Published on Arab Voices

Is MENA’s job problem about economic growth or employment creation?

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ImageOne of the key and long-lasting concerns across the Middle East and North Africa (MENA) region has been job creation. With the Arab spring events, this issue has moved to the top of the development policy agenda in most countries in the region. And the media has been reporting personal stories of hardships faced by people, especially young ones, trying to find jobs that match their aspirations, in some cases, qualifications, and enable them to launch their lives and start families.

There is little doubt that the region needs more jobs. In the last decade, there were only 3 million jobs created each year in the region – considerably less than the 6 to 7 million needed to address key challenges. Unemployment, especially among the youth, has remained extremely high, while labor force participation rates, particularly for women, are among the lowest in the world. We all know that Egypt, Tunisia, Jordan and other oil importing countries in the region have a job creation problem. We think this might be the case in the other MENA countries. A closer look suggests otherwise.

Our new Economic and Development Prospects (EDP) report (released on September 21) shows that the region’s job problem cannot be attributed solely to a slow pace of job creation relative to economic growth. The typical MENA country shows a greater tendency to create jobs than other middle-income countries, as measured by the average of the countries’ employment-growth elasticities in the 2000s. These elasticities have been especially high in the oil exporting countries.

To some this result might come as a surprise. The region’s production is skewed toward capital-intensive industries. The fuel sector accounts for nearly half of the gross domestic product (GDP) of MENA’s oil exporting countries and the capital-intensive industrial products account for a sizable share of nonoil merchandise exports in most countries in the region.

Several factors have compensated for these structural features of the MENA economies. As shown by a recent World Bank report, informal employment is highly prevalent in the developing countries in the region. The typical MENA country produces about a third of its GDP and employs two-thirds of its labor-force informally. In such economies, new entrants to the labor force can generally find low-productivity, low-quality jobs in the informal sector. Another reason has been the use of special employment programs to support job creation in recent years. This has been the case in Algeria and other countries where there has been sufficient fiscal space and oil wealth. Finally, the new report shows that the past decade has been a period of rapid growth of several labor-intensive sectors, including construction, trade, tourism, logistics and communication services. But, many of the jobs have been ‘unattractive’ to domestic residents in oil exporting countries and have been done by noncitizens.

Thus, the main job problem in the region, particularly in MENA’s oil exporting countries, is one of insufficient economic growth and poor job quality. According to our assessment, regional economic growth will have to accelerate above the 4.8 percent achieved in the 2000s to at least 6 percent during the next decades in order to address the region’s job quantity issues, assuming a similar propensity to create jobs.

Tackling job quality is an equally important challenge; this will require increasing access to skills upgrading opportunities and improving the business environment so that all firms get a chance to compete and innovate. It will also involve redesigning pension systems, addressing regulatory barriers in labor markets, and realigning pay and benefits packages in the public sector.

By contrast, the oil importing countries have better growth records than the developing oil exporters, but display considerably lower propensity to create employment than the average for the region. These countries have a job creation problem and need to promote new businesses, especially labor-intensive private industries, as they do not have the natural resource wealth to spur employment programs. 

For the Chief Economist of the Middle East & North Africa Region's recent blog on the Report and subject, please go here.

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