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More Jobs, Better Jobs: A Priority for Egypt
Tara Vishwanath, Lead Economist PSIA Conference June 1, 2016
Despite economic growth, steadily declining job
quality
More Jobs, Better Jobs: A Priority for Egypt 2
Two of the three survey years coincided with healthy GDP growth
Declining job quality has been a pre-existing condition; evident since 1998
Since then, Egyptians have become even more pessimistic: 42% think the job situation will take more than 5 years to recover, 11% think it will never improve (Gallup, 2013)
0
2
4
6
1998 2000 2002 2004 2006 2008 2010 2012
Growth rate of Real GDP per capita
Arabspring
Round 11998
Round 22006
Round 32012
In this report and presentation:
More Jobs, Better Jobs: A Priority for Egypt 3
Document the evolution of the labor market: Lower job quality accompanied by increasing exclusion along multiple dimensions
Why?
Policy reforms needed
Context is going to make reform difficult
Tradeoff between political expediency and difficult economic reforms
Unemployment has fallen over time…
More Jobs, Better Jobs: A Priority for Egypt 4
0%
10%
20%
1998 2006 2012
Unemployment rateLabor force participants age 15-64
Informal
Irregular
0%
50%
100%
1998 2006 2012
Informal and irregular job shareWorkers age 15-64
But informal has become normal
More Jobs, Better Jobs: A Priority for Egypt 5
0%
50%
100%
Manufacturing Construction Wholesale andRetail
Transportationand Storage
ProfessionalServices
PublicAdministration
Social Services Other Services
Formality rate by industry
0%
5%
10%
Manufacturing Construction Wholesale andRetail
Transportationand Storage
ProfessionalServices
PublicAdministration
Social Services Other Services
Employment by industry as fraction of working-age population
1998 2006 2012
Deformalization has occurred across the board
Having a formal employer is no guarantee of formal
employment
More Jobs, Better Jobs: A Priority for Egypt 6
Job type
Formal job: either social insurance or written contract
Employer type
Formal firm: both license and registration
WorkerWage
workers
Informal firm
59%
Informal job
91%
Formal job
9%
Formal firm
41%
Informal job
48%
Formal job
52%
WHY? Public sector employment fell and the private
sector filled the gap with informal jobs
More Jobs, Better Jobs: A Priority for Egypt 7
13% 13% 13%
34%27% 27%
31%33%
40%
11% 18%11%
12% 9% 9%
1998 2006 2012
Job statusLabor force participants age 15-64
Formal private Public Informal private Farm Unemployed
71
30
22 21
10 10 106
2 1 1
Re
gis
tra
tio
ns
pe
r 10
0,0
00
po
pu
lati
on
Formal sector firm entry rate2004-2009
80 country average: 24
Employment is concentrated in small, young firms
that do not grow
More Jobs, Better Jobs: A Priority for Egypt 8
0
10
20
0 5 10 15 20 25 30 35 40+
Em
plo
ym
en
t (1
fo
r a
ge
0-4
)
Firm age (years)
Employment growth with ageAll nonfarm sectors
Turkey
Egypt
39%
10%
5%3%
12%
4%3% 3%
8%
4%3%
7%
0-4 5-19 20-199 200+
Firm size (employees)
Share of EmploymentBy Establishment Size and Age, Egypt
Young (0-9 years)
Midaged (10-19 years)
Old (20+ years)
Private sector growth has been inhibited by the lack
of competitive pressure
More Jobs, Better Jobs: A Priority for Egypt 9
A regulatory regime that stifles the entry of new firms
Even “good” regulations are implemented inconsistently
Firms are hesitant to grow in an uncertain business environment
Favored firms may experience more lax regulation
The result?
Misallocation of capital
Stagnant firm dynamics
Slower job creation
More Jobs, Better Jobs: A Priority for Egypt 10
Privileged access to land, credit, and other inputs Politically-connected firms accounted for only 11 percent of employment
but received 92 percent of loans among similarly large firms.
45 percent of all connected establishments operate in energy-intensive industries, compared to only 8 percent of all establishments
Protection from competition 80 percent of all politically connected firms in manufacturing/mining sell
products that are protected by technical non-tariff import barriers.
