For the six oil-importing countries in the Middle East and North Africa region—Egypt, Jordan, Lebanon, Morocco, Syria, and Tunisia—high unemployment is a chronic problem. Unemployment rates here are among the highest worldwide. This can have enormous economic and social costs, with the potential for what the IMF Managing Director has described as a ‘lost generation’ of unemployed.
Figures for these six countries in the region, outlined in our October 2010 Regional Economic Outlook, are staggering.
- For the past two decades, average unemployment has been in the vicinity of 12 percent and was still in double digits in 2008.
- Even the faster growth that these countries achieved between 2000 and 2008 made only a limited dent in the unemployment problem.
- Also alarming is the concentration of unemployment among the youth and the educated. At over 20 percent, youth unemployment is among the highest in the world. In some of these countries it is even higher.
In the past, high unemployment in the region led to large numbers of workers moving abroad in search of work. Some estimates suggest that as much as 15 percent of the combined labor force of these countries is working in countries abroad.
But, the region can no longer afford the status quo. Today, there is increasing competitive pressure from other emerging markets. And sharply higher unemployment in advanced economies means fewer employment prospects, so moving abroad is no longer the ‘solution’ it once was.
The challenge ahead is daunting. Over the past decade, the labor force in these six countries has grown on average by 2¾ percent a year, faster than in any other region of the world, save Africa. While labor force growth is expected to slow somewhat over the next decade, it is likely to continue to outpace most other regions in the world.
As a result, these countries need to create about 18½ million full-time jobs over the next decade to provide employment for young people looking for their first job and to bring down unemployment.
Why is unemployment chronically high?
First, job seekers do not have the skills that are required by firms wanting to be successful in domestic and international markets. There have been substantial improvements in access to education. Still, firms regularly complain about the lack of suitable skills among job seekers, suggesting that schools and universities fail to produce graduates with the skills needed.
Second, hiring practices by the public sector have created expectations for job seekers that private firms often cannot live up to. Governments in the region look for applicants that have university degrees, but often place little emphasis on the type of degree. And public sector wages are relatively high. For example, the Egyptian public sector on average pays 48 percent more than private firms.
What needs to be done?
Promote growth. While growth is not the sole answer to the unemployment problem, it still helps. But there are difficult challenges for growth too.
- The region’s traditional trading partners in Europe are growing more slowly, and competition from today’s fast growing emerging markets is increasing.
- Streamlining the often cumbersome regulations and otherwise improving the business environment would go a long way to raising growth.
- Moreover, these countries need to better integrate into global supply chains. They should also see other emerging markets as partners (rather than just competitors), with whom cooperation is beneficial.
Help job seekers acquire the right skills. Here, the challenge is to better align education with the skills needed in today’s marketplace. Involving firms or, possibly, chambers of commerce, in the development of teaching curricula would help. Moreover, well-designed training programs for the unemployed would make them attractive to firms looking to hire.
A number of innovative, public-private partnerships along these lines are already under way.
- In Jordan, for example, ‘Injaz’—a partnership between the Ministry of Education and the private sector launched in 1999 (which has now expanded to cover a dozen countries in the region)—provides children with teamwork skills, entrepreneurial thinking, and work-readiness training.
- Similarly, Cairo University’s Career and Entrepreneurship Development Office empowers students to innovate, start their own businesses, and acquire the skills demanded by the market through a range of practical training and internship programs.
- And, across the region, the Education for Employment Foundation works with corporations and industries to assess demand for skills and to provide correspondingly tailored training programs for young people.
Untangle social protection from labor regulations. No doubt, governments must help their citizens when they are hit by misfortune. However, this needs to be done in a way that does not create other problems. Firms need to be able to let go workers if their businesses are going through a severe downturn. Instead of too stringent labor market regulations, a tight and targeted social safety net—that includes an unemployment insurance system—is a better way of protecting those in need. The challenge is to strike the right balance.