YOUTH EMPLOYMENT IN THE MENA REGION GLOBAL YOUTH CONFERENCE 2012 Caroline Freund, Chief Economist MENA

MENA has the highest youth unemployment rates and the lowest participation in the world Source: KILMnet (2008) Labor Force Participation

In some countries, the more educated have higher unemployment rates, in others the less educated do SOURCE: Algeria, Morocco and WBG (ILO-KILM, 2009); Egypt, Jordan, Lebanon, Syria and Tunisia, ETF 2006.

And youth are disproportionately represented in in the informal sector (with very low levels of productivity) Informality Rates by Age Among University Graduates in Egypt Source: World Bank using the 1998/2006 Egypt LMPS survey

In part, it is demographics

Growth is a big factor Growth in MENA has been weakEmployment elasticities are not low

Demand-side factors: Low private sector job growth 7 Low Investments in the Private Sector Private Investment as % of GDP

Demand-side factors: Business Climate

Demand-side factors: Labor Regulations  Firing regulations in MENA remain quite strict and firing costs remain high, creating disincentives to hiring new workers.  Labor taxes and mandatory contributions are the highest in the world, which increases the cost of labor, thereby reducing demand for new workers As a result, high incentives for firms to have informal workers Source: Doing Business (2010)

Supply-side factors: Wrong skills  Skills mismatches: enterprise surveys indicate that firms identify worker skills among their top five constraints to business climate in the region, especially in North Africa. Share of Firms Indicating Labor Skill Level as a Major Constraint to Business Creation Source: AMCs: Arab Mediterranean Countries

Poor job matching mechanisms that don’t “clear the market” Inefficient job search mechanisms. The poor, especially use informal search mechanisms. Inefficient employee search processes. Employers use personal relationships to find new employees How workers (don’t) find jobs in Lebanon

Misaligned expectations  The civil service remains large for MNA countries’ levels of development.  Since public sector jobs are still associated with relatively generous benefits, many educated individuals (mainly women) still queue for public sector jobs.  And family social support structures are such that youth can spend prolonged periods unemployed.

1. Promote private sector employment creation and income support (demand) Address private sector development, including broader regulatory reform, competition policy, infrastructure bottlenecks Complementary programs to promote employment and provide income support (regional incentives, wage subsidies, entrepreneurship programs, public works) 2. Support regulatory reforms and capacity building (demand) Make it easier for firms to hire people Protect workers in period of transition (unemployment insurance) Ensure sure labor costs/taxes are not high vis a vis productivity Increase capacity of labor offices and labor ministries to provide services 3. Address inadequate skills (supply) Train and re-train workers Make training demand-driven Bank Strategy: 4 pillars to address labor constraints 4. Help people get jobs faster (job intermediation ) Modernize public agencies that help workers and firms get together Foster coordination with private intermediation agencies Prepare /help individuals to obtain employment abroad

Short-run measures: Employment Response Packages  Employment Response Packages include a mix of programs/policies for employment generation, temporary employment, and income protection  Programs targeted to Skilled workers: Subsidized wages and/or social security contributions, training, labor intermediation programs, international placement, business promotion (Tunisia, Egypt, Jordan)  Programs targeted to Unskilled workers: Public works, regional development programs, entrepreneurship programs/micro-credits, training (Rural Tunisia, Yemen)

Medium-run measures: More Dynamic Labor Markets and Stronger Labor Market Institutions to accompany Private Sector Development  Reforming labor and business regulation, firm entry and exit, simple uniform rules, level playing field, promoting private intermediation, revising social security systems (including tax wedges, social contributions and pensions), liberalizing professions, and reforming the social protection system to protect workers rather than jobs (more social support, unemployment insurance, and active measures to assist workers during periods of transition).  Modernizing labor intermediation and public employment services through investment operations (and fee for service) with Labor Ministries and Labor Offices in order to assess and monitor ongoing employment programs, reform ALMPs systems, and develop/design labor market information systems.

Challenges  Political Economy  Politically sensitive reforms are needed (labor regulation, social security, and labor taxes)  Reluctance of government to engage in projects in the social sectors  Access to Data  Access to micro-data for policy design in MENA is restricted (strong confidentiality policies)  Most labor market programs in MNA are not evaluated