Economic Research Forum (ERF)

Promoting better jobs for young people in Egypt

A young person’s first job has a huge impact on the rest of their working life. Today, Egyptian youth face big challenges in securing that first position. This column explains why active labour market policies are unlikely to help with the initial transition into employment. Instead, policy-makers in Egypt should focus on improving the investment climate for small firms, and creating safe and accessible jobs for young women.

In a nutshell

Active labour market policies, such as public employment schemes, wage subsidies, job search assistance and skills training have been ineffective in improving the quantity or quality of employment for youth in the MENA region.

Improving the business climate for small firms, particularly by reducing the regulatory burdens of operation and formalisation, can help create employment and improve job quality.

Policies that create safe, accessible and acceptable jobs for young women are an important part of ensuring successful employment transitions for youth.

In previous generations, if a young person acquired a secondary or higher education, she or he could almost certainly enter the middle class by means of a formal job, primarily in the public sector. The reality today is that youth with the same level of education face much worse prospects in accessing formal employment than their parents’ generation did.

In addition, socioeconomic status plays an increasing role in obtaining good jobs. Since it is primarily youth with secondary or higher education but from less privileged backgrounds that are expecting formal employment but facing much lower chances of obtaining it, we focus on policies that might help these young people.

Active labour market policies

In theory, active labour market policies can upgrade workers’ skills, promote job creation and assist in matching workers and employers. The reality is that these programmes – which include public employment schemes, wage subsidies, job search assistance and skills training – have been ineffective in improving the quantity or quality of employment for youth in the MENA region. They will not help to improve labour market transitions in Egypt in the absence of a substantial increase in labour demand.

The investment climate for small firms

A key issue limiting the quality and quantity of employment in Egypt is the poor investment climate, particularly for small firms. Out of 189 countries, Egypt ranks 128th in terms of its business environment – below the MENA average as well as below comparable countries such as Jordan, Morocco and Tunisia.

Improving the investment climate for small firms can have a number of benefits. As firms grow, they will not only contribute to job creation, but larger firms are more likely to be part of the formal economy, which could also improve job quality.

How can the investment climate be improved? Easing regulatory burdens can affect firm size and employment creation. Reforms to Egypt’s labour law in 2003, which allowed greater flexibility for firms to issue temporary employment contracts and also allowed employers to lay off workers more easily, contributed to an increase in the formality of employment. Further reforms increasing the flexibility of employment could encourage employment creation and improved job quality.

Small firms must be encouraged to grow and create employment, but also to formalise so as to be able to provide better quality jobs. Under current regulations in Egypt, however, the burdens of formality are enormous. For example, formal employers – together with the workers themselves – must contribute 41% of employees’ basic wage to the social insurance system. Such burdens – as well as taxes that are often arbitrarily assessed and other costly regulatory provisions – make it difficult for small enterprises to formalise and grow.

Safe and accessible working spaces for young women

The group that struggles the most in making the transition to employment in Egypt is young women. Just 18% of young women ages 25-34 work. Women face substantial barriers in finding work, but also in remaining employed, especially after marriage. Once married, women must undertake many hours of domestic work, equivalent to almost a full-time job. Part-time jobs, flexible work options, job-sharing and work-from-home arrangements could substantially increase women’s employment in the private sector.

Conditions of work – especially the risk of sexual harassment and other reputational threats – represent a further barrier to women’s employment. Akin to a ‘reservation wage’ (the minimum wage for which an individual would work), a key concept for women in Egypt is ‘reservation working conditions’ – the minimum working conditions that they or their families deem acceptable for them to accept or stay in a job.

These working conditions primarily relate to social norms as to what is acceptable for women, based on concerns about female sexual (and reputational) safety, concerns that are grounded in problems with maltreatment and harassment. Work that involves manual labour, that is outside a fixed establishment or is in a workplace with few or no other female employees is generally socially unacceptable – which rules out most jobs in Egypt.

The difficulty of finding safe and reliable transport is another barrier to women’s employment. In part because of difficulties with transport, where employment is located matters more for women: they will often work only in the area where they live, and they have lower commuting rates than men. Incentives and regulations to separate workplaces and residences and to locate industries outside of residential areas have increased the difficulties that women face in working.

