“EMPLOYMENT  CREATION,  POVERTY  REDUCTION  AND  SOCIAL  INTEGRATION    IN  THE  ARAB  WORLD:  THE  UNFINISHED  AGENDA”  

 BY  ZAFIRIS  TZANNATOS*  

 

 PRESENTED  AT  THE  EXPERT  GROUP  MEETING    “PROTECTING  ARAB  FAMILY  FROM  POVERTY:  

 EMPLOYMENT,  SOCIAL  INTEGRATION  AND  INTERGENERATIONAL  SOLIDARITY”  DOHA/QATAR  2-­‐3  JUNE  2013  

Context  

1980s  :  The  lost  decade  –  Low  oil  prices,  fiscal  stress,  old  social  contract  reached  its  limits  

1990s  (depending  on  the  country)  <ll  late  2000s:    Arab  “renaissance”  under  “Economic  reforms  first,  poliYcal  later”  

–  Rapid  (but  uncriYcal)  trade  liberalizaYon  –  Financial  deregulaYon  (its  effects  are  now  known  at  least  since  2008)  –  PrivaYzaYon  (or  denaYonalizaYon?)  –  Fiscal  consolidaYon  (eg  food/  energy  etc  subsidies,  rolling  back  of  social  

protecYon,  reducYon  in  public  services)  –  FDI  but  in  areas  with  low  social  returns  –  No  healthy  bounce  back  of  the  private  sector,  including  low  rates  of  

investment    –  Lack  of  transparency,  uneven  playing  field  and  opportuniYes  –  Lidle  “trickle  down”  (shares  of  wages/consumpYon  in  GDP  significantly  

reduced)    

2  

Intra-­‐regional  diversity  and  aggrega<on  

Common  classifica<ons  •  High  income  –  low  income  •  Oil-­‐based  –  resource  poor  •  Labor  sending  ,  labor  receiving,  labor  sending  and  receiving  •  Secular  or  not  •  Also  differences  with  respect  to  land,  populaYon  size,  urbanizaYon,  water,  

educaYon  …    •  MENA  includes  Iran,  regional  averages  are  typically  populaYon  weighted  

A  beEer  way  of  looking  at  the  region?  Ø  Exclude  Iran  from  the  Arab  region  Ø  Simpler  grouping  of  Arab  states:  Maghreb  –  Mashreq  –  GCC  Ø  Use  unweighted  country  averages  for  the  region  (not  populaYon  weighted  

esYmates  that  unduly  affect  averages,  for  example,  by  including  Saudi  Arabia  in  the  GCC  or  Egypt  in  the  Middle  East  and/  or  North  Africa)    

Doing  so  dispels  a  few  “myths”  …   3  

Myth  1:  Economic  growth  was  jobless  Employment-­‐output  elasYcity,  2000-­‐2010  

0.76  0.70  

0.66  

0.32  

0.00  

0.20  

0.40  

0.60  

0.80  

1.00  

1.20  

1.40  

Yemen

   

Syria

 

Middle  East  

Jordan    

Lebano

n    

Algeria

   

Egypt    

North  Africa  

Tunisia

   

Morocco    

Libya  

Qatar    

Saud

i  Arabia    

UAE

 

GCC  

Oman    

Kuwait    

Bahrain    

Philipp

ines  

Mon

golia  

India  

Thailand

 

Korea  repu

blic  

Asia  

Malaysia

 

Indo

nesia

 

Sri  Lanka  

Viet  Nam

 

China  

4  

Myth  2:    Too  many  people  Labor  force  trends,  1990s  -­‐  2010s  

5  

Myth  3:  Too  many  youth  RaYo  of  youth-­‐to-­‐adult  populaYon  

0  

5  

10  

15  

20  

25  

30  

35  

40  

45  

50  

55  

60  

65  

70  

1970   75   80   85   90   95   2000   05   10   15   20   25   30   35   40   45   2050  

Youtn/Ad

ult  P

opula<

on  (%

)  

Middle  East-­‐GCC   North  Africa   GCC   World-­‐MENA  

6  

Myth  4:  Unemployment  did  not  decline  (it  did  so  for  most  countries,  though  unequally)  

%  change  in  total  unemployment  rate  by  country,  region  and  sex,  1991-­‐2010  

7  GCC  

Myth  5:  Too  many  unemployed  youth:  (too  many  unemployed  adults)    

RaYo  of  youth-­‐to-­‐adult  unemployment  over  Yme  

8  

Surely  youth  unemployment  is  high  but  declined  substan<ally  compared  to  adult  unemployment  

Ratio (%) of youth to adult unemployed

(Average 2009-11)

