Overview

The aim of the ILO's action program on macroeconomic frameworks conducive to employment creation is to identify effective macro-policies and interventions to combat unemployment and in particular youth employment. To do this, it is necessary to assess both the mechanisms that regulate the demand for labor and identify the strategies that can increase the possibilities of job creation in general.

The performance of labor markets generally reflects the performance of the economy as a whole. The Arab world has entered a new phase after the decline in the oil prices since 1981, the post oil boost period. The most important characteristics of this period is the contracted financial revenues for oil exporting countries and the inability of indebted Arab countries to pay back their external debt. Balance of payments in the Arab world witnessed significant deficit due to deteriorating terms of trade. Declining oil prices had a major impact on the Region, both for the oil-exporting and the non oil exporting countries, through the impact on remittances and external financial flows. Over the last two decades, most Arab countries have embarked on economic reform programs with the aim of reducing the budget deficits. As a result, inflation rates have fallen significantly in the period from 1995 to 1998 compared with the period from 1985 to 1994.The growth rate of GNP per capita in the 1990’s, increased at an average of no more than 1% per year. The relatively low savings rates in the region were accompanied by an insignificant increase the average investment rate by 1.1% in the 1990’s. Hence after almost two decades of economic adjustment, Arab countries face unemployment rates that are higher than all other regions of the world (with the exception, of Sub-Saharan Africa).

Creation of jobs is a major problem in the Arab Region. The ERF 2002 report estimated the creation of five to six million jobs every year—or even more if current unemployment is to be reduced in the MENA countries. Unemployment rates in the Arab Region were considered the highest in the world, amounting around 20 percent of the labor force. Moreover gender and regional differences exist as unemployment rates are in general higher among females than among males. Urban unemployment is higher than rural due to internal migration. Unemployment rates rise, the higher the education level of the unemployed is, reaching its highest among those with middle or secondary education.
(Nassar, H. 2002)

G.D.P. Growth Rates for Arab Countries in Fixed Prices (2002)

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Note: Data for Syria, Qatar, Kuwait , and Libya are from 2001

Source: General Assembly of the Arab League, The Arab Fund for Economic & Social Development, The Arab Monetary Fund, OPEC, The Unified Arab Economic Report, various.

Youth in Labor Market

Concerning youth in the labor market it is worth to mentioning that in the Arab countries, at least 20 percent of the total population is between 15 and 24 years old .The importance of studying employment of youth lies in the fact saying that growth in the domestic product depends on the contribution of youth, as they constitute the productive category of any economy. However ,Unemployment is concentrated among the age group of youth (15-25 years). This is so for 80% of unemployment in Egypt as well as Jordan. Youth unemployment rates exceed adult unemployment rates (Godfrey, M. 2003). Youth are concentrated in the informal sector and are generally found engaged in casual occupations, vulnerable to lack of access to resources, including land, skills, knowledge, capital and social connections and access to institutions, markets and public services. Hence young people are particularly vulnerable to poverty.

It is important to note that youth unemployment reflects the level of economic activity in general as well as the trends in the demand on labor in the labor market. (Bibliotheca Alexandria 2002)

Illustrative Table and Charts
Youth Employment Trends (Table)
Percentage of Youth in Economic Activity (Graph)

The following summarizes the main trends in the Arab labor market affecting both supply and demand of the labor force.

Rate of growth of labor force is higher than the rate of growth of population in most Arab countries. With an average growth rate of 3 percent annually, Arab countries’ labor force is growing at a higher rate than any other region of the world. What is important is that the labor force growth has not been matched by significant economic growth and was accompanied by only marginal growth of real output.

Demographic changes in Arab countries and composition of labor force.
Population growth rate in the Arab world is among the highest in the world averaging 2.2percent – 2.8percent, the majority of Arab countries have a slowly decreasing fertility rate and an accelerating decrease in the death rate, which is causing an increase in the population category of under 15 year-olds. A third of the Arab population is under 15 years of age. These children will eventually enter the labor market and the number of women in the fertility age (15-42) will multiply in the next 30 years . In nearly all Arab countries the dependency rates will rise in the future alongside the rise in the percentage of elder population due to the improvement in health levels ,the relatively young age structure as well as low rates of female participation in the labor force
This means greater pressure on labor markets to create jobs , while labor markets are incapable of absorbing the current new entrants. Participation rates are projected to rise because of the gradual change in the population structure and greater numbers of women seeking work. Employment in the Arab countries will have to grow by more than 4 percent a year to absorb the working age population's expansion.

A major characteristic of the Arab labor market is the decline in labor absorption rates in the production sectors, for example : In most labor countries labor absorption rate in the agricultural sector declined over the eighties and nineties and Labor absorptive capacity in the industrial sector in the Arab Region in general was limited at 12%-13% due to its high capital intensity.

