Jobs, Inclusion and Resilience
Rencontre Valmer November 27, 2012 Center for Mediterranean Integration
The World Bank Human Development Department Middle East and North Africa Region
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 Non-GCC Middle East and North Africa
Latin America and the Caribbean
Europe and Central Asia
19% 27%
31% 48%
40% 38%
27% 5%
6%
37%
6%
Formal workers
Informal workers
Unemployed
Inactive
16%
6
The greatest underutilized capacity: women and youth Females participation in the Labor Force is strikingly low‌
‌ and young people are the age group more prone to be unemployed
Labor force participation by gender, 2009-2010 UAE 1/ Djibouti Qatar 1/ Libya Tunisia Morocco Yemen Egypt Lebanon Iran Jordan Algeria WB&G Iraq Syria Saudi Arabia 1/
Unemployment (%) by age groups Lebanon Tunsia Morocco Jordan Egypt Egypt - 98
Iraq UAE UAE Nationals WBG
0
50 Male LFP
100 Female LFP
-
10 55-64
20 35-54
25-34
30 15-24
40 7
No or low job quality means poverty and vulnerability 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?
Many hover just above the poverty line % of people living between 2-2.5 USD/day Egypt, Arab Rep.
17
Yemen, Rep.
16
Iraq
16
Djibouti
14
Syrian Arab Republic
13
Algeria
12
Morocco
11
Iran, Islamic Rep.
7
Tunisia
7
Jordan
4 0
Source: Gallup 2011.
5
10
15
20
Source: Calculations from PovcalNet.
ďƒ˜ MENA stands at a turning point and SSNs are under increased scrutiny 8
Jobs, inclusion and resilience: the framework
Better quality JOBS
JOBS
Social Safety Nets
Social Insurance 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 a) macro-level: investments/exports skewed to lower added value activities Composition of FDI
b) micro-level: low entry rates, older and fewer firms, small firms stay small, limited innovation 7
Average entry density 2004-2009
6
5 4 3
2
.
1 0
ďƒ˜ Process of creative destruction is attenuated in MENA 11
An institutional environment that reinforces the status quo 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 90
12
80 70
10
60
8 Months
6
50
Males
Females
40 30
4
20
2
10 0
0 -2
Lebanon
WBG
Jordan Egypt 06 Tunisia
-4
ďƒ˜ Youth are higher and longer unemployment. Many are queuing for public sector jobs. 12
Not receiving the right signals, education & training systems have little incentive to produce quality and relevant skills a) Low Quality
100%
b) Low Relevance: perceived skill shortages
Benchmarking MENA countries in Math, TIMMS 2007
% of firms perceiving skills of workforce as constraint 40
90%
35
80%
30
70%
25
60% 50%
20
40%
15
30%
10
20%
5
10%
0
0%
Below low (<400) Intermediate (475-554) Advanced (>625)
Low (400-474) High (550-624) 13
Social Safety Nets in MENA: Target better, build human capital and empower citizens!
14
The region’s SSN spending is dominated by universal subsidies Expenditure on subsidies (fuel and food) and transfers (cash & in-kind) as a % GDP 15
% of GDP
12 9 6 3 0
Fuel subsidies
Food subsidies and ration cards
Nonsubsidy SSNs
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.
The average MENA country spends 5.7 percent of GDP on food and fuel subsidies 15
Coverage of the poor and vulnerable with non-subsidy SSNs is low and leakages to non-poor are high Beneficiary incidence of nonsubsidy SSNs in MENA
60
45 40
50
Poorest quintile
Richest quintile
35 40 30 20 10 0
SSN beneficiaries, %
Percentage covered in bottom quintile
Coverage of non-subsidy SSNs in MENA (% of bottom quintile population)
30 25 20 15 10 5 0
Sources: Middle East and North Africa: Authorsâ&#x20AC;&#x2122; calculations based on national household surveys. Other regions: World Bank 2012a. 16
Most non-subsidy SSNs in MENA have a limited effect on poverty and inequality
SSN impact on poverty rate, %
Poverty impact of non-subsidy SSNs in MENA 20 15 10 5 0 West Jordan Egypt, Iraq 2007 Yemen, Bank and 2010 Arab Rep. Rep. 2005 Gaza 2009 2009
Mid. East & N. Africa
World
E. Asia & Eur. & L. Amer. & Pacific Cent. Asia the Caribbean
Sources: Middle East and North Africa: Authorsâ&#x20AC;&#x2122; calculations based on national household surveys. Other regions: World Bank 2012a.
ď&#x192;&#x2DC; Low coverage, poor targeting, and insufficient generosity of SSN in MENA account for their small impact on poverty and inequality. 17
Universal subsidies are inefficient and pro-rich, but many people depend on subsidies to stay out of poverty
Subsidy impact on poverty rate, %
40
Poverty impact of subsidies
30
20
10
0 Food subsidies
Ration cards
Egypt, Arab Rep. 2009
Iraq 2007
Fuel subsidies Food, gas, water subsidies Egypt, Arab Rep. 2004
Jordan 2010
Petroleum subsidies Yemen, Rep. 2005
ď&#x192;&#x2DC; To be sustainable, subsidy reform would be preceded by expansion of nonsubsidy SSNs that promote livelihood and resilience 18
What do citizens want? Poverty-targeted cash transfer programs, rather than categorical in-kind benefits
100
92
Cash vs. in-kind
89
84
89
80 60 40 20
16 8
11
11
0 Egypt, Arab Lebanon Rep.
Jordan
Serving specific groups of people
Tunisia
Serving the poor
Benefit preference, % of respondents
Targeting preference, % of respondents
Poverty vs. categorical targeting 100
85
82
77
80
68
60 40
32 23
20
15
18
Jordan
Tunisia
0
Egypt, Arab Rep.
Lebanon
Goods (food, clothes, etc.)
Cash
19
In case of subsidy reform, most citizens prefer spending the savings on cash-based transfers targeted to the poor