Youth Unemployment

Rate 2011

1991-1993 2009-2011 Males Females

GCC 161 85 15.7 32.8 North Africa 122 95 21.5 41.0 Middle East excl. GCC 138 104 26.1 43.9 Source: ILO (2012), Global Employment Trends

Youth  Unemployment  2013  in  

Greece  62%  Spain  56%  

Italy,  Portugal,  Ireland  34-­‐36%  France  26%  

9  

Youth  Unemployment  Rate  by  Gender  (%),  2010  (mainly  because  of  female  unemployment)  

10  

     

The  economy  

11  

Following  the  reforms  of  the  1990s,  economic  growth  accelerated    (though  it  remained  low  compared  to  other  regions    

and  therefore  per  capita  incomes  increased  only  slowly  )    

GDP  average  annual  rate  of  growth  (%),  2000-­‐2010  8.8  

6.9  

5.6   5.4   5.3   5.1   5.1   5.0   4.9   4.6  

3.4  

East  Asia   South  Asia   SSA  C/SEE  (non-­‐EU)  &  CIS  SAEP   GCC   Middle  East  Middle  East  excl.  GCC  Arab  States  North  Africa   LAC  

12  

Economic  growth  was  low  because  of:  

•  “Clubby”  privaYzaYon”  with  quick  returns  to  a  few  (but  low  social  returns)  

•  Stagnant  investment  rates  •  Low  compeYYon,  no  “even  playing  field”  •  Low  rate  of  new  firm  creaYon  •  Constraint  access  to  land  •  Many  other  policy-­‐induced  impediments  

13  

Stagnant  private  investment  rates  Private  investment  as  %  of  GDP  

14  

Constrained  access  to  land  %  o  investors  staYng  land  as  a  severe  constraint  

15  

Low  compe<<on/few  dominant  firms  Median  number  of  local  compeYtors  in  industry  

16  

Low  rate  of  new  firm  crea<on  Median  age  of  manufacturing  firms  

17  

Probability  of  finding  a  given  constraint  to  investment  Business,  investment  and  enterprise  Surveys,  MENA  2000s  

55  

47  45   45  

40   40  

37  36  

31  

Tax  Rates   Cost  of  Finance   Access  to  Finance  

Macro  Instability   Tax  AdminstraYon  

Informality   Access  to  Land   CorrupYon   Skills  

18  

Low  produc<vity  growth  Average  annual  producYvity  growth  (%),  2000  -­‐  2010  

19  

Employment  crea<on  in  low  produc<vity  sectors  Components  of  labor  producYvity  growth  1999-­‐2008  

20  

   

What  does  this  kind  of  economy    imply  for  employment?  

 No  decent  employment  

21  

In  rela<on  to  income,  high  rates  of  labor  absorp<on  in  agriculture    

Annual  growth  1995-­‐2005  by  country  per  capita  income  

22  

Employment  crea<on  was  not  formal  

0  

5  

10  

15  

20  

25  

30  

35  

2000   2001   2002   2003   2004   2005   2006   2007   2008  

Changes  in  the  rates  of  informal  employment  and  unemployment  in  Algeria,  2000-­‐2008  

Share  of  informal  employment   Unemployment  rate  

23  

Ra<o  of  Na<onal/Migrant  Workers,  GCC  1975-­‐2010  (Index  100=1975)  

24  

Even  in  Jordan,  na<onal  economic  policies  did  not  benefit  much  the  na<onals  Employment  growth  (number),  2000-­‐2009  

 Public Sector   125,196  

Private Sector   190,150  

Other Sectors   -3,139  

Total Jordanians   312,206  

Total Non-Jordanians   225,128  

Note:  Non-­‐Jordanians  include  only  those  with  official  work  permits    (e.g.  the  figures  exclude  domesYc  workers  and  undocumented  migrants)  

25  

Educa<on  and  Skills  

•  Is  it  high  reservaYon  wages  of  job  seekers    or  low  wages  paid  by  employers?  

•  Is  it  mismatch  between  educaYon  and  work  requirements?  

•  Is  it  because  inequality  of  educaYon  opportuniYes?  

•  Is  it  because  “there  are  no  skills”  or  because  “there  is  not  demand  for  skills”?  

•  Why  the  educated  are  unemployed,  enjoy  a  low  wage  premium  and  emigrate?    

