The Arab Youth in the Labor Market: Mismeasured, Misunderstood and Mistreated

Zafiris TzannatosSILATECH

ZTzannatos@Silatech.org

ERF 20th Annual Conference onSocial Justice and Economic Development

March 22-24, 2014Cairo, Egypt

Regional Aggregates

• How to define the Arab Region?– Iran accounts for 46% of the population in the “Middle East” (excluding the GCC)– Egypt accounts for 41% of North Africa (or is it in the Middle East?)– Nationals in Saudi Arabia account for 78% of the nationals in the GCC countries

• Weighted or unweighted averages? There is a difference between– The average Arab– The average Arab country

• Does it matter if 55% of the population is under the age of 25 years?– Do children matter for labor market outcomes? – And what does low labor force participation rates for the youth mean, if the

youth are in schools?

3

Context

1980s : THE LOST DECADE– Continuing “Arab socialism”, “Paternalism”, Patriarchy” amidst low oil

prices, fiscal stress, very low GDP growth and very high unemployment– Old social contract reached its limits

1990s-2000s: ARAB “RENAISSANCE” – Pro-market reforms adopted, GDP growth resumed, inflation was tamed,

employment increased, unemployment decreased– Underlying philosophy: “Economic reforms first, political later”

2010/11: ARAB SPRING – Good economics but bad politics? – Or bad economics, too?

4

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

“The Renaissance”

Irrespective of other criticisms of the economic reforms (esp. whether they created competitive markets or crony capitalism)Economic growth was NOT jobless

Employment-output elasticity, 2000-2010

Yem

en

Syria

Mid

dle

East

Jord

an

Leba

non

Alge

ria

Egyp

t

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h Af

rica

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sia

Mor

occo

Libya

Qat

ar

Saud

i Ara

bia

UAE

GCC

Om

an

Kuw

ait

Bahr

ain

Phili

ppin

es

Mon

golia

Indi

a

Thai

land

Kore

a re

publ

ic

Asia

Mal

aysia

Indo

nesia

Sri L

anka

Viet

Nam

Chin

a

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

0.760.70

0.66

0.32

6

Though everywhere the wage share declined over time, it collapsed in MENA, especially North Africa

7

Despite economic growth, only three Arab countries score more on the HDI compared to the level of their per capita income

And Human Development Lagged behind Economic Development Growth

oPt

Jordan

Middle Ea

st Iraq

Syria

Leban

on

Yemen

TunisiaLib

ya

Algeria

Egyp

t

North Afric

a

MoroccoSu

dan

Bahrai

n

Saudi A

rabia

UAEGCC

QatarOman

Kuwait

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

Initial protests were suppressed but kept coming back with added force

9

Citizens in Arab Countries Have Seen Slow Increases in Incomes and Have Had Low “Voice”

CHN

BLRAGO

ARMKAZ

KHMGEO MNGBTN INDNGA MOZVNM SLETJK MDAETHRWALAO

LTUUKRRUSTCD ALB BGRTZA TTOMDV SVKPAN CPV ESTLKA BGD ROM LVASTPAFG PER POLTHA

LBNGHAIDN

UGAMAR KORARGSRBTMP HKGJOR TWNSUR URYDOMIRN SGPTURBIHZMB MUSBWAKGZ QAT MNEMLITUN ECU NAMBFACOL CZESAM CHLPHLMYS

NPL 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

PRTCOM

UAE MDG ITATGO BHSKIRHTICAF BRN

You want to be here

High:

Income Growth

Voice and Accountability

-2

-1

0

1

2

3

4

5

6

7

8

9

10

GD

P p

er

capita a

nnual G

row

th (

%)

2000-2

011

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

But not here

Even here

On youth issues

In 2010 there were 23m youth more than 1991

Youth unemployment has been and still is the highest in the world 26% in 199125% in 2010

Why? Popular explanations include High fertility

Too many people, especially youth (the “Bulge”)Bad quality education, training

Employment protection legislation Attitudes of the youth and adults, culture, religion ….

1950-1955

1955-1960

1960-1965

1965-1970

1970-1975

1975-1980

1980-1985

1985-1990

1990-1995

1995-2000

2000-2005

2005-2010

2010-2015

2015-2020

2020-2025

2025-2030

2030-2035

2035-2040

2040-2045

2045-20501.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

30

35

40

45

50

55

60

65

70

75

80Fertility rate: -1.3% per year Life expectancy: +0.6 per yearChildren per women Life Expectancy

How did “they” miss this? When was the youth “bulge”?Fertility Rates and Life Expectancy, Arab Region: 1950-2050

(excluding Comoros, Djibouti, Mauritania and Somalia)

Source: United Nations Population Division; World Population Prospects: The 2012 Revision

13

Myth 1: Too many youth?Ratio of youth-to-adult population

1970 75 80 85 90 95 2000 05 10 15 20 25 30 35 40 45 20500

5

10

15

20

25

30

35

40

45

50

55

60

65

70

Middle East-GCC North Africa GCC World-MENA

Yout

h/Ad

ult P

opul

ation

(%)

ME

NA

GCC

World

Myth 2: Too many unemployed youth?

In 1990, there were more than 30% unemployed youth than adultsIn 2010 there were 5% more unemployed adults than youth

1990

2010

Ratio of youth-to-adult unemployment

Arab youth have the highest unemployment rateAND SO DO ADULTS

Unemployment

Under-employment (>30 hours involuntarily)

16

Unemployment in MENA is a gender issue (deficient demand?)

