades (12 percent) and the highest regional unemployment rate worldwide.
The problem is especially pronounced among the young and the educated. The share of young people among the unemployed in the six countries on average exceeds 40 percent, and even reaches around 60 percent in Egypt and Syria. At over 25 percent, the average youth unemployment rate is also the highest regional rate worldwide and, in Morocco and Tunisia, it stands at around 30 percent. Unexpectedly, unemployment in this region tends to increase with schooling, exceeding 15 percent for those with tertiary education in Egypt, Jordan, and Tunisia.
Governments can implement a number of immediate measures to step up job creation and enhance the employability of their young populations.
One opportunity, for example, is to bring forward viable labor-intensive infrastructure projects that are already in the pipeline. Evidence from Latin America and the Caribbean suggests that infrastructure investment can have a sizable impact on employment generation—about 40,000 annual direct and indirect new jobs can be created in the short term for every US$1 billion spent on infrastructure projects. Extrapolating these numbers to Egypt and Tunisia, for example, suggests that 1 percent of GDP spent on the right kind of infrastructure projects could generate, in the short term, as many as 87,000 new jobs in Egypt and 18,000 jobs in Tunisia.
Policymakers can also provide tax incentives or credit guarantees to viable labor-intensive small- and medium-sized enterprises, as implemented in many emerging markets and transition economies during the global financial crisis.
Another option is to introduce well-designed youth-oriented training programs, or to scale up and replicate promising existing ones, such as the Education for Employment Foundation, which currently operates in several countries in the region, including Egypt, Jordan, and Morocco, and works with corporations and industries to assess demand for skills and to provide corresponding tailored training programs for young people. Here also, lessons can be learned from other countries’ experiences.
To have a lasting effect, however, short-term measures have to be combined with a comprehensive job strategy that fosters inclusive growth, transforms education systems, and provides adequate social protection to workers and job seekers.
High economic growth remains a key pillar of generating jobs for new labor market entrants. Many countries in the region have simply not been growing fast enough to create the jobs needed for a young and expanding labor force. For growth to have the maximum impact on job creation, it also needs to be inclusive, benefiting all segments of the population—not just a privileged few. Sustained growth will be driven by the private sector. Governments can create an enabling environment, including by providing a level playing field and a healthy business climate.
To enhance skill formation, primary, secondary, and tertiary curricula need to be better aligned with the needs of the private sector. In this context, reforming university admissions policies to test a broad range of skills—writing, critical thinking, and problem solving—would give incentives for students at the primary and secondary levels to acquire such skills.
The region also suffers from overly rigid labor market regulations. In Egypt, for example, severance payments for established employees amount to 132 weeks worth of their final salaries. At such a high cost of firing, firms are discouraged from hiring in the first place. So, while such labor market regulations are intended to protect the worker, they in fact impede job creation in the formal sector and contribute to driving firms into the informal economy, where young people have limited opportunities for human capital development and little to no rights or social protection. Policy should therefore aim at relaxing rigid labor market regulations, while at the same time preserving the right to collective bargaining and providing effective social protection, including unemployment insurance, for workers.
Creating jobs is a formidable challenge, but the task can be accomplished. The region can tap the full potential of its dynamic and young population through a firm commitment to inclusion and reform.