26  

%  of  employers  repor<ng  inadequately  educated  workforce  

•  12%  or  more  in  Germany,  Switzerland,  Austria    

•  14%  in  the  GCC  •   9%  in  other  oil-­‐producing  MENA  economies  •   5%  in  Tunisia  and  Egypt  •   3%  in  Lebanon  

Source:  World  Economic  Forum  2012  

27  

If  there  were  demand  for  skills,  the  firms  would  provide  training:  In  MENA  they  do  not  

28  

SYll  there  are  three  areas  where    educaYon  can  and  should  increase  

29  

1.  Educa<on  achievement  should  be  increased  

30  

2.  Inequality  of  educa<on  opportunity  should  decrease  Difference  in  science  scores  between  students  from  the  lowest  and  highest  quin<les  

TIMSS  2007    

Source:  Djavad  Salehi-­‐Isfahani,  Nadia  Belhaj-­‐Hassine  and  Ragui  Assaad  (2012),  Equality  of  Opportunity  in  EducaYon  in  the  Middle  East  and  North  Africa.  Economic  Research  Forum.  Cairo    

31  

3.  Educa<on  of  managers  should  increase,  too!    

%  of  managers  who  have  not  completed  secondary  educaYon  

32  

The  social  side  

 

Human  development    and    

social  protecYon  

33  

Despite  increasing  employment  and  employment-­‐to-­‐popula<on  rates,  the  share  of  wages  in  GDP  in  the  Arab  region  declined  fastest  

60  

70  

80  

90  

100  

110  

120  

1996   97   98   99   2000   01   02   03   04   05   2006  

per  cen

t  of  G

DP  

Change  in  wage  shares  as  %  of  GDP  (index=100  in  1996)  

LaYn  America  

Asia  

CEE  and  Central  Asia  

Africa  

Middle  east  

North  Africa  

34  

Similarly,  household  consump<on  declined  as  %  of  GDP    

OECD  LaYn  America  

South  Asia  

SSA  

East  Asia  

MENA  

40  

45  

50  

55  

60  

65  

70  

75  

Househ

old  fin

al  con

sump<

on  

expe

nditu

re,  etc.  (%  of  G

DP)  

Household  consump<on  as  %  of  GDP  by  region,  1990-­‐2009)  

In  some  ways,  the  figure  is  in  line  with  the  observaYon  that  micro  surveys  in  the  region  are  not  properly  sampled    

35  

36  

In  MENA  unemployment  rates  do  not  decline  as  household  income  increases    

Spread  of  unemployment  rates  by  income  quinYles,  2000s  

Poorest  20%  

Richest  20%  

Before  the  financial  crisis  and  the  Arab  Spring,    few  Arab  countries  provided  unemployment  benefits  

37  

1%  

2%  

6%  

11%  

15%  

24%  

26%  

37%  

68%  

0   10   20   30   40   50   60   70   80  

Africa  

Arab  States  

LAC  

Asia  

World  

Central  &  Eastern  Europe  

CIS  

North  America  

Western  Europe  

%  of  unemployed  receiving  unemployment  benefit,  latest  available  year  

Non-­‐contributory    

Contributory              

Low  social  protec<on  (and  increasingly  priva<zed)  %  of  informal  workers  covered  by  social  protecYon  

38  

Despite  gains,  all  but  three  Arab  countries  score  less  on  the  HDI  compared  to  per  capita  income    

Human  Development  Index  

9  23  

1  

-­‐3   -­‐5   -­‐10  -­‐11  

2   0  

-­‐5   -­‐6   -­‐8  -­‐15  

-­‐21  -­‐14  -­‐19  

-­‐27  -­‐34  -­‐36  

-­‐50  -­‐57  

GNI  per  capita  rank  minus  HDI  rank  in  the  Arab  region,  2011  

39  

     

The  poliYcal  economy  side      

40  

Low  public  accountability,  2000s  Index,  100  =  high  

41  

100   70   65   50   45   40   25  0  

10  

20  

30  

40  

50  

60  

70  

80  

90  

100  

High  Income   La<n  America  East  Europe  &  Central  Asia  

East  Asia   South  Asia   Sub-­‐Saharan  Africa  

MENA  

Voice  and  accountability  declining  over  <me  

42  

Ini<al  protests  were  suppressed    but  kept  coming  back  with  added  force  

43  

Ci<zens’  pessimism  was  on  the  rise  Change  in  expectaYons  about  standard  of  living  

0  

5  

10  

15  

20  

25  

30  

35  

SSA   MENA   LAC   East  Asia,  SEAP   South  Asia  

2006  

2010  2006  

2010  

44  

Ci<zens  in  Arab  Countries  Have  Seen  Slow  Increases  in  Incomes  and  Have  Had  Low  “Voice”  

CHN

BLR AGOARMKAZ

KHMGEO MNGBTN INDNGA MOZVNM SLETJK MDAETHRWALAO LTUUKRRUS

TCD ALB BGRTZA TTOMDV SVKPAN CPV ESTLKA BGD ROM LVASTPAFG PER POLTHALBN

GHAIDNUGA

MAR KORARGSRBTMP HKGJOR TWNSUR URYDOMIRN SGPTURBIHZMB MUSBWAKGZ QAT MNEMLITUN ECU NAMBFACOL CZESAM CHLPHLMYSNPL SVNEGY HRVBRAMKDPAKCOG