So politically connected firms: Have incentives to use nonlabor inputs
Face little competitive pressure to innovate
Firms with political connections have an unfair
advantage
More Jobs, Better Jobs: A Priority for Egypt 11
0
2
4
6
8
Mil
lio
ns
Job location by type2012
Formal private Public Informal private & farm
Metropolitan Lower Upper
The formal private sector is concentrated in
metropolitan Egypt
Population distribution2012
25%Metropolitan
42%Lower
33%Upper
Three dimensions of exclusion: space, age, and
gender
More Jobs, Better Jobs: A Priority for Egypt 12
Egyptians further from core metropolitan areas: Lower formality, lower wages
Young Egyptians : High unemployment, lower formality
Women: High unemployment, Lower labor force participation
Metropolitan Egypt has better access to formal jobs
and a substantial wage premium
More Jobs, Better Jobs: A Priority for Egypt 13
0%
50%
100%
1998 2006 2012
Formal employment rate,Labor force participants aged 15-64
Metropolitan Lower Upper
0
1000
2000
1998 2006 2012
Real monthly wages (LE 2012)Male wage-workers aged 15-64
Metropolitan Lower Upper
Employment is an age issue, but informality is a
generational problem
More Jobs, Better Jobs: A Priority for Egypt 14
0%
50%
100%
15 20 25 30 35 40 45 50 55 60
Age
Male unemployment rate by age
1998 2006 2012
0%
50%
100%
15 20 25 30 35 40 45 50 55 60
Age
Male formal employment rate by age
1998 2006 2012
Young Egyptians with secondary education have
become the most vulnerable
More Jobs, Better Jobs: A Priority for Egypt 15
45%
27%
18% 19%15%
17%13%
68%
45%49%
54%
44% 46%
53%
1955-1959 1960-1964 1965-1969 1970-1974 1975-1979 1980-1984 1985-1989
Birth cohort
High school graduates (at age 20)
College graduates (at age 24)
Formal employment rate post-graduation
Educated women have been dropping out of the labor
force
More Jobs, Better Jobs: A Priority for Egypt 16
50%
38%
31%
19%22% 20%
12%
63% 64%
57%54%
48%
39%
33%
1955-1959 1960-1964 1965-1969 1970-1974 1975-1979 1980-1984 1985-1989
Birth cohort
High school graduates (at age 20)
College graduates (at age 24)
Female labor force participation rate post-graduation
Why? In the absence of public sector jobs, few
options for women
More Jobs, Better Jobs: A Priority for Egypt 17
Fewer than 2% of women aged 15-64 work in the formal private sector.
40%
17%
2%
22%
64%
48%
35%33%
Illiterate Below secondary Secondary Post-secondary
Gender gap in hourly wages
Public Formal private
Women appear willing to work in the private sector, but … Lower wages Mobility constraints due
to social norms and perceived risks
Lack of necessary personal connections
18
Create a dynamic and growing private sector
Improve job quality without sacrificing growth
Address inequalities in the labor market
Policies in the short-, medium-, and long-run must be properly sequenced
More Jobs, Better Jobs: A Priority for Egypt
Policy priorities
19More Jobs, Better Jobs: A Priority for Egypt
Institutionalize a competitive environment and level the playing field
Reform energy subsidies to remove the
implicit tax on labor
Reform labor laws to ease
hiring and firing and promote performance
based hiring, pay and promotion
Ease bankruptcy,
liquidation and restructuring
procedures
Equal and fair access to land,
credit and capital
A comprehensive competition policy with a
predominance of rule over
discretion
Creating a dynamic and growing private sector
A series of experiments in Jordan also highlights
similar demand side issues
Title of Presentation 20
Vouchers – Wage Subsidies
150 JD ($210) subsidies
Training – Soft Skills
40 hours of soft skill training
Information – Psychometrics
Soft skills, IQ, language proficiency, personality
Matching
Match employers and job seekers
Vouchers announced
Last date for voucher use
Jan 2010Feb 2010Mar 2010Apr 2010May 2010Jun 2010Jul 2010
Aug 2010Sep 2010Oct 2010Nov 2010Dec 2010Jan 2011Feb 2011Mar 2011Apr 2011May 2011Jun 2011Jul 2011
Aug 2011Sep 2011Oct 2011Nov 2011Dec 2011Jan 2012Feb 2012Mar 2012Apr 2012May 2012Jun 2012Jul 2012
Aug 2012Sep 2012Oct 2012Nov 2012Dec 2012
0 .1 .2 .3 .4Treatment Effect on Employment
Wage Subsidies – Temporary Effect
Do youth think they are too good for the jobs?
Title of Presentation 22
-Declined 28% of match opportunities
-Declined or quickly quit 83% of job offers
-Main reason for rejecting opportunity
-The graduate was not “interested in the company or type of job”
-Only 8% rejected an offer because “the wage was too low”
-Vast majority of youth are willing to work in a government job for less pay!
-Most will not take jobs as customer service, Sales, Telemarketing etc
-Most are liberal arts majors
Two directions for policy
Title of Presentation 23
Firm intervention
Spur private sector development
Generate more types of jobs that are attractive to graduates
Change attitude towards non-prestigious jobs
Make public sector jobs more comparable to private sector jobs• Work hours, office environment, accountability
- Larger role of universities in promoting different career options
- job fairs, internship programs, career development offices
Thank you!