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Untitled Prezi

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Elizabeth Mata Lorenzo

on 27 July 2014

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MENA's labor markets
labor markets
* Small formal private sector

* Main source of formal employment: the public sector
Have a large share of untapped human resources
In a low productivity equilibrium
Composition of the working-age population in MENA and two other regions, 2010
Source: World Bank, based on the International Labour Organization–Key Indicators of the Labour Market (ILO-KILM) database.
…...that are not participating in economic activity
Source: World Bank, using the Jordan Labor Market Panel Survey (LMPS) 2010; the Egypt LES 2010; the Tunisia LFS 2010; the Iraq Household Socio-Economic Survey 2006, 2007; the West Bank and Gaza LFS 2009; the United Arab Emirates LFS 2009; the Yemen Household Budget Survey (HBS) 2005–06; and the Morocco Household and Youth Survey (HYS) 2009
Work status of employed individuals, selected MENA
countries, 2005-2010
Diagnostic: Labor Markets in MENA are in a low productivity equilibrium
Persistent geographic disparities
Wage differentials
Level and trends in regional unemployment in Tunisia, 2005-11
(percentage points)
Inequality of Opportunities
Uneven distribution of desirable jobs
- The share of individuals in a desirable job (protected, high earning self employed or high earning informal) is skewed by socio-economic group
- But the reasons explaining this equilibrium are specific to each group
... In favor of prime age men

Large wage differentials are not explained by differences in human capital
Source: World Bank, using the Jordan LMPS 2010 and the Egypt LMPS 2006
Source: World Bank, based on Jordan LMPS 2010, Egypt SYPE 2009, and Morocco HYS 2010
Decomposition of the dissimilarity index by effort and circumstance for men ages 21-34 , 2009-2010
Access to jobs is largely determined by family circumstances rather than individual effort

* Having at least one individual with a “desirable job” is a safety net for many families

* But this leads to high reservation wages, and makes reforms politically difficult
Yet most families benefit from having at least one member in a good-pay/protected job
The aim: Shift to a higher labor market equilibrium in MENA
But the "rules of the game" distort the allocation of the benefits from growth and hamper job creation
Growth that does not create enough jobs
An institutional environment that reinforces the status quo
A private sector that lacks dynamism
Lack of relevant skills
* Jobs moved out of agriculture, but into relatively low value added sectors (construction, low value added services)

*These sectors did not create sufficient jobs for the new labor market entrants
... and not the right kind of jobs either

*Maintain Macro stability

* Deepen global integration

*Increase innovation capacity

*Allow the private sector to play a bigger role
And the fundamentals to accelerate job creation are still lacking
Structural transformation in Jordan
Structural transformation in Morocco
The barriers to more and better jobs in MENA
Investments/exports skewed to lower added value activities
Average firm entry density 2004-2009
The process of creative destruction is attenuated in MENA

* Likely determinants:
Training systems and private sector operate in isolation
Education systems focuses on rigid selection rather than learning
The public sector continues to be the main influence of youth’s employment expectations
An education system without the right incentives to generate relevant competencies
... And perceived skill shortages are larger in countries with less meritocratic hiring
A meritocracy deficit?
World scores on proxies of meritocracy in hiring, 2011
The symptoms
Low quality
Low relevance

Benchmarking MENA countries in Math TIMMS 2011
Perceived skill shortages
% of human resource managers agreeing that recent university graduate hires have the appropriate skills

Education and training systems fail to produce employable graduates for the private sector
Micro Level
Low entry rates
Macro level
Evolution of the productivity content of exports
Relationship between firm size and age in Brazil and Jordan
Once firms enter, they stay small
As a result, most firms in MENA are small
* In MENA social insurance coverage is low

*Employment without social insurance is heavily biased towards vulnerable groups: the poor, the young and the uneducated
Informality is high and mobility across informal and formal jobs is low
And energy subsidies distort the demand for labor
Likely determinants:
Lack of access to credit
High collateral requirements, NPLs, and credit rationing indicate there is too much discretion and unequal enforcement of laws in financial system.
Share of credit-constrained firms, 2004-2008
Source: World Bank, 2009
Poor contract enforcement
Weak implementation rather than legislation in judiciary
What can trigger the reform process?
* Focus on results
* Empower the private sector
* Promote a logic of learning rather than selection
* Support more efficient intermediation and information flows in public employment services
Promote governance in education and training systems
* Enhance social safety net and income protection to improve mobility
* Realign incentives of public sector employment with private sector
*Reform social insurance systems towards sustainability
Rethink the social contract
Foster competition
Main messages: Change the rules of the game!
*Reduce discretionary implementation of regulation
*Improve access to production inputs (credit and land)
*Reduce distortion in input prices (energy subsidies)
*Promote entrepreneurship
Education & skills reform

Greater security in incomes + greater flexibility in dismissal rules (“flexicurity”)
* Unemployment insurance is an alternative to rigid employment protection legislation – i.e. Jordan and Chile
* Better governance and communication on social insurance: stakeholder involvement a la Jordan

All countries would benefit from a reform of public sector working conditions:
*Align wages, work hours and dismissal risks more closely with the private sector
* Fix any disconnect between regulation and implementation towards greater meritocracy

A small group of countries (Algeria, Tunisia, and, to a lesser extent, Jordan) should open the dialogue on collective wage agreements, likely resulting in a downward adjustment for recent graduate wage floors.
* Widen the tri-partite dialogue to include youth, women and further CSO to choose appropriate wage parameters
Rethinking the social contract
A new social contract involves decisions about the rules for job contracts, wages and social insurance, in both the private and public sectors.
Policies towards the creation of good jobs in the private sector
Moving forward in a
post Arab Spring World?

Demand for democratization
Pressure to deliver "More of the same"
Insiders are better organized
Short term loss vs. long term gains
Outsiders might want what insiders have
Strong demand for better shared prosperity
New governments/ new perspectives
New political forces: unions, CSO, parties
How to build consensus for reform?
If not now,

Wage differentials between nationals and expatriates
Ratio of average wages (nationals vs. expats)
Source: United Arab Emirates LFS 2009
*In the last decade, MENA created more jobs than other regions in the world

Total Annual Employment growth (1998-2008)
Economic growth created jobs, but not enough...
Growth Rates in Employed and Working age population
*However, employment creation did not match population growth
Note: Entry density = the number of newly registered limited liability firms per 1,000 working-age people (those between ages 15 and 64). The average of 80 countries represents the average entry density in the 80 developing countries for which data are available
Some symptoms
Likely determinants
Very long school to work transition
Queuing for public sector jobs
Source: Gallup World Poll Survey 2012

Restrictive dismissal rules requiring third party approval (Tunisia, Egypt, Iran, Syria)

Costly dismissal (Egypt, WBG, Iran and Yemen)

Wage floors
Wage premium in the public sector
Weeks of salary for redundancy
Wage premium in the public sector by education Tunisia, 2011
Source: World Bank, based on Executive Opinion Survey.
The political economy of exclusion
How could this equilibrium be sustained? Many variations of the "Rentier-state" model

Rents: either from natural resources, or from monopolistic position in private sector, or external aid

Partial redistribution: subsidies, public jobs

Repression: lack of voice, no access to data, lack of credit, discretionary application of regulations
Please visit the report's website
Policy Options
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