Unemployment in Tunisia is persistently high – and particularly among young people, women and the educated. The share of unemployed people who are younger than 35 years old is 85%. And the higher the level of education attainment, the higher the rate of unemployment: 40% of the unemployed have university degrees; and three quarters of them are women.

Why is unemployment among young people and educated women so high? In a new book, we analyse three key factors:

• First, labour supply pressures.
• Second, weakness in the demand for skilled labour and the mismatch between the skills needed and those produced by the country’s education and training system.
• And third, the inefficient and rigid regulations and institutions that govern the functioning of the labour market.

Labour supply pressures

Supply pressures remain high in the Tunisian labour market: there are more people willing to work or looking for a job than public and private employers are ready to hire. This is true despite Tunisia being in the advanced stage of the demographic transition.

The rate of population growth declined sharply from the mid-1990s, reaching a low of less than 1% per year in 2000, and the fertility rate dropped from six children per woman in 1975 to under two children. As a result, the share of young people (those aged 16-24 years old) in the total population has decreased to less than 24%, and under 40% of the population are 24 or younger.

Although there was a slight reversal of this demographic slowdown between 2000 and 2012, the rate of population growth has remained low, stabilising at around 1.1%. Yet the labour force has continued to grow and supply pressures have persisted. This is for three main reasons.

The first reason is the dramatic shift in the composition of the labour force. The supply of educated workers has increased very fast, much faster than the rest of the labour force and the overall demand for skilled labour.

Supply pressures are observed mostly in the skilled labour segment of the labour market. Indeed, among 146 countries for which data are available, Tunisia ranked 10^th in the absolute increase in the average years of schooling of its population over the period 1990 to 2010. The number of enrolled university students and graduates grew at a rate of 12% between 1994 and 2010, tripling in 15 years.

The second reason for persistent labour supply pressures has to do with the stock of unemployed. More than 600,000 people (over 15% of the labour force) are waiting for jobs. This number keeps increasing, and under the best scenario, it will take at least another decade for the economy to absorb a large enough portion of this ‘reserve army’.

The third reason is that women’s participation in the labour force is likely to increase. Unemployment rates are highest among women university graduates and most dramatically for young educated women who are more geographically constrained than men and are simply less able to move to where the jobs are. This is particularly true for women living in lagging rural areas.

The barriers to women’s employment are also reflected by their low participation rates: fewer than three out of ten women are in the labour market and only two are employed. Yet young women are much more educated than young men, and there has been a complete closing and even reversal of the gender gap in educational attainment in favour of women.

It is unlikely that this paradoxical situation of women’s high educational attainment and low labour market participation rates will last for much longer. Women are likely to enter the labour force in large numbers: if not in the short or medium run, it will be in the long run, that is, over the coming decade.

Weakness in the demand for skilled labour and the problem of skill mismatch

It is well established that the Tunisian economy has not been creating enough jobs even when the rate of GDP growth was relatively high. What’s more, the jobs created tend to be low productivity, low wage and low quality jobs, not the type of jobs educated young women and men are expecting. A large share of these jobs is in the informal sector.

Good (or relatively better) jobs are scarce, and typically only available in the public sector, where hiring is almost frozen, and in the larger formal private sector firms, the number of which grows too slowly. The majority of existing firms are small or very small, and very few of them are growing enough.

There is clearly an urgent need to enhancing firm growth and modernisation, and for better jobs. It is vital to improve the capacities of the private sector to provide higher productivity jobs in accordance with the aspirations of educated young people.

Among other things, this requires improving the private sector’s international competitiveness, and reducing the cost of formality relative to the cost of operating in the informal sector. It also means that the country needs to improve the law enforcement capacity of the state. When a firm is upgraded to being in the formal sector, it is more likely to hire more skilled educated workers and its employees have better jobs in terms of type of contract, social security, working conditions, etc.

The low demand for educated workers is amplified by the fact that a large share of educated people does not have the skills employers are looking for. This mismatch factor is important, but is often exaggerated, as few vacancies are really available.

The inefficient and rigid regulations and institutions that govern the functioning of the labour market

Nevertheless, there is a real gap between the skills currently and potentially needed by the economy and those produced by the Tunisian education system. This system is not responsive to the needs of the employers, private and public, and hardly communicates with them.

The education and training institutions do not have the incentive to give their graduates the skills and qualifications that facilitate their transition into the labour market and help them find the right jobs. They are not accountable for that. They also lack the autonomy that goes with such accountability.

Moreover, the labour market information system is incomplete and not integrated. It does not provide timely information about the needs of the firms, and there is no reliable forecast of the future demand for skill and the evolution of jobs.

Governance and incentives don’t work the right way

The labour market does not operate efficiently because of many other rigidities, including with respect to its core institutions. For example, Tunisia is ranked 63^rd out of 73 countries in terms of protection against individual firing, a limitation likely to discourage employment and to increase the cost of formality.

This is just an example: the fact is that labour laws offer strong protection but only around half of the labour force consists of employees in the formal sector and thereby benefiting from this protection. The other half is either partially or totally excluded from this protection.

It would be wiser to lower protection requirements and make sure all the labour force is covered. The outcome would be less distortive and more equitable. But this is easier to say than to do, unless a new coherent social contract is reached through negotiations involving all labour market partners: labour, business and the government.

Such a social contract would be essential to fill another major gap regarding conflict management mechanisms and improving the modalities of wage determination. The current procedure for collective bargaining has helped to ensure peaceful earnings negotiations for decades, but according to discriminatory and fuzzy rules.

There are no other mechanisms to deal efficiently with conflicts between labour and employers. Little room is available for dialogue, labour participation, conflict anticipation or peaceful resolution. Contradictions are more often resolved either through repression or strikes.

This column summarises some of the findings in The Tunisian Labor Market in an Era of Transition, a new ERF volume edited by Ragui Assaad and Mongi Boughzala, and published by Oxford University Press. The book draws on data from the Tunisian Statistics Institute (INS) and from the Tunisian Labor Market Panel Survey (TLMPS) to provide a comprehensive overview of the key labour market issues in Tunisia, including the size, structure and evolution of the labour force, employment and unemployment, wage formation, gender differences, education and migration.