Unlocking the Employment Potential in the Middle East and North Africa: Toward a New Social Contract

Unlocking the Employment Potential in the Middle East and North Africa: Toward a New Social Contract

by Tarik Yousef, Policy World Bank, World Bank Group

ISBN-10: 082135678X

ISBN-13: 9780821356784

Pub. Date: 04/05/2004

Publisher: World Bank Publications

Over the next two decades, the Middle East and North Africa (MENA) region faces an unprecedented challenge. In 2000, the labor forces of the region totaled some 104 million workers, a figure expected to reach 146 million by 2010 and 185 million by 2020. Given this expansion, the economies of the region will need to create some 80 million new jobs in the next two


Over the next two decades, the Middle East and North Africa (MENA) region faces an unprecedented challenge. In 2000, the labor forces of the region totaled some 104 million workers, a figure expected to reach 146 million by 2010 and 185 million by 2020. Given this expansion, the economies of the region will need to create some 80 million new jobs in the next two decades. With unemployment now at about 15 percent, the more ambitious goal of absorbing unemployed workers in addition to the new entrants implies the need to create close to 100 million jobs by 2020, a doubling of the current level of employment in the first two decades of the 21st century.

In no small measure, MENA's economic future will be determined by the fate of its labor markets. The problems to be overcome are enormous; their complexity is daunting. Yet the costs of inaction and the benefits of dynamic labor markets underscore the imperative of acting quickly and decisively. If current trends continue, economic performance and the well-being of workers will be undermined by rising unemployment and low productivity. If labor market outcomes improve, however, MENA's growth will accelerate, raising the living standards of the population across the region.

Unlocking the Employment Potential in the Middle East and North Africa argues that meeting this employment challenge will require the transformation of MENA's societies and economic structures. MENA needs a new development model based on a reinvigorated private sector, greater integration into the world economy, and better management of oil resources. These drivers of future growth and job creation require a foundation of better governance. Moreover, this transformation necessitates a new social contract.

Product Details

World Bank Publications
Publication date:
Orientations in Development
Edition description:
New Edition
Product dimensions:
7.02(w) x 9.96(h) x 0.64(d)