What can be done to create safe, accessible and acceptable working places for young women? A key element of long-term improvements in working conditions is to provide women with both legal and practical recourse to realise the protections against maltreatment and harassment that are assured to them under existing laws. Encouraging woman-friendly employment opportunities and businesses in residential areas is also important. This may require changing rules and incentives guiding the locations of certain types of businesses.

An additional option is to create women-only spaces in both public transit systems and workplaces. Cairo’s women-only metro cars are one example of addressing the need for transport as well as women’s safety in a problematic environment. The women-only concept could be extended to gender-segregated workplaces, such as women-owned (and operated) enterprises. Women-only workplaces, as well as allowing women to work from home, are increasingly common in Saudi Arabia, for example.

Conclusions

A number of policy levers could potentially facilitate youth entry into employment. Active labour market policies are not likely to create additional employment, substantially upgrade skills or facilitate job matching in the Egyptian context.

A more promising avenue for employment creation is to improve the business climate for small firms, including altering the benefit-cost ratio of formalisation. For young women, creating woman-friendly work places and transport systems, and locating businesses nearer to where women live can promote their transition to employment.

Further reading

Krafft, Caroline, and Ragui Assaad (2015) ‘Promoting Successful Transitions to Employment for Egyptian Youth’, ERF Policy Perspective No. 15.

Most read

Why the West got rich and the Middle East did not

Today’s rulers of the three largest Middle Eastern economies all look to religious authorities as a key source of legitimacy. Drawing on a broad sweep of historical analysis, this column explores what this might mean for the region’s economic future. One notable danger is that the types of people who would push for policies that promote long-run growth are excluded from the political bargaining table.

Why Turkish growth ended

Following a period of rapid economic growth, the Turkish economy has slowed significantly since 2007. This column argues that these economic ups and downs reflect institutional improvements in the aftermath of the country’s 2001 financial crisis, followed by an ominous slide in the quality of these economic and political institutions.

Implications of the current low oil prices for MENA countries

The current low oil price environment, in part driven by the US shale oil revolution, has important macroeconomic implications for the Middle East and North Africa (MENA). This column reports research evidence on its likely impact on both oil-exporting and oil-importing countries in the region.

Prospects for development with democracy in the Arab world

What are the prospects for democracy in the Arab world? This column expresses the hope that as conflict-afflicted countries embark on their programmes of economic reconstruction, autocratic institutions will not be re-established under the pretext of the need for a speedy and steady recovery. The optimal path of development necessarily includes robust growth, equity as well as democracy.

An agenda for reducing income inequality in the Arab countries

What can be done to reduce income inequality in Arab countries? This column explores issues of measurement as well as potential policy measures. It concludes by calling for a new multipurpose pan-Arab survey that would allow for an evidence-based decision-making process on the impact of proposed policies on poverty and inequality.

The United Arab Emirates’ dilemma

As energy-producing economies strive to reduce their reliance on oil revenues, they must strike a balance between the competing demands of fiscal sustainability and steady growth of the non-energy sector. This column outlines how the United Arab Emirates is addressing this challenge.

Freedom for women is crucial for economic progress in MENA

The Middle East was once the cradle of civilisation: can it prosper once again? Looking back at lessons from the European Enlightenment, this column argues that if the region wants to advance economically, it needs to advance in terms of its treatment of women. Female agency is central to understanding the West’s technological leadership of the past two centuries.

Inequality in higher education: Egypt, Jordan and Tunisia

Attainment of higher education is strikingly unequal in Egypt and Tunisia, and a little less so in Jordan. This column reports research showing that in all three countries, family background is the primary driver of inequality. Particularly in Egypt and Tunisia, public spending on higher education is regressive, with the result that what purports to be a meritocratic and equitable system in reality perpetuates inequality.

Oil exporters’ responses to the US fracking boom

What are the implications of low oil prices for the economic and political stability of Arab oil-exporting countries such as Saudi Arabia? This column explores the impact of the US fracking boom on Arab oil revenues – and how policy-makers in these countries should respond.

Pension reform that avoids harming MENA labour markets

To tackle the deficits in their pension systems, should governments in Arab countries raise social security contributions, reduce pension levels or increase the statutory retirement age? This column summarises the results of research assessing the costs and benefits of different pension reforms in terms of their impact on different generations and on the labour market.