24 - 30 January 2002
Issue No.570
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Al-Ahram Weekly Online 24 - 30 January 2002 Issue No.570 |
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The unemployment conundrum
While economists and labour experts may haggle over unemployment figures, they concur that thoroughgoing economic reform is the only solution. Niveen Wahish reports
How many Egyptians are unemployed? It seems that there is no one answer to this question. Experts have always differed in their estimations of the magnitude of unemployment and the number of new jobs needed annually. These differences were voiced during a recent conference organised by the Egyptian Centre for Economic Studies (ECES) on "Employment and Unemployment in Egypt."
Prime Minister Atef Ebeid, who put the country's unemployment at 1.6 million, approximately eight per cent of Egypt's 19- million strong workforce, stressed that rather than wasting precious time in reaching consensus on a figure, participants should concentrate on finding a solution to the problem.
But his plea went unheeded. Various conference participants argued that unemployment in Egypt is much higher than the figure presented by the prime minister. Hani Tawfik, chairman and chief executive officer of International Investors, estimated unemployment to be no less than 6 million -- the number of individuals who applied for 170,000 government jobs that were offered last year. However, Prime Minister Ebeid argued that the majority of the six million applicants did not qualify for the jobs because they already had other formal jobs. Ebeid defined the unemployed individual as someone who is currently available for work and is seeking work, but cannot find any.
Nonetheless, the debate continued, revealing that looking at the problem from a different angle and adopting a different definition, result in different figures.
Mahmoud Ayoub, World Bank representative in Egypt, explained that using the conventional definition for unemployment results in figures that are on the low side. He also said that the conventional definition "does not capture the extent of labour under-utilisation."
Ayoub stressed that one should not just count the openly unemployed, but also the people who have become discouraged and have given up hope of finding a job, as well as the under- employed, who may only be working for as little as an hour each day. Extrapolating from 1995 figures, Ayoub said, "If adjustments were made, the unemployment rate would rise to 14- 15 per cent."
Irrespective of the figures, the unemployment problem is severe and the causes remain the same.
One major cause pointed out by Ebeid is a combination of the size and composition of the population. The number of youth entering the work force is growing, and 40 per cent of those seeking jobs are women. The number of educated females has increased. "They are looking for work, too, which has put further pressure on the labour market," said Ebeid.
Samir Radwan, adviser to the director-general of the International Labour Organisation (ILO), presented figures in line with Ebeid's statements. He estimated that the average number of entrants into the job market will exceed 600,000 annually at a time when the capacity of the Egyptian economy to create jobs has not surpassed 450,000 annually during the last decade.
Besides the surplus demand for work, Ebeid admitted that there is a discrepancy between the skills needed by the labour market and what the educational system is producing. In fact, according to Radwan, 55 per cent of the unemployed have completed secondary education, but demand for people with that level of educational attainment is only four per cent of total demand. He says that the bulk of demand is for unskilled labour, and only 17 per cent of demand is for people with a higher education.
Moreover, most job opportunities are available in the major cities, while unemployment is higher in rural areas. Radwan said that 52 per cent of total unemployment in 1998 was in rural areas.
Unemployment has been exacerbated by the economic slow-down. Under such conditions, the economy, said Ahmed Galal, executive director of ECES, "has been too slow to absorb the new entrants into the labour market, especially in last three years."
While low economic growth and the structure of the labour market are major causes of unemployment, Galal also pointed to policy distortions that have also weakened demand for labour. Galal pointed to the current labour law that makes it difficult to fire people for any reason other than grave misconduct. "And when disputes arise, they last for years in courts," Galal said.
Ahmed Galal also underlined what he called "anti-export bias," which is a combination of an undervalued exchange rate, high tariffs on imports, a high corporate tax and interest rates as well as high logistical and transaction costs.
Samiha Fawzy, deputy director of the ECES, added that these factors, among others, are a disincentive to investment, which is essential for the creation of new jobs. In a study that she presented to the conference, Fawzy found out that "as investment rises, unemployment should drop." On the other hand, she also pointed out that more investment does not automatically mean less unemployment. It depends on the sectors that investment is directed towards, whether the investment is capital intensive or labour intensive, whether it produces for the local or export market and whether it is in a small or large-scale project. Fawzy believes that when investment policies encourage exports, small enterprises and labour-intensive projects, the less unemployment there is.
In Egypt, Fawzy discovered, not only has investment been declining since 1998, but available capital has been invested primarily in capital-intensive industries, large-scale industries with limited job creation opportunities and mostly producing for local use. In fact, although small industries absorb 54.7 per cent of labour, they have only received 14.1 per cent of total investments, she said.
The role of small enterprises in boosting the economy and creating new jobs was also highlighted by Heba Handoussa, managing director of the Economic Research Forum. She said, "Neither the public sector of the 1960s to the 1980s, nor the modern private sector since the 1970s have achieved any momentum in capital accumulation, output, exports or employment. On the other hand, the small and micro- enterprise sector employed around three million workers in the mid-1990s."
And although opportunities for the small enterprise sector have improved concurrently with increased investment by the state in infrastructure, Handoussa sees that the small enterprise sector is not operating at its full potential. She attributes this to limited access to credit, skilled labour, new technology and the larger domestic and export markets. She suggested directing more resources to this sector. To obtain these resources, Handoussa suggested reducing the number of government employees, which currently add up to approximately eight million, by at least one million. This would ease the pressure of the wage bill, which has grown from 24 per cent of current budget expenditures in 1991/92, to 32 per cent in 1999/ 2000. The freed up funds could be re-allocated, for example, to provide insurance for those employed in small and micro-enterprises, which would encourage those businesses to hire more workers.
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