The World Bank

Human Development Department

Middle East and North Africa Region

Jobs, Inclusion and Resilience

Rencontre Valmer

November 27, 2012

Center for Mediterranean Integration

Labor markets in the Middle East and North Africa make

poor use of the available human talent and resources, thus

inhibiting the economic potential of countries and people in

the region.

At the same time, the region is spending considerable

resources on universal subsidies, which are inefficient and

pro-rich, and which siphon resources away from more

effective instruments.

2

Main Messages

Change the rules to create a dynamic private sector that capitalizes on

the full range of the region’s human capital.

Let skills flow into productive private sector jobs by realigning employment

conditions in both the private and the public sector and rethinking labor

regulation. Lower the barriers holding back women who want to work.

Make young people employable by closing information gaps, improving

quality and relevance of skills, and partnering with the private sector in

training.

Rebalance financing and priorities of SSNs; Consolidate fragmented

programs and improve their impact; Establish a reliable yet flexible SSN

infrastructure.

Use short-term interventions to respond to immediate needs while

building the credibility and consensus for medium-term reforms. 3

Why now?

• Arab Spring brought above issues to the light and into the policy

debate in MENA countries

• Voices during the revolution have called for:

• Greater transparency and accountability

• More freedom from state control

• More data and more open access to it

• Inclusion of all relevant partners in the social dialogue: the

unemployed, youth, informal workers

• Tackling poverty and vulnerability, especially in remote

regions

4

Where does MENA stand?

Benchmarking the region in terms of labor

market results, poverty, and vulnerability

5

MENA has a large share of untapped human resources

that are not participating in economic activity

6

19%

27%

6%

48%

Non-GCC Middle East and North Africa

27%

37%

5%

31%

Latin America and the Caribbean

Formal workers Informal workers

Unemployed Inactive

40%

16% 6%

38%

Europe and Central Asia

The greatest underutilized capacity: women and youth

7

0 50 100

Saudi Arabia 1/SyriaIraq

WB&GAlgeriaJordan

IranLebanon

EgyptYemen

MoroccoTunisia

LibyaQatar 1/DjiboutiUAE 1/

Labor force participation by gender, 2009-2010

Male LFP Female LFP

- 10 20 30 40

WBG

UAE Nationals

UAE

Iraq

Egypt - 98

Egypt

Jordan

Morocco

Tunsia

Lebanon

Unemployment (%) by age groups

55-64 35-54 25-34 15-24

Females participation in the Labor Force

is strikingly low…

… and young people are the age

group more prone to be unemployed

8

No or low job quality means poverty and vulnerability

Source: Gallup 2011.

MENA stands at a turning point and SSNs are under increased scrutiny

4

7

7

11

12

13

14

16

16

17

0 5 10 15 20

Jordan

Tunisia

Iran, Islamic Rep.

Morocco

Algeria

Syrian Arab Republic

Djibouti

Iraq

Yemen, Rep.

Egypt, Arab Rep.

Source: Calculations from PovcalNet.

Many hover just above the poverty line

% of people living between 2-2.5 USD/day

Have there been times in the past 12 months

when you did not have enough money to buy

food that you or your family needed?

Jobs, inclusion and resilience: the framework

JOBS

Better

quality

JOBS

Social Insurance Social Safety Nets

If not covered 9

Employment in MENA:

Foster competition for firms, a new

social contract for workers and

governance in education!

10

Private sector in MENA lacks dynamism

.

11

0

1

2

3

4

5

6

7 Average entry density 2004-2009

a) macro-level: investments/exports skewed to

lower added value activities

b) micro-level: low entry rates, older and fewer

firms, small firms stay small, limited innovation

Composition

of FDI

Process of creative destruction is attenuated in MENA

An institutional environment that reinforces the

status quo

12

-4

-2

0

2

4

6

8

10

12

Lebanon WBG Jordan Egypt 06 Tunisia

Mo

nth

s

Males Females

0

10

20

30

40

50

60

70

80

90

Youth are higher and longer unemployment. Many are queuing for public sector

jobs.

