Economic Research Forum (ERF)

Better measures of the health of Egypt’s labour market

1103
Policy discussions about the health of Egypt’s labour market focus almost exclusively on one indicator: the unemployment rate. This column argues that the unemployment rate is a poor indicator of the cyclical performance of the economy. What’s more, it focuses attention on the plight of a very specific group of people, who are not the most vulnerable to poor labour market conditions.

In a nutshell

Egypt’s unemployment rate is primarily driven by the age and education structure of the population, rather than by economic fluctuations.

The unemployed are primarily educated, middle and upper class new entrants into the labour market – a relatively privileged slice of society.

Other measures of labour market health – such as underemployment, types of employment (especially irregular work), hours of work and earnings – are more sensitive to the conditions facing the poor and less educated.

A good measure of labour market health will be sensitive to economic changes, so it can quickly indicate to policy-makers whether conditions are improving or deteriorating. In addition, it will be particularly sensitive to changes that affect the poor and less privileged, who are the most vulnerable to economic shocks, rather than more privileged segments of society, who have more resources to weather downturns.

Unemployment is a misleading measure of labour market health in Egypt. It is driven primarily by structural forces and is therefore relatively insensitive to cyclical fluctuations. The unemployed are disproportionately relatively privileged individuals who can afford to go without work. Using unemployment as a measure of labour market health leads to an assessment based on the state of structural forces and overemphasises the employment needs of the educated and relatively privileged.

Instead, policy-makers should focus on other measures, such as types of work and especially the prevalence of irregular work, hours of work, underemployment and earnings. These indicators of labour market health are more responsive to cyclical economic changes. They are also sensitive to the labour market status of those who are economically vulnerable.

Irregular work

Irregular work is casual (intermittent) or seasonal work. Irregular workers live a precarious existence. They do not have stable jobs, where they know they will have employment every day. Instead, they are mobile workers – for example, construction workers moving from site to site, or individuals working intermittently on someone else’s farm or field.

Irregularity of work is very sensitive to cyclical changes. When economic conditions are good, workers can get regular (permanent or temporary) positions. They know they will have work for the next month, six months or a year. When economic conditions are poor, irregular workers will have to look for work on a day-to-day basis. Workers will not be ‘laid off,’ because they do not have a permanent relationship with a single employer. Instead, they may only find work a few days a week.

Data for 2012 show that while informal private wage workers averaged 55 hours of work per week, irregular workers averaged just 42 hours per week. Irregular workers were not working less by choice: just 18% of irregular workers were fully satisfied with their work hours, compared with 51% of regular workers; and just 9% of irregular workers were fully satisfied with their job security, in contrast to 52% of regular workers.

Focusing on irregularity as a measure of labour market health allows policy-makers to focus on the poor, who are the most vulnerable in the face of economic fluctuations. Irregular workers are more likely to be poor: while 37% of male workers in the poorest fifth of households are irregular, only 3% of those in the richest fifth of households are irregular. This is not simply because regular workers are able to accumulate more wealth: looking at the household wealth of young men (those aged 15-34 in 2012) who were living with their parents in 2006, the same pattern holds.

Hours of work

Employers in Egypt do not tend to lay off workers during downturns. Instead, they reduce their hours of work or wages. Hours of work are therefore a good measure of the health of the labour market. While workers rarely become completely unemployed, they will experience fewer hours of work in response to crises.

For example, when economic conditions led to greater demand for labour in 2006 compared with 1998, the percentage of male workers with more than 60 hours of work per week rose from 28% to 40%. Only 5% of male workers were working less than 30 hours in 2006. By 2012, when conditions had deteriorated, the percentage of workers with fewer than 30 hours of work had doubled to 10%, and the share of workers with 60 or more hours of work had fallen to 29%.

Underemployment

When individuals are underemployed, they are working but not to their full capacity. Visible underemployment occurs when an individual works less than full-time (40 hours per week) because of insufficient employment opportunities. Like unemployment, underemployment is a measure of employment opportunities, but it is much more sensitive to economic conditions.

In 2012, for example, 9.3% of the employed were underemployed, substantially higher than in either 2006 (2.8%) or 1998 (4.9%). From 2006 to 2012, as economic conditions deteriorated, visible underemployment more than tripled, a 6.5 percentage point increase in the underemployment rate.

Focusing on the underemployment rate, in contrast to the unemployment rate, focuses attention on the less privileged. Individuals who cannot afford to do no work whatsoever in the absence of good job opportunities take infrequent and marginal work. For example, underemployment rates are higher among the less educated, particularly less educated women. While 14% of workers with no degree or a basic education were underemployed in 2012, only 3% of workers with higher education were underemployed.

Earnings

Earnings are another good measure of labour market health. But it is important to focus on monthly earnings rather than hourly earnings, as hourly wages could remain constant while hours fall, leading to a decrease in monthly earnings.

