In a nutshell
As growth rates in the Arab region have slowed and the price of oil has plummeted, it makes no economic sense not to use half of the available human capital.
The average woman worker is more educated than the average man; and the returns to women’s education are higher than those for men.
Given the relatively low labour force participation of Arab women, removing impediments to the employment in the private sector would generate significant economic benefits.
Women’s under-representation in economic activity in the Arab countries reduces both the level of production at the macro level and personal welfare at the micro level. At the same time, a bloated public sector has adverse effects on production through lower productivity, excessive taxation on a private sector that is smaller than it could be, and the resulting limited, if not unproductive, public spending.
These issues are worth revisiting for two reasons. First, both are changing fast: the rate of female labour force participation is increasing faster than in any other region, while the importance of the public sector as an employer has been declining.
Second, we have new estimates for all 22 Arab countries of the returns to education –the extent to which more education leads to higher wages. This makes it possible to compare returns for women and men, and to measure how much a public sector worker is paid compared to a private sector worker with a similar education.
Returns to education for Arab women and men
As elsewhere in the world, women are paid on average less than men. But because the relatively few Arab women who work are mostly highly educated and employed in the public sector in greater proportions than men, the gender pay gap is actually lower than in other regions, including Europe. Furthermore, women who work are paid more than men for each additional year of education.
But for both women and men, the average returns to education in the region are considerably lower than in the rest of the world. This suggests that the region is not capitalising on investments in education to the same extent as other regions. While the returns to primary education are on par with the global average, the returns to secondary and tertiary education are almost half the global averages.
Pay for public sector workers
Based on survey results, the income gain of Arab households is not that much different if men are employed in the public sector compared to employment in the combined private sector as private sector employees or self-employed.
But for women, the household income gain is significant only for those working in the public sector. The implication is that the make-or-break labour market decision for women depends much more than men on whether they would work in the public sector. This contrasts with other developing regions and it suggests that the private sector in Arab countries does not place much value on women’s work.
What determines the relatively low returns to education in Arab countries? One explanation is that education is of low quality, as indicated by the low scholastic achievement of Arab students in comparative international examinations.
In this case, policy responses can focus on addressing student-related factors (such as socio-economic disadvantages), school-related factors (such as teachers’ qualifications and motivation, the availability and affordability of textbooks, and classrooms) and system-wide factors (such as methods of teaching, curricula and the role of exams for university entry).
Another explanation is that the educational qualifications and skills that jobseekers bring to the labour market are not those that private employers value. If so, a greater involvement of employers is required for modernising reforms in the areas of pedagogical methods and curriculum contents. All in all, the choice of subjects should not be the result of legacies of the past or what existing teachers want and can teach, especially in public education institutions.
It is also possible that there are problems with low labour demand for educated and skilled workers. This is often the case when production and markets are immune to competition because of monopolistic, rentier and crony practices. The answer here is to ensure a level playing field in the economy through appropriate monetary, fiscal, investment and trade policies and the right policies for private sector and business development.
Yet another explanation is that there is an oversupply of educated jobseekers. This can arise from subsidised higher education in combination with rising social demand for education by aspiring middle classes. Such demand should be welcomed, but public subsidies beyond basic education should be questioned in terms of their impact relative to other uses of public resources.
Removing impediments to women’s employment in the private sector
Women increasingly have more years of education and enjoy higher returns to education than men. If these were the only two factors affecting wages, then women would be paid more than men. But there are many other factors in operation, such as the type of education, hours of work, sector of employment, attitudes, gender division of labour and willingness or ability to commute, all taking a toll on women’s earnings.
So what policies can help to reduce the gender pay gap? One is to ease access of women to employment in the private sector. This has become more important recently as Arab governments continue to rationalise employment in the public sector. There are also signs that younger and more educated women prefer to work in the private sector, at least in countries outside the Gulf Cooperation Council.
Thus, market imperfections that limit the employment opportunities for women should be eliminated as they are bound to create ‘efficiency losses’. These include employer discrimination or institutional constraints arising from legal provisions and conservative cultures. When such impediments are removed, the resulting benefits could be much higher for both Arab women and Arab economies than elsewhere in the world.
As a final word, studies have estimated the impact on men of greater gender equality in the labour market. These indicate that men will not lose out in absolute terms, as ‘the size of the pie’ will increase from the resulting efficiency gains. As growth rates in the region have slowed and the price of oil has plummeted, even all other reasons aside, it makes no economic sense not to use the half of the available human capital that is held by women to increase the pie.
Tzannatos, Zafiris (2016) ‘Employment and Rates of Return to Education in the Arab Countries: Gender and Public Sector Perspectives’, ERF Policy Brief No. 13.
Tzannatos, Zafiris, Ishac Diwan and Joanna Abdel-Ahad (2016) “Rates of Return to Education in Twenty Two Arab Countries: An Update and Comparison between Mena and the Rest of the World, ERF Discussion Paper No. 1007.