ZAFPRY VCTGUY CRIOMN NER HUNALG PNGMWIBOLSWE

ZAR DJI LSOHND DMALBY MRT FINKENSENLUX

SYRAUS

GRCATG LCASLBAUT

GMB SLVISR

GRDVEN DEUSYCSWZ MLTCYP NZLIRQNLDISLBLZ CHEBRBNIC BEN CANVUT GBRBELGTM MEXBDI TON ESP

KWTNORFJI USABHRKSA YEM FRAJPNGIN IRLCMR DNKGAB JAM KNAGNB PRT

COMUAE MDG ITATGO BHSKIRHTICAF BRN

You want to be hereHigh:

Income GrowthVoice and Accountability

-2

-1

0

1

2

3

4

5

6

7

8

9

10

GDP

per c

apita

annu

al Gr

owth

(%) 2

000-

2011

-2 -1.5 -1 -.5 0 .5 1 1.5 2Voice and Accountability-KKZ Index 2010

But  not  here  

Even  here  

45  

   

Prospects  

46  

Low  future  economic  growth,  almost  half  of  what  would  be  required  to  reduce  unemployment    

Projected  annual  GDP  growth  (%)  Yll  2015  

47  

There  is  s<ll  a  lot  of  slack  

•  34%  youth  inacYvity  rate  (excl.  students  and  migrants)  –  24%  male  and  45%  female  

•  Female  labor  force  parYcipaYon  rate  26  %  (world  average  51%)  –  Regional  male  rate  on  par  with  world  average    

•  Unemployment  has  increased  since  2010  –  It  usually  takes  years  to  reduce  unemployment  

48  

How  long  does  it  take  to  bring  unemployment  down  to  pre-­‐crisis  levels?    

 Time  taken  for  youth  employment  to  recover  from  earlier  crises,  in  years  

 

49  

0

5

10

15

20

25

30

35

Greece  (1

992)  

Australia  (1

990)    

France  (1

992)  

Denm

ark  (1987)  

UK  (1990)  

Philipp

ines  (1

997)  

Germ

any  (1980)  

Italy  (1

992)  

ArgenY

na  (1

999)  

Mexico  (1995)  

Spain  (1978)  

Norway  (1

988)  

Finland  (1990)  

New

 Zealand

 (1986)  

Japan  (1993)  

Indo

nesia

 (1997)  

South  Ko

rea  (1997)  

Swed

en  (1

990)  

Thailand

 (1997)  

Years  

Panel  B.  Have  yet    to  aEain  the  pre-­‐crisis  lows    Panel  A.  AEained  pre-­‐crisis  lows  

11  years  17  years  

1.  Growth  has  been  slower  than  other  developing  regions  Growth  focused  on  low-­‐value  added  service  acYviYes  resulYng  in  poor  producYvity  growth  and  an  increase  in  informal  sector  employment  

2.  Growth  and  increased  employment  were  not  matched  with  increasing  shares  of  wages  and  household  consumpYon  hence  poverty  did  not  decline  significantly  despite  stagnaYng  inequality  

3.  Poorly  designed  social  protecYon  and  the  rolling  back  of  the  state  from  the  social  sectors  increased  insecurity,  while  adult  unemployment  proved  to  be  more  resilient  than  the  more  visible  youth  unemployment.  

Summary  

End  Result:  greater  expecta<ons  (par<cularly  among  youth)  and  increasing  sense  of  insecurity  in  the  presence  of  weak  ci<zen  voice  and  low  Government  accountability    

50  

Policies  

General  policy  direc<ons  •  Economic  policies  

–  Macro,  fiscal,  industrial,  trade,  finance,  investment,  compeYYon,  business  …  –  Need  transparency,  level  playing  field  in  the  private  sector  and  accommodaYng  policy  effects  

on  the  social  sectors  •  PromoYon  of  parYcipatory  and  inclusive  dialogue  

–  perhaps  one  of  the  biggest  gaps  compared  to  other  regions…  •  Social  protecYon  

–  move  away  from  expensive  benefits  for  public  and  private  formal  sector  workers,  insiders  etc;  –  examine  distribuYonal  impacts  of  policies  –  e.g.  untargeted  subsidies                                                    

unemployment  insurance,  maternity  benefits,  old  age  pensions  …  

Specific  policies  •  Improved  migraYon  management  •  Beder  design  employment  policies    •  Increase  educaYon  quality  and  reduced  inequality  in  opportunity  •  Beder  staYsYcs,  effecYve  monitoring  and  evaluaYon  of  policies  

51