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CHRONIC LABOR PAINS
Excerpts from “The Impact of Recent Macro and Labor Market
Policies on Job Creation in Egypt” (May 2007)
Published by the Egyptian Center for Economic Studies (ECES)
Analysis by REHAB EL-BAKRY
It’s been a little over three years since the Egyptian government
embarked on sweeping economic reforms designed to boost domestic
and foreign investments, improve the trade balance and create much-needed
jobs. This ECES report assesses the impact of these reforms on job
creation, a tremendous challenge, particularly in light of the fact
that some 750,000 new jobs are needed every year to absorb the new
entrants to the job market. However, this arduous task has remained
difficult to achieve.
“The labor market suffers from a demand-supply mismatch as
well as a discrepancy between the outcome of the education system
and skill requirements of business. Meanwhile, the government remains
a major source of non-agricultural employment, as the private sector
has fallen short of creating enough jobs to absorb the growing labor
force. In addition, the informal sector continues to be the main
refuge for low productivity and low-income employment.”
Egypt’s employment woes can be traced back to president Gamal
Abdel Nasser’s pledge to provide a government job for every
graduate. Forty years on, many university graduates still await
their letter of hire from the government. But with the government
trying to retreat from its traditional role as a job provider, and
with its hands full dealing with the deficit, international debt
and an ailing public sector, the state is no longer able to absorb
the large number of entrants into the labor force. Economic reforms,
it had hoped, would bolster the performance of the private sector
and create more jobs. But the success of these measures has been
limited, the report said.
“Employment among the 15-64 age group amounted to 19.3 million
in 2005. The sectoral distribution of employment indicates that
almost one third of the employed are working in agriculture and
fisheries, characterized by low value-added and productivity. The
manufacturing sector, characterized by its forward and backward
linkages, employs only 11.5 percent of total workers. The trade
and maintenance, and construction sectors were able to absorb only
11.1 and 8.5 percent of employment, respectively. Employment distribution
by sector of ownership demonstrates that almost 25.8 percent work
in the government, 4.5 percent in the public sector, while the private
sector employs 6.7 percent.”
With the government, public and private sectors unable to absorb
the labor force, many Egyptians have turned to the informal sector
as the only available means of earning a living. But often the wages
are insufficient to support a worker and his or her family. Moreover,
the informal sector does not provide job security or benefits such
as healthcare, paid leave or compensation in the case of on-the-job
injury.
The job market is also experiencing distortions as the haphazard
macroeconomic policies and misguided employment schemes of previous
decades have created an acute skills gap.
“It is obvious that the labor market in Egypt suffers from
major distortions, namely the supply and demand mismatch in terms
of job quantity, and the mismatch between skills required by employers
and those offered by workers. These distortions are mainly the outcome
of prolonged policies that failed to promote economic growth and
increase employment. […] It is also worth noting that the
government failed to adopt adequate labor market policies to overcome
the shortcomings of macroeconomic policies and to face the consequences
of the different internal and external shocks.”
Solutions are slow in coming, the study points out, describing
earlier attempts as band-aid solutions aimed at appeasing a restive
public rather than addressing the roots of the problem. It further
noted that labor market policies successfully implemented in developed
countries are not necessarily applicable to Egypt.
“Labor market policies are defined as government interventions
used to correct failures in the labor market. There are three sets
of labor market policies: active, passive and institutional policies.
Despite the extensive use of these policies in most developed countries,
empirical evidence has shown that they do not succeed in developing
countries, due to the lack of administrative capacity and scarcity
of the monitoring and evaluation tools considered crucial for their
implementation.”
The report concluded by recommending the creation of a national
employment strategy able to bridge the skills gap.
“In order to increase employment, a national employment strategy
should be designed with the objective of creating more jobs, especially
in those sectors with the highest employment elasticity. The strategy
should also attempt to address the mismatch between labor supply
and demand. More importantly, it should be made an integral part
of Egypt’s national development plan.”
The full text of this report is available on the ECES website at
www.eces.org.eg
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