It is also important to focus on wages in the private sector or to examine private and public sector wages separately. Private sector wages are more responsive to economic conditions and better represent workers’ productivity, while public sector wages are largely a political product. In the aftermath of the 25 January 2011 uprising, for example, private sector earnings fell while public sector earnings rose.

Focusing on private sector earnings as a measure of labour market health also focuses on those who are more vulnerable. It is essential to make wider use of such measures – ones that are more sensitive to less privileged workers, individuals with less wealth and lower education. Only with better measures of labour market health can the real state of the labour market be assessed and effective policies crafted.

Further reading

Krafft, Caroline, and Ragui Assaad (2015) ‘Why the Unemployment Rate is a Misleading Indicator of Labor Market Health in Egypt’, ERF Policy Perspective No. 14.

Tags: , ,

  • Caroline Krafft
    Caroline Krafft
    Associate Professor, Humphrey School of Public Affairs, University of Minnesota
  • Ragui Assaad
    Ragui Assaad
    Professor and Freeman Chair for International Economic Policy, Humphrey School of Public Affairs, University of Minnesota

Most read

Trust in Lebanon’s public institutions: a challenge for the new leadership

Lebanon’s new leadership confronts daunting economic challenges amid geopolitical tensions across the wider region. As this column explains, understanding what has happened over the past decade to citizens’ trust in key public institutions – parliament, the government and the armed forces – will be a crucial part of the policy response.

Climate change: a growing threat to sustainable development in Tunisia

Tunisia’s vulnerability to extreme weather events is intensifying, placing immense pressure on vital sectors such as agriculture, energy and water resources, exacerbating inequalities and hindering social progress. This column explores the economic impacts of climate change on the country, its implications for achieving the sustainable development goals, and the urgent need for adaptive strategies and policy interventions.

Small businesses in the Great Lockdown: lessons for crisis management

Understanding big economic shocks like Covid-19 and how firms respond to them is crucial for mitigating their negative effects and accelerating the post-crisis recovery. This column reports evidence on how small and medium-sized enterprises in Tunisia’s formal business sector adapted to the pandemic and the lockdown – and draws policy lessons for when the next crisis hits.

Assessing Jordan’s progress on the sustainable development goals

Global, regional and national assessments of countries’ progress towards reaching the sustainable development goals do not always tell the same story. This column examines the case of Jordan, which is among the world’s leaders in statistical performance on the SDGs.

Qatarisation: playing the long game on workforce nationalisation

As national populations across the Gulf have grown and hydrocarbon reserves declined, most Gulf countries have sought to move to a more sustainable economic model underpinned by raising the share of citizens in the productive private sector. But, as this column explains, Qatar differs from its neighbours in several important ways that could render aggressive workforce nationalization policies counterproductive. In terms of such policies, the country should chart its own path.

The threat of cybercrime in MENA economies

The MENA region’s increasing access to digital information and internet usage has led to an explosion in e-commerce and widespread interest in cryptocurrencies. At the same time, cybercrime, which includes hacking, malware, online fraud and harassment, has spread across digital networks. This column outlines the challenges.

Economic consequences of the 2003 Bam earthquake in Iran

Over the decades, Iran has faced numerous devastating natural disasters, including the deadly 2003 Bam earthquake. This column reports evidence on the unexpected economic boost in Bam County and its neighbours after the disaster – the result of a variety of factors, including national and international aid, political mobilisation and the region’s cultural significance. Using data on the intensity of night-time lights in a geographical area, the research reveals how disaster recovery may lead to a surprising economic rebound.

Macroeconomic policy-making for sustainable development in Egypt

In recent years, economic policy in Egypt has been focused primarily on macroeconomic stabilisation to curb inflation, to reduce the fiscal deficit and the current account deficit, and to increase GDP growth. As this column explains, this has come at the expense of the country’s progress on the Sustainable Development Goals, which is rather modest compared with other economies in the region or at the same income level. Sustainable development needs to be more integrated with the conception and implementation of fiscal and monetary policies.

The impact of climate change and resource scarcity on conflict in MENA

The interrelationships between climate change, food production, economic instability and violent conflict have become increasingly relevant in recent decades, with climate-induced economic shocks intensifying social and political tensions, particularly in resource-constrained regions like MENA. This column reports new evidence on the impact of climate change on economic and food production outcomes – and how economic stability, agricultural productivity and shared water resources affect conflict. While international aid, economic growth and food security reduce the likelihood of conflict, resource scarcity and shared water basins contribute to high risks of conflict.

Qatar’s pursuit of government excellence: promises and pitfalls

As Qatar seeks to make the transition from a hydrocarbon-based economy to a diversified, knowledge-based economy, ‘government excellence’ has been identified as a key strategic objective. This column reports what government effectiveness means in terms of delivery of public services, digitalisation of services, and control of corruption – and outlines the progress made to date on these development priorities and what the country needs to do to meet its targets.