Difference in unemployment duration between first

time jobseeker and average unemployed

% Youth (15-34 Y.O.) that would prefer to work in

the public sector

Not receiving the right signals, education & training systems

have little incentive to produce quality and relevant skills

a) Low Quality b) Low Relevance: perceived skill shortages

13

Benchmarking MENA countries in Math, TIMMS

2007

0

5

10

15

20

25

30

35

40

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Below low (<400) Low (400-474)Intermediate (475-554) High (550-624)Advanced (>625)

% of firms perceiving skills of workforce as

constraint

Social Safety Nets in MENA:

Target better, build human capital and

empower citizens!

14

15

The region’s SSN spending is dominated by universal

subsidies

Expenditure on subsidies (fuel and food) and transfers (cash & in-kind) as a % GDP

Sources: Authors’ calculations based on Government of Jordan 2011a; World Bank 2009; World Bank 2010a; World Bank 2011b; World Bank 2011c;

IMF Fiscal Affairs Department database.

0

3

6

9

12

15

% o

f G

DP

Fuel subsidies Food subsidies and ration cards Nonsubsidy SSNs

The average MENA country spends 5.7 percent of GDP on food and fuel

subsidies

16

Coverage of the poor and vulnerable with non-subsidy

SSNs is low and leakages to non-poor are high

Coverage of non-subsidy SSNs in MENA

(% of bottom quintile population)

0

10

20

30

40

50

60

Per

cen

tage

co

vere

d in

bo

tto

m q

uin

tile

Sources: Middle East and North Africa: Authors’ calculations based on national household surveys. Other regions: World Bank 2012a.

0

5

10

15

20

25

30

35

40

45

SSN

be

nef

icia

rie

s, %

Poorest quintile Richest quintile

Beneficiary incidence of non-

subsidy SSNs in MENA

17

Most non-subsidy SSNs in MENA have a limited effect on

poverty and inequality

Poverty impact of non-subsidy SSNs in MENA

Low coverage, poor targeting, and insufficient generosity of SSN in MENA

account for their small impact on poverty and inequality.

0

5

10

15

20

WestBank and

Gaza 2009

Jordan2010

Egypt,Arab Rep.

2009

Iraq 2007 Yemen,Rep. 2005

Mid. East& N.

Africa

World E. Asia &Pacific

Eur. &Cent. Asia

L. Amer. &the

Caribbean

SSN

imp

act

on

po

vert

y ra

te, %

Sources: Middle East and North Africa: Authors’ calculations based on national household surveys. Other regions: World Bank 2012a.

Universal subsidies are inefficient and pro-rich, but

many people depend on subsidies to stay out of poverty

18

To be sustainable, subsidy reform would be preceded by expansion of non-

subsidy SSNs that promote livelihood and resilience

0

10

20

30

40

Food subsidies Ration cards Fuel subsidies Food, gas, watersubsidies

Petroleumsubsidies

Egypt, Arab Rep.2009

Iraq 2007 Egypt, Arab Rep.2004

Jordan 2010 Yemen, Rep.2005

Sub

sid

y im

pac

t o

n p

ove

rty

rate

, % Poverty impact of subsidies

What do citizens want? Poverty-targeted cash transfer

programs, rather than categorical in-kind benefits

Poverty vs. categorical targeting Cash vs. in-kind

23

32

15 18

77

68

85 82

0

20

40

60

80

100

Egypt, ArabRep.

Lebanon Jordan TunisiaB

en

efit

pre

fere

nce

, % o

f re

spo

nd

en

ts

Goods (food, clothes, etc.) Cash

8 16

11 11

92 84

89 89

0

20

40

60

80

100

Egypt, ArabRep.

Lebanon Jordan TunisiaTarg

etin

g p

refe

ren

ce, %

of

resp

on

de

nts

Serving specific groups of people Serving the poor

19

In case of subsidy reform, most citizens prefer spending the

savings on cash-based transfers targeted to the poor

Most citizens would prefer cash-based transfers to the poor

Lebanese would like to see investment of savings from subsidy reform in health and

education for all (combined with cash-based compensation targeted only to the

poor)

The middle class also demands re-investment of savings in social sectors

Preferred targeting of compensation following subsidy reform

71

61

35

56

8

23

10 16

3 1 1 1

17 16

54

27

0

10

20

30

40

50

60

70

80

Egypt, Arab Rep. Jordan Lebanon Tunisia

Re

spo

nd

en

ts, %

Only the poor All except wealthy All Only the poor + investment in health and education

20

Way forward:

Unlocking the potential for job creation

and renewing the social contract

Change the rules of the game, while protecting and promoting people!