Related Subjects

Table of Contents

Acronyms and Abbreviationsxxi
Overview: Creating 100 Million Jobs for a Fast-Growing Work Force1
Labor Market Outcomes in the Post-World War II Period17
Scope and Methodology of the Report18
Structure and Organization of the Report19
Findings in Comparative Perspective21
2.Evolution of State-Labor Relations in the Middle East and North Africa23
Legacy of the Social Contract23
Definition of the Social Contract24
Characteristics of the Social Contract25
Context That Produced the Social Contract26
External Factors That Contribute to the Social Contract27
Domestic Factors That Influenced the Social Contract28
Rise of Mass Politics28
Mass Politics and the Nationalist Movement29
The Changing Political Arena31
Codification of the Social Contract31
The Social Contract and Labor Markets33
State Regulation and Intervention Were Extensive33
Economic Growth Marks the 1960s and 1970s36
Oil Helps Sustain the Social Contract36
The Social Contract Addresses MENA's Deficiencies38
The Social Contract Is under Strain: The 1980s and 1990s39
Oil Prices Collapse and Economic Crisis Occurs39
Governments Respond to Economic Difficulties39
Vulnerability to External Shocks Increases42
Adjustment Challenges the Social Contract42
Costs of the Redistributive Preference Are Rising43
3.Demography, Labor Growth, and Employment Outcomes45
MENA's Demographic Transition45
Mortality Rates Have Declined Rapidly46
Fertility Transition Was Slow46
Differences within MENA Are Significant47
Determinants of Fertility Must Be Understood48
MENA Conforms to Global Patterns49
Orientation of Government Policies Has Changed50
Age Structure Is Changing Rapidly50
Demographic Burden Becomes a Demographic Gift54
Effect of Delayed Transition on Labor Force Growth55
Demographic Transition Drives Labor Force Growth56
Labor Force Participation Rates Have Been Rising57
Migration Fuels the Expansion of Labor Supply in Oil-Exporting Countries58
Patterns of Demographic Transition Determine Country Profiles60
Rural Migration Contributes to Urbanization60
Effect of Young Working Adults Is Growing62
Gender Profile of the Labor Force Is Changing63
Labor Force Is Increasingly More Educated66
Gender Gaps Are Narrowing by International Standards67
Education Matters More for Female Labor Participation68
Labor Market Outcomes in the 1990s71
High Unemployment Emerges71
Real Wages Have Stagnated or Declined73
Many Factors Lead to Adverse Labor Market Outcomes73
Employment and Output Trends Are Linked74
MENA's Growth Performance Needs Closer Examination77
MENA Had Exceptional Performance before the 1980s78
Oil Bust Signaled the Beginning of Economic Crisis79
Stabilization and Reform Programs Followed79
Crisis in Accumulation Deepened81
Investment by the Public Sector Is Not the Answer81
Response of Private Investment Was Limited82
External Instability Correlates Negatively with Private Investment83
Insecurity Affects Labor Markets Directly85
Toward a Fuller Understanding of Labor Market Outcomes86
4.Structure of Employment and Earnings in the 1990s89
Structure of Unemployment89
Youth and Female Unemployment Are High90
Unemployment and Education Are Strongly Linked92
Public Sector Employment in the 1990s94
Dynamics of Public Sector Employment96
Efforts to Downsize: Some Countries Falter, a Few Succeed98
Gender and Occupation in the Public Sector99
Role of the Public Sector Reinforced by Education101
Structure of Labor Markets101
Agriculture Declines While Manufacturing Is at a Standstill102
Services Are the Most Dynamic Sector104
Mixed Patterns Exist in Job Creation104
Informalization of Work in the 1990s106
Challenge of Measuring the Informal Sector106
Dynamic Informal Sector or Informalization?107
Expansion of Informal Employment for Everyone108
Gender Equity in Access to Labor Markets111
Real Wages and Wage Formation114
Flexibility Suggested among Trends in Real Wages114
Higher Returns to Education in the Public Sector116
Decline of Public-Private Wage Differences116
Measurement of the Gender Wage Gap118
Income Inequality That Remains Moderate120
Growth and Redistribution Protect Welfare Gains121
Wage Inequality Remains Greater than in Other Regions121
Poverty Rates Are among the Lowest in the World122
Poverty Is Not Associated with Unemployment124
What We Have Learned126
5.Labor Market Reforms: Opportunities and Constraints127
Reforming the Labor Market in a Dynamic Setting127
Rationalizing the Role of the Public Sector129
Wage Bills Are High but Productivity Is Low in the Public Sector129
Public Sector Reforms Are Critical for Reducing Unemployment131
Wages and Benefits Drive Preferences for Public Employment131
Menu of Policy Options Is Large and Flexible132
Rationalizing the Public Sector Has Effects134
Looking at Labor Market Institutions in the Private Sector137
Social Protection That Balances with Flexibility139
Strong Dynamic Effects of Labor Market Regulations142
Hiring and Dismissal Procedures That Influence Employment144
Uneven Progress with Labor Reforms145
High Indirect Labor Costs145
Quantifying the Effects of Labor Reforms150
Political Economy of Labor Market Reforms150
Aggregate Effects of Reforms: Positive but Modest151
Using Active Labor Market Policies in MENA153
Upward Trajectory in the Use of Active Labor Market Policies154
Wide Use of Public Works Programs155
Increases in Microfinance and Unemployment Lending155
Training and Retraining Programs for the Unemployed157
Evidence of the Limitations of Active Labor Market Policies158
Considering the Special Case of Labor-Importing Countries159
Labor Force Nationalization Policies Are Gaining Momentum159
Effectiveness of Policies Is Unclear162
Subsidies Are Potentially Effective but Expensive163
Similar Considerations Apply to All Active Labor Market Policies164
Taking Stock of What Has Been Learned165
6.Foundations of Future Growth and Job Creation171
Traditional Engines of Employment Growth171
Option of Public Sector Employment Will Diminish171
Future Role of Regional Migration Is Limited173
Migration to Europe Is Constrained by Policy173
MENA's Need for New Engines of Job Creation175
Foundations of New Development Policies176
Reinvigoration of the Private Sector177
Necessity for Integration into the World Economy180
Improved Management of Oil Resources182
Better Governance Needed to Complete the Three Transitions183
Road to Completing the Transitions185
Initial Conditions and Country Groupings185
Transition in Resource-Poor Countries187
Transition in Resource-Rich, Labor-Abundant Countries189
Transition in Resource-Rich, Labor-Scarce Countries190
Sequencing of Reforms and Adjustment of Costs191
Strengthening of Governance Aspects of the Transition195
Role of Human Capital in the Transition195
Maintaining and Expanding Access to Education196
Building on Past Success197
Improving Educational Quality and Addressing the Skill Mismatch199
Facing the Challenges Ahead203
7.Toward a New Social Contract205
MENA Needs a Vision of the Future of Its Labor Markets205
Successful Reform Requires a New Social Contract207
What Needs to Be Done Is Widely Acknowledged209
Reforms Have Been Too Limited and Too Slow211
Overcoming the Obstacles to Reform Is Critical211
Soft Budget Constraints and Political Challengers Have Impeded Reform212
Governments Have Decoupled Economic and Political Reform214
Today, Economic and Political Reforms Must Be Linked215
Support from External Partners Is Critical218
Main Responsibility Rests with MENA219
Statistical Appendix221
2.1Egypt's Employment Guarantee35
2.2.Effect of Oil on Labor Markets in the Gulf Cooperation Council37
3.1Measuring Fertility Determinants51
3.2Family Planning in the Islamic Republic of Iran52
3.3Evolution of the Labor Force in the Gulf Cooperation Council58
3.4Volatility and Economic Performance in MENA84
3.5Border Closings and Unemployment in the West Bank and Gaza85
4.1Profiles of the Unemployed in Morocco and the Arab Republic of Egypt93

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