What we’re reading about jobs and market contestability

A decade since one of the most significant sociopolitical movements in the Middle East and North Africa (MENA) region, the frustrations that ignited what came to be called the “Arab Spring” still dominate the region’s economies. Many young people continue to be idle. Others suffer from unemployment and underemployment, including among the better educated. Women remain excluded from economic activity; and informal—and hence unprotected—employment still prevails. These preexisting conditions are now amplified by the repercussions of the COVID-19 pandemic.

The new flagship report by the World Bank’s Jobs Group and the Office of the World Bank’s Chief Economist for MENA, Jobs Undone: Reshaping the Role of Governments toward Markets and Workers in the Middle East and North Africa, argues that an important cause of the unmet jobs challenge in MENA is a lack of market contestability, which stymies opportunities for the formation and growth of new firms.

Contestable markets facilitate the entry of new firms and allow less efficient firms to go out of business. This encourages productivity growth and efficient resource allocation, which can help foment structural change and the creation of better, more inclusive jobs. Instead, the economies of MENA have favored incumbent firms, whether private-led or state-owned, resulting in job creation in the private sector that is too slow to absorb the rapidly growing population.

The Jobs Undone report offers a new glimpse into the evolution of the private sector over the years. Using two rounds of the World Bank Enterprise Surveys—for several economies in the region—the report shows that limited market dynamism and stunted job creation continue to depress MENA’s private sector.

Further, the report highlights the importance of understanding the policies and regulations that can hinder market contestability, notably product market regulations (PMR)—including price controls of several food staples, liquefied petroleum gas, gasoline and medicine—and the role of state-owned enterprises (SOE). As newly collected data shows, PMRs are particularly relevant because they affect the costs that firms face when they enter the market and the degree of competition among firms already operating in the market. State presence through SOEs is still significant across the region. While the presence of SOEs alone may not be a major issue if the playing field is leveled, these enterprises receive favorable treatment and are in some cases exempt from competition laws that apply to private enterprises.

The Jobs Undone report also highlights the need to review labor regulations and taxes, and “gendered” laws that differentiate between men and women.

The road to contestability and better jobs in the MENA region should be implemented by: (1) leveling the playing field in product markets, given the high presence of the state; (2) reshaping the relationship between the government and workers (labor market regulations and social protection systems); and (3) fostering women’s inclusion in all economic spheres (gendered laws).

In addition to the Jobs Undone report, this reading list also features publications and articles that contribute to the growing literature on market contestability, competition, the creation of more and better jobs, the broader jobs agenda, and the impact of the COVID-19 pandemic.

Essential readings

• While the direct effect of product market deregulation is to reduce total rents, workers gain more as consumers than they lose as workers. (Blanchard & Giavazzi, The Quarterly Journal of Economics, August 2003)
• Deregulating product markets in overly regulated countries can result in increased employment. (Nicoletti & Scarpetta, OECD, December 2005)
• Increased competition leads to increased labor market turnover, which may lead to rising relative wages and aggregate employment losses, depending on the relative elasticity of separation, and hiring rates to increased competition. (Amable & Gatti, IZA, March 2001)
• While uniform intensification of product market competition increases employment, it may cause real wages to fall in the short and long run. (David Spector, European Economic Review, February 2004)
• In MENA, policies that lower competition and create an unleveled playing field constrain private sector job creation. (Schiffbauer et al., World Bank, 2015)
• This book identifies several entry points for operational interventions that can reduce opportunities for unleveled playing fields in key areas of private sector policymaking. (Mahmood & Slimane, World Bank, February 2018)

Broader jobs agenda

• Combining a simulated survey data from urban areas with widely available geospatial indicators from Google Earth Engine and OpenStreetMap can significantly improve estimates of labor force participation and unemployment rates. (Merfeld et al., World Bank, June 2022)
• Access to finance in the MENA region is positively associated with job creation, and firms that are more vulnerable to competition from informal firms have less access to finance. (Brancati et al., World Bank, June 2022)
• Emerging economies' private sector small and medium-sized enterprises are significantly lagging in the transition to a green and more sustainable business environment. (Ferrazzi & Tueske, World Bank, June 2022)
• Expanding a major e-commerce firm’s fulfillment center reduces traditional retail workers' income in geographically proximate counties by 2.4 percent. (Chava et al., National Bureau of Economic Research, May 2022)
• This paper documents the sources of job loss costs over the business cycle of firms. (Schmieder et al., National Bureau of Economic Research, June 2022)
• The paper synthesizes what economists have learned about human capital since Becker (1962) into four stylized facts. (Deming, National Bureau of Economic Research, June 2022)
• This paper outlines three key strategies to accelerate aquaculture growth including temporary subsidies, market expansion, and improving quality feeds at lower costs. (Ragasa et al., Aquaculture, January 2022)

COVID-19 and jobs

• This paper examines how formal firms have been impacted by and recovered from the pandemic by drawing on two distinct, but complementary data sources. (Hoy et al., World Bank, June 2022)
• Unemployment insurance and short-time work are highly complementary. (Giupponi et al., Journal of Economic Perspectives, Spring 2022)
• This paper examines how well a set of real-time indicators (including Google mobility, Google search trends, food price information, nitrogen dioxide, and nighttime lights) tracked changes in GDP across 142 countries in 2020. (Ten et al., World Bank, June 2022).
• The findings suggest that the initial effects of the COVID-19 crisis exacerbated preexisting economic gaps between areas affected by fragility, conflict, and violence, indicating that an even larger effort will be necessary to facilitate recovery from the pandemic. (Tabakis et al., World Bank, June 2022)

This blog is based on the June 2022 edition of the Knowledge4Jobs newsletter, curated by the World Bank’s Jobs Group and Labor and Skills Global Solutions Group. Click here to sign up for the Knowledge4Jobs newsletter.