Many Arab countries committed themselves to privatization programs and restructuring their economies. Consequently labor absorption rate was negative in the government and public sector over the ninetieth in many countries (-3% over the period 1995-2000 in Egypt, for example ). Moreover statistics indicate that the formal private sector’s ability to absorb labor was limited and even negative over the ninetieth(-50% in Egypt).

As a consequence of limited labor absorption rates in the formal sector, a tremendous increase in employment occurred in the informal sector which started to emerge in the 1970’s and it’s share mounted to the degree that it employed 61% of Arab workforces on average and in Egypt it was estimated at about 80%. The sector is characterized by small-scale establishments, moderate investments, capital and production of family nature. It normally operates outside legislations and state supervision. New entrants are absorbed mainly in the informal private sector, due to the shrinking labor absorptive capacity in the formal private sector.

One of the major characteristics of many Arab labor market is its inflexibility for elder workers and high turnover for young entrants. Unemployment is persistent for women but not for men. This persistence is probably explained by queuing for government jobs. However in light of decreasing employment opportunities in the formal sector and along with the growing informal sector, other forms of employment have spread in particular for the new entrants in the labor market. These forms of employment are characterized by a weak contractual relationship between the employer and the employee. Institutions in the Arab Region were found inflexible. The inadaptability to change of the different educational and labor market institutional arrangements in Egypt, for example (Labor code, universal admission in higher education, low profile of training institutions) was one of the reasons for the various imbalances between education, training and employment in the labor market in Egypt.

Despite the fact that the correlation between education and employment is among the most important requirements for meeting the challenges of globalization, education in many Arab countries produces unskilled labor. This caused structural imbalances between supply and demand, so that unemployment rates have reached 70% among graduates of secondary education and 18.2% among graduates of higher education in 1998 in a country like Egypt. Education and training systems in Arab countries do not provide the skills required in the labor market. There is a surplus in university graduates while there is a shortage in technical skills. However, in order for countries to devise relevant educational policies they need a precise, quantitative statement of the goals of the educational sector, together with performance indicators for the overall development goals of the country in the context of the national availability of resources. Regarding the effect of education on development, more emphasis should be placed upon technology and higher education, a critical characteristic for a growth and development society. Finally the matching of skills and educational output requires the increase in the participation of the private sector in the provision of educational services and the exchange of information about requirements of the labor market.

Unemployment status by educational status and gender in Egypt (2001) (Hundreds / Percentage)
Education status	Male		Female
Education status	Figures in Hundreds	%	Figures in Hundreds	%
Illiteracy	85	1	27	0.3
Read & Write	118	1.4	93	1
Under Intermediate	166	1.9	82	0.9
Intermediate	5595	65.4	6794	72.9
Upper Intermediate and Below University	493	5.7	587	6.3
University and above	2101	24.6	1734	18.6
Unidentified	0	0	0	0
Total	8558	100	9317	100

Source: CAPMAS, 2001

Barriers facing Youth in the Labor Market

Illiteracy and limited skills are the main barriers to labor market for young people in addition to poverty and poor health. The significance of raw material and unskilled labor is continuing to decrease with technological improvement. Modern technology and inter-industry shifts have changed the nature of work. The result is that the jobs destroyed will be for unskilled labor and most jobs created will be for skilled workers. These changes in jobs will yield negative repercussions on developing countries, since the greater portion of unskilled labor is concentrated in these countries.

Looking at the composition of labor in the Arab world we find that most jobs created in the 1970’s and 1980’s were concentrated in low-skill activities without such as construction, retail, and traditional handicrafts. Egypt for example, the formal private sector proved limited ability to absorb labor. Despite the informal sector growth and development in Egypt, it cannot compete globally because it lacks high productivity and technology.

To compete globally we have to have labor force of high standard in the fields of learning ability, skills and technological development. Despite large investments in education in Egypt, the education standard remains low. Basic literacy rate was 39% of the population in 1996 and the average period for attending school was four school years per person. The quality of education offered also becomes clear from the fact that over three-fourths of those unemployed are secondary school and university graduates.

More Resources:

ILO (2001) Meeting the Youth Employment Challenge: A Guide for Employers (Geneva: ILO )

Scope Marketing & Information Solutions Pvt Ltd. (2002) Youth Employment Report 2002. Prepared for the Youth Employment Summit 2002

Economic Research Forum (2002) "Labour Markets And Human Resource Development" Chapter Five in MENA Economic Trends 2002 (Cairo: Economic Research Forum)

ILO. Employing Youth: Promoting Employment Intensive Growth. Paper prepared for the Symposium On Strategies to Combat Youth Unemployment. (Geneva: ILO)

Different Sections

Youth Unemployment and Macroeconomic Policies

Overview

Youth in Labor Market

Barriers facing Youth in the Labor Market