JOBS

Better

quality

JOBS

Social Safety Nets

22

Foster

competition

Rethink the

social contract

Enhance

education and

training

systems

Rebalance

financing and

priorities of

SSN systems

Consolidate

fragmented

SSN

programs and

improve their

impact

Establish a

reliable yet

flexible SSN

infrastructure

Foster competition: policies toward the creation of

good jobs in the private sector

23

• Reduce barriers to entry and competition

• Build independent but effective competition authorities

Enable firms to compete, invest and generate jobs

• Increase transparency of rules & procedures

• Enact reforms to increase public sector accountability in regulatory enforcement

Create a predictable and fair de facto business

environment

• For micro-enterprises: tailored skills training

• For high potential youth: entrepreneurship training, private-led incubators

Invest in present & future entrepreneurs

• Reform entry regulations, build credit registries, enable MFIs, reduce state ownership

For all the above: Enact reforms to increase access

to finance

• Remove energy and some agriculture subsidies

• Invest savings to foster better technology and to reduce labor costs

Reduce subsidies biased against labor-intensive

production

Rethinking the social contract

24

Public sector reform

* Realign incentives more closely to private sector: wages, work hours and dismissal risks

* Towards performance and meritocracy: fix disconnects between regulation and implementation

“Flexicurity”

+ security in incomes + flexibility in dismissal rules

* Unemployment insurance: alternative to rigid emp. protection laws ( i.e. Jordan)

* Stakeholders involvement: for better governance & communication on social insurance

Open dialogue on collective wage agreements

* Allow for downward adjustments for recent graduates wage floors

* Widen the social dialogue to choose appropriate wage parameters: include youth, women and further CSO

Enhancing education and training systems

25

Barriers Conditions for change Selection of policy options

Private sector and education & training systems operate in

isolation

The public sector as main ‘client’ of

the education system

Logic of selection does

not follow a logic of learning

Close stakeholders’ information gaps

Value problem

solving over rote memorization

Empower the

private sector over curricula and tests

Realign incentives for public sector

hiring

Provide 2nd chance options

Meritocracy deficit

Low quality of skills

Little importance of merit in access

to jobs

Low relevance of skills for

private sector

Results

• Increase transparency (program evaluation, data dissemination, career counseling, and employment services)

• Reform assessment & certification systems and school-leaving examinations

• Institutionalize coordination with the private sector for curricula design, financing and training

• Provide ALMPs outside the education system, to integrate vulnerable youth and women

Increasing spending and improving coverage of non-subsidy SSN

to protect against destitution

Reforming price subsidies through wholesale or internal reforms

Improving subsidy targeting

Focus on less-sensitive and most-regressive subsidies first

Lebanon: tobacco; Egypt: Gasoline; Tunisia and Jordan: diesel.

Engage citizens in reform agenda

Improving SSN infrastructure

Creating unified registries of beneficiaries

Already moving in this direction: West Bank and Gaza

Utilizing effective service delivery mechanisms

26

Rebalance financing and priorities of SSN systems and

establish a reliable, yet flexible SSN infrastructure

Consolidating existing small and fragmented SSN programs

Identify gaps in SSN systems

Create an inventory of SSN programs with program objectives, eligibility criteria, and benefit type

Identify programs that can be expanded or consolidated

Formulate a strategy for implementation of the reform

Prioritizing interventions that promote investment in human capital Already moving in this direction: Morocco, Yemen, and Djibouti.

Enhancing targeting toward the poor and vulnerable Already moving in this direction: West Bank and Gaza, Yemen, Djibouti, and Lebanon.

Improving the focus on results in SSN programs through M&E and

social accountability Already moving in this direction: West Bank and Gaza and Yemen.

Reaching out to other stakeholders (citizens, NGOs, CSOs, private

sector, and nonprofits)

27

Consolidate fragmented SSN programs and improve their

impact

•Making access to credit more democratic •Making access to credit more democratic •Giving voice to service clients (like parents and students)

•Improve existing SSNs to demonstrate results •Build unified registries •Pilot new programs

•Increase competition, reduce privilege •Rethink the social contract •Improve governance in skills systems

•Refine SSN infrastructure •Phase out subsidies

28

Path towards a new social contract in MENA

Short-run:

Medium-run:

Thank you!

29