Arab Republic of Egypt More Jobs, Better Jobs: a Priority for Egypt
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Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank World Document ofthe Africa Region Middle EastandNorth ReductionandEconomicManagementDepartment Poverty 2014 June A PriorityforEgypt BetterJobs: More Jobs, RepublicofEgypt Arab Report No.88447-EG Currency Equivalents (As of June 1, 2014) Currency Unit = EGP (Egyptian Pounds) 1 EGP = 0.140 USD 1 USD = 7.15 EGP Fiscal Year July 1 – June 30 Acronyms and Abbreviations AfDB Africa Development Bank CAPMAS Central Agency for Public Mobilization and Statistics ECA Egyptian Competition Authority EGP Egyptian Pound EIDS Egypt Industrial Development Strategy ELMPS Egypt Labor Market Panel Survey FDI Foreign Direct Investment GCMA Greater Cairo Metropolitan Area ILO International Labour Organisation LFP Labor Force Participation MENA Middle East and North Africa Region MFTI Ministry for Trade and Industry MOI Ministry of Investment MOP Ministry of Planning MSE Micro and Small Enerprise NDP National Democratic Party SFD Social Fund for Development SME Small and Medium Enterprise SOE State Owned Enterprise TFP Total Factor Productivity UAE United Arab Emirates WBES World Bank Enterprise Survey WDI World Development Indicators Vice President: Inger Andersen Country Director: Hartwig Schafer Acting Sector Director: Bernard G. Funck Sector Manager: Bernard G. Funck Task Team Leader: Tara Vishwanath 2 Acknowledgments This report has benefitted from the time and efforts of many. Led by Tara Vishwanath (TTL, MNSED), the core team comprises Gabriela Inchauste (PRMPR), Jacob Goldston (MNSED), Sahar Sajjad Hussain (MNSED), Nandini Krishnan (MNSED) and Marc Schiffbauer (MNSED). In addition to the core team, we are grateful to Phillip Keefer (DECMG) and Kevin Carey (MNSED) for valuable inputs to chapter 1, Pablo Suarez (PRMPR) who provided timely research assistance to work done on chapter 6, and Brian Blankespoor (DECCT) for support especially on inputs to chapter 3 and the cover design. The report makes extensive use of three rounds of Egypt Labor Market Panel Surveys (ELMPS, 1998, 2006, and 2012). Indeed, as part of the Jobs study, the Bank partly funded the implementation of the 2012 round of ELMPS which has been extremely important to assess the Egyptian labor market in the wake of the global financial crises and the 2011 revolution. We are extremely grateful to Professor Ragui Assaad (Faculty, University of Minnesota) who is also the technical director of the ELMPS project (undertaken by the Economic Research Forum, Cairo) for his advice on many fronts: especially during the process of data preparation and linking all of the three rounds of data. Caroline Krafft (University of Minnesota) who was hired as a short term consultant by the team, also supported us during this phase of the work. The background paper by Ragui Assaad, “Labor Market Responses to Economic Crisis: Egypt 2006-2012” provided valuable insights which the team has incorporated into the report. The team undertook two rounds of consultations—one at the inception stage in June 2013, and the other to discuss the main findings and policy recommendations in February 2014. The final consultation round was conducted in Cairo and Assuit; the team would like to take this opportunity to gratefully acknowledge the support from the Cairo country office—especially Ahmed Kouchouk (MNSED), Sara Alnashar (MNSED) and Nehal Hassan El Kouesny (MNSED). We thank the participants for their insights and suggestions that helped to shape the final report. The team gratefully acknowledges all peer reviewers: Gary Fields (John P. Windmuller Professor of International and Comparative Labor and Professor of Economics, Cornell University) at the concept note stage; Kathleen Beegle (AFRCE), Somik Lall (UDRUR), Ghazala Mansuri (PRMPR and DECRG), and Ishac Diwan (Faculty, Harvard Business School, and Director for Africa and the Middle East, Center for International Development) who provided extensive comments and support at all stages of the review process. We are grateful to Faythe Calandra for her enduring support to the team during the various stages of the report. Finally, we thank Hart Schafer (Country Director, MNC03) and Bernard Funck (Acting Sector Director, MNSPR) for overall guidance and support. 3 Table of Contents Acronyms and Abbreviations ............................................................................................................................... 2 Acknowledgments ................................................................................................................................................ 3 1. Economic Growth, Industrial Policy and Jobs: A Long-Run Perspective ..................................................... 10 A. The relationship between GDP growth and unemployment is weak .................................................... 12 B. Historically, policies have not supported labor-intensive modes of production ................................... 15 1. The Nasser era and statist experiments (1952–1970) ....................................................................... 16 2. Sadat’s infitāħ (open-door) policies (1970–1981) .............................................................................. 17 3. Mubarak’s first 10 years in office (1981–1991) ................................................................................. 19 4. Privatization (1991–2004) .................................................................................................................. 21 5. Reform period (2004-2011) ............................................................................................................... 22 C. While reforms led to growth, they did not add a lot of jobs .................................................................. 25 References ...................................................................................................................................................... 30 Annex 1.1. Estimating Okun’s Law for Egypt .................................................................................................. 32 Annex 1.2: Key Structural Reforms, July 2004–February 2007 ....................................................................... 34 Annex 1.3: What was the Egypt Industrial Development Strategy? ............................................................... 35 2. Hidden Weakness: Egypt’s Labor Market from 1998 to 2012 .................................................................... 36 A. The unemployment rate masks a deteriorating labor market ............................................................... 36 B. Informal employment is the new normal .............................................................................................. 38 Irrespective of industry, job formality is on the decline ............................................................................. 42 Education is no longer a guarantee of a formal job .................................................................................... 44 The reasons for informality are deep-rooted ............................................................................................. 46 C. Entering the labor market is a difficult process ..................................................................................... 48 Today’s youth are entering a different labor market than their forebears ................................................ 53 Egypt faces a unique demographic challenge............................................................................................. 56 References ...................................................................................................................................................... 59 Annex 2 ........................................................................................................................................................... 60 3. A Labor Market Divided: Spatial Disparities in the Labor Market .............................................................. 62 A. Spatial segmentation is a pervasive feature of the labor market .......................................................... 64 B. Convergence in outcomes has been driven by stagnation in the core .................................................. 70 The good news is that spatial gaps in education have closed .................................................................... 74 The bad news is formal jobs in the core are disappearing ......................................................................... 77 C. Worker mobility is determined by distance from the core .................................................................... 81 4 Egypt’s commuter economy brings some people closer to jobs ................................................................ 82 When commuting is not an option, worker mobility within Egypt is limited ............................................. 86 When commuting is not an option, Egyptians look beyond Egypt ............................................................. 91 References ...................................................................................................................................................... 94 Annex 3 ........................................................................................................................................................... 96 4. Separate but not Equal: Gender Inequality in the Labor Market ............................................................