Economic Research Forum (ERF)

Better measures of the health of Egypt’s labour market

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.

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