Unemployment rates by sex, 2010

Some good news(it was always good news but was missed)

Status of Youth 1991 2010 ChangeTotal in million) 37,227 60,405 23,178 U-rate (U/(E+U)) 26% 25% -4%

In school (S) 17% 32% 88%Employed (E) 32% 27% -14%Unemployed (U) 11% 9% -19%Inactive+NS 41% 32% -20%TOTAL 100% 100%(NS-NE)/Total 51% 41% -20%

Talking of Education …

Education enrolments rose fast but what did the youth get out of it?

Or was the quality of education bad because of the curriculum (and the public sector teachers)?

Global Returns to Schooling, 120 countries(Montenegro and Patrinos, 2013)

Middle East and North Africa

South Asia

Eastern/Central Europe

Aging

Lower middle income

Rich economy

Formalizing

Conflict

Youth buldge

Small island

High Income

World

High income

East Asia/Pacific

Latin America and Caribbean

Low Income

Upper middle income

Resource rich

Urbanizing

Sub-Saharan Africa

Agrarian

0 2 4 6 8 10 12 14 16

Global Returns to Schooling by Education Level

Middle East and North Africa

Eastern/Central Europe

High Income

East Asia/Pacific

World

Latin America and Carobbean

South Asia

Sub-Saharan Africa

0 5 10 15 20 25

3.5

6.9

8.9

16.8

Tertiary Secondary

Returns to Primary Schooling

High Income

Eastern/Central Europe

Latin America and Carobbean

Middle East and North Africa

South Asia

East Asia/Pacific

Sub-Saharan Africa

0 2 4 6 8 10 12 14

4.8

8.3

9.3

9.4

9.6

11.0

13.4

22

Employment creation in low productivity sectorsComponents of labor productivity growth 1999-2008

(World Bank WDR 2013)

23

In relation to income, agriculture remains a significant employer

Annual growth 1995-2005 by country per capita income

24

Employment creation was not formal

2000 2001 2002 2003 2004 2005 2006 2007 20080

5

10

15

20

25

30

35

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

Share of informal employmentUnemployment rate

Family businesses in the region are collectively responsible for over 85 percent of non-oil GDP of the 22 Arab countries.

http://www.zawya.com/story/Private_sector_role_in_creating_200m_jobs_for_Arabs_stressed-ZAWYA20131112052620/ - Nov 12 2013

25

Relying on foreign workers is not confined only to the GCC countries

Jordan: Employment Growth (number) 2000-2009

Technology Driven Job Polarization in EU 2000-2010% changes in labor supply/skills upgrade (ISCED)

and labor demand for skills/tasks (ISCO)(Maselli, 2012)

Low-Skilled Medium-Skilled Hgh-Skilled

-20

-10

0

10

20

30

40

50

Supply Demand

“Lack of Competition” Driven Job Polarization in MENA?

Low-Skilled Medium-Skilled Hgh-Skilled

-20

-10

0

10

20

30

40

50

Supply Demand

28

Does it matter that employers in the MENA region “repeatedly and consistently” state in various surveys that there is a shortage of skills?

(% of Firms Stating Skills Are a Major Constraint)

29

Skills is the least concern of Arab investors Probability of finding a given constraint to investment

Business, investment and enterprise surveys, MENA 2000s

Tax R

ates

Cost of F

inance

Access

to Finan

ce

Macro In

stabilit

y

Tax A

dminstrati

on

Informali

ty

Access

to Land

Corruption

Skills

55

4745 45

40 40

37 36

31

30

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

31

The educated Arabs leave their countries:there is no demand for skills in their countries

(High-skilled emigration rates to the OECD and GCC countries, 2000s in per cent

Source: “Labor Migration from North Africa: Development Impact, Challenges, and Policy Options”, The World Bank, MENA Region, January 18, 2010.

32

And Arab employers do not miss the skilled% of employers reporting inadequately educated workforce

• Highest skill shortages are reported in Germany, Switzerland and Austria (more than 12%)

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

Source: World Economic Forum 2012

33

Biggest schooling failure: The education of managers!% of managers who have not completed secondary education

34

Prospects

Mismeasured in the future

The World Bank (WDR 2013) estimates globally “600m jobs needed over the next 15 years

to keep current employment rates”

The Arabs are 5% of the world population, so would 30m or even 60m jobs (2m to 4m jobs/year)

not be enough?

Quoted in the WEF 2012 report: “Addressing the 100 Million Youth Challenge”

• “The Arab world must create up to 80 million new jobs by 2020” 10m/year

• “The Arab world faces the daunting task of creating 80 million jobs over the next decade to keep pace with population growth” 8m/year

• “About the 100 million jobs needed by 2020” 12.5m/year

• “By 2020, just to keep unemployment rates at present levels 80 million new jobs will have to be created. To actually bring unemployment rates down to more sustainable levels, a figure of 100 million new jobs is more appropriate” 10-12.5m/year

17

157

68

117

38

233

82

130

10

38

6

Children (<15) Youth (15-24) Elderly (65+)Working Age (25-64)

Population in 2010 Labor force increasePopulation in 2030

10% 11% 16%62%

Share in population growth (124m)

10% 71% 19%

Population and Labor Force Growth 2012-2030, 18 Arab Countries(excl. Comoros, Djibouti, Mauritania, Somalia)

Share in labor force

Growth(54m)

New jobs required: 54mUnemployed in 2013: 13m

Total for 6% U-rate: 60m

38

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

to absorb new entrants and reduce unemployment Projected annual GDP growth (%) till 2015

All in all …

The problem is with the economy and the adults

and the adults control the economy and the youth

Thank you