Economic Research Forum (ERF)

Why does growth generate so few and such low-quality jobs in North Africa?

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A new report examines the type and quality of jobs created in Algeria, Egypt, Sudan and Tunisia, and how they relate to patterns of economic growth. As this column explains, the history of dependence on oil and other resources as the engines of growth in these economies has meant a large flow of rents into government coffers, which has enabled an outsized but unsustainable role for the public sector as an employer.

In a nutshell

Low labour force participation rates affect all four countries, including some of the lowest female participation rates in the world; participation levels are stagnating or falling among men; and rising slightly among women.

Unemployment in North Africa reflects the problems of getting young educated entrants into the labour market, and thus depends critically on the rate at which this group is growing.

Despite efforts to reorient all four economies towards a more market-led direction, none have succeeded in promoting formal private sector jobs, while cutting public sector payrolls; with the right incentives, the region can be reoriented towards a growth trajectory that can create higher-quality jobs.

It is no secret that labour market outcomes in North Africa have been disappointing over the past two decades despite varied and sometimes reasonably good economic performances in terms of GDP growth rates. As a region, North Africa has the highest unemployment rates – both overall and for youth – and, together with the Middle East, some of the lowest female participation rates of all world regions.

This column draws on the overview chapter of the recently issued Regional Report on Jobs and Growth in North Africa prepared by ERF researchers as part of the International Labour Organization’s (ILO) Advancing the Decent Work Agenda in North Africa (ADWA) initiative (Assaad and Marouani, 2021).

The report attempts to shed light on poor employment performance in the region by examining the relationship between patterns of economic growth and labour market outcomes in Algeria, Egypt, Sudan and Tunisia by seeking to look beyond unemployment and participation rates, and delving deeper into the type and quality of jobs created in these economies and how they relate to the patterns of growth.

A common feature characterising the nature of growth in most of these countries is that it had, until recently, been driven by extractive sectors, such as petroleum or mining. The rents accruing primarily to state coffers are behind the outsized role for the public sector in job creation in all four countries, especially for post-secondary graduates.

In some countries, such as Algeria, this is still very much the case, with the petroleum sector accounting for a substantial share of GDP and almost all exports. In other countries, such as Sudan, the shift is quite recent, dating from the secession of South Sudan in 2011, when most of Sudan’s oil resources went to the South.

In Tunisia, the mining sector’s share in total exports declined in the last decade due to lower oil reserves and social unrest within the phosphate sector since 2011. Egypt is no longer a large exporter of oil and gas, but its economy has long been affected by the vagaries of the oil economy, either directly or indirectly through workers’ substantial remittances from oil-rich countries.

In all four countries, the importance of oil or other mineral revenues has declined in the 2010s, but the legacy of dependence on these sectors and other sources of rents has strongly shaped the structure of their economies.

Long-term dependence on various forms of rents in North Africa essentially encouraged the growth of non-tradable sectors, such as construction, real estate, wholesale and retail trade, transport and food services, leading to premature deindustrialisation. Even though high-productivity service sectors, such as finance and insurance, and information and communications, have grown rapidly, they did so from such a small base that they have had limited impact on the overall structure of employment and will continue to represent a small share of overall employment in the future.

Productivity decompositions into within- and between-sector productivity growth over the last 20 years reveal different patterns in the four countries, but they confirm that structural change has mostly favoured low-productivity sectors, with most productivity increases occurring within rather than between sectors.

Overall, the process of structural transformation in the region has generally not been favourable to productivity growth, and has thus favoured low-productivity sectors that tend to generate low-quality, often informal jobs.

With regard to labour force participation and employment rates, the analysis finds that rates have either stagnated or declined in recent years, especially for men. This trend is particularly concerning in Algeria and Egypt. It is occurring among men at both ends of the age spectrum and is concentrated among less-educated groups that are less likely to show up among the unemployed.

While educated women are more likely to participate than their uneducated counterparts, employment rates among educated women are falling, as fewer opportunities are available in the public sector, except in Tunisia after the 2011 revolution.

Unemployment in North Africa reflects the labour market insertion problems of young educated new entrants, and thus depends critically on the rate at which this group is growing. With the slowdown in the youth population in Algeria, Egypt and Tunisia, unemployment rates have stabilised if not slightly declined in recent years, but this is likely a reflection of the slower growth of the youth population rather than any increases in employment rates.

Despite efforts to reorient all four economies towards a more market-led direction, none of the four countries have succeeded in promoting private sector jobs, while cutting public sector payrolls.

Private sector employment has been overwhelmingly informal and precarious. This is partly because sectors with the potential to generate formal private sector jobs, such as manufacturing, finance, communications and some other high-end services, such as tourism, have either grown too slowly or played a limited role in the overall mix of employment.

The manufacturing sector can generate a large number of formal jobs with potentially rising productivity. But it has not lived up to this potential in any of the four countries, where it has instead lost employment share.

Instead, the growth of low-productivity services has mainly generated poor quality, mostly informal jobs. As a result, the four countries are deindustrialising prematurely and they have backtracked on the structural transformation path to higher incomes.

 

Further reading

Assaad, Ragui, and Mohamed Ali Marouani (2021) ‘Economic Growth and Labour Market Outcomes in North Africa: An Overview of Developments in Algeria, Egypt, Sudan and Tunisia since 2000’,in The Regional Report on Jobs and Growth in North Africa, International Labour Organization.

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