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Youth Unemployment in the Arab World: What Do We know? What is the Way Forward?

Imed Drine

Many observers see youth unemployment as the major reason behind the recent popular uprisings in a number of Arab countries. Increasing unemployment over the past two decades has led to frustration among young people, especially among university graduates. Frustration among unemployed youth spilled out into the streets at the beginning of 2011, leading to rebellion against the existing political regimes in Egypt, Syria, Tunisia, and Yemen. A series of disorders and strikes have exacerbated the situation, and reduced prospects for a rapid economic recovery. The unemployment crisis is aggravated by low capital flows and a sharp decline in exports which result from the slowdown in investment and growth in the economies of the region’s main trading partners. The situation for many countries is further complicated by a sharp contraction in employment opportunities in Europe as well as the Gulf countries, a consequence of the global economic crisis. Finding new job opportunities in the MENA region is now more pressing than at any other time in the past. The problem is naturally worst in those countries where the risk of increased poverty is most prominent.

Unemployment: a real challenge for MENA region

High levels of unemployment are a challenge for the region’s economies. Furthermore, the lack of good jobs has the potential source of further social disruption and conflict, particularly as the population is forecast to increase to 410-460 million by 2020. Those under the age of 14 years will constitute more than 40 per cent of the total population, and the number of job seekers will top 39 million over the next decade. Moreover, women’s growing participation in the workforce will put greater pressure on the labour market, adding to the already serious nature of this jobs crisis.

Due to this substantial increase in the working-age population, and the increase in the share of young persons, the number of unemployed in the MENA region is expected to increase in the coming years. The situation looks even bleaker when we understand that nearly 5 million new workers hope to enter the labour market annually; the estimated funds needed to provide new jobs for these cohorts will exceed US$20 billion annually, according to the Arab Labour Organization (ALO). If the workforce in the region continues to grow at the same rate, it is estimated that the labour force will reach 185 million by 2020. This means that the MENA region needs to provide 105 million new jobs by 2020, to meet the additional needs of job seekers as well as new labour market entrants.

According to estimates by ALO, a 1 per cent increase per annum in the annual unemployment rate induces a 2.5 per cent loss in total GDP (about US$115 billion). A recent report [1] sponsored by the International Finance Corporation (IFC) and the Islamic Development Bank shows that the economic loss due to youth unemployment exceeds US$40-50 billion annually across the Arab world. Moreover, the fact that unemployment insurance is not common in the MENA region implies that the social impact of being unemployed is substantial. The problem is particularly severe for informal sector workers, as these are not registered with state institutions, and consequently do not have even minimal social protection. This problem is most acute in those MENA countries where the informal sector accounts for 90 per cent of economic activity, and is as such the largest employer in the labour market. In non-oil-exporting economies—such as Egypt, Morocco, and Tunisia—the informal sector is likely to expand as it may be difficult to promote formal sector employment.

The persisting trends of youth unemployment

Unemployment very much affects the young, and is linked to their problem of entering the labour market. Youth unemployment rate in the region is about 25 per cent, among the highest in the world, according to the most common estimates. The situation is even worse for young women with an unemployment rate of about 40 per cent. Compared to other global regions, the region has shown the highest rate of labour force increase over the last three decades; the unemployment rate for young age groups is 40 per cent in some MENA countries, making it a major economic and political concern.

Youth unemployment rates by region (2008)

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Unlike most regions, unemployment rates in the MENA region are highest amongst the more educated youth.

 

Youth and adult unemployment (2008)                                                           Slide2.JPG            

 

Youth unemployment by education (2008)

 

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This situation is typical in countries where education and training systems are not adequately linked to the skills required by the economy, including its most promising growth sectors. Indeed, graduates, misinformed about the country’s working conditions and requirements, have educational profiles that are inconsistent with reality. This makes their first attempt at labour market entry very difficult. Based on a survey among 1,500 youth and 1,500 employers in Egypt, Jordan, Morocco, Saudi Arabia, and Yemen, a report by IFC and the Islamic Development Bank shows that taught skills and knowledge in the Arab schools often have little or no connection to labour market needs.

Youth unemployment in countries like Egypt, Syria, Tunisia, and Yemen will rise in the future as a consequence of the current economic and social deadlock they are facing. Worse, this may be a source of instability and breakdown of the democratic process in the region if the new governments fail to find adequate solutions. The situation is further complicated by the lack of necessary financial resources and the narrowing economic prospects for the region. If democracy is to flourish in Egypt then youth unemployment must be of the highest priority, as economist Jeffrey Sachs and many other observers have pointed out.

A way forward

Addressing the unemployment challenge was always considered by MENA countries a top priority in their national development plans. However, it is clear that the economies of the region have not been able to create the jobs needed to meet the needs of an increasing labour force. In addition, the Arab world has produced more college diplomas than they can make use of. This mismatch between what the labour market offers, and what young people expect, continues to grow.

The few existing studies suggest that demographic trends and the prominence of the public sector, which cannot feasibly absorb all the labour market entrants, are the main causes of youth unemployment in the region. However, some of the region’s experts argue that past development models were inadequate resulting in low and unstable growth rates. This, together with the concentration on low value-added economic activities, is the major reason behind the high levels of unemployment in the MENA region today. The lack of dynamism in the private sector, the weakness of the education and training system, and bad governance are also cited as causes of dysfunction in the labour market.

Youth unemployment is quite different from adult unemployment. It involves a transition from school to work, and is associated with a move as well from single to married status. Due to the fragility of this period in life young people need a different set of policy prescriptions for employment. The region needs a strategy that targets skills development by improving the quality of education, improving public employment services and the functioning of employment services. Better training programmes and private sector incentive schemes that help to fill the skills gap will also improve employability of new entrants to the labour market. On the other hand, a substantial literature shows that entrepreneurship and self-employment are effective ways to foster economic progress and reduce unemployment among young people. Accordingly, targeting groups of young people through specific programmes to support entrepreneurship, and to promote entrepreneurial values and norms, could make employment policies more effective. In addition, improving access to the financial sector to meet the needs of micro, small and medium-sized enterprises is necessary to support young entrepreneurs.

Obviously youth unemployment is a major problem for the MENA region, but adult unemployment is also too high. So while youth-focused labour market policies are crucial, they will not be enough to address long-term challenges. The Arab Spring offers a good opportunity to think about new development models that could promote global competitiveness, and labour-intensive growth. The MENA countries need to transform their commodity-based economies to knowledge-based economies. Indeed, the recent developments in the world economy confirm that knowledge, innovation, and technology are the main drivers of economic growth. In an increasingly competitive international environment, improving productivity by bridging the technology gap becomes a priority if the region’s economies are to remain viable in the global economy. The MENA countries must also encourage the private sector to provide opportunities for youth employment and they need to develop a financial sector that fosters labour-intensive economic growth. Finally, more investment in neglected and poor regions is essential to addressing regional inequality, releasing pressure on the big cities, and improving labour market efficiency.

Imed Drine, is a Research Fellow at UNU-WIDER. Currently he is working on ‘The Middle East, North Africa, and Climate Change' , a project that aims to assess the impact of climate change on economic development opportunities in North Africa.

[1] The report ‘Education for Employment: Realizing Arab Youth Potential’ is based on the findings of a study done by McKinsey & Company.

WIDERAngle newsletter
June-July 2012
ISSN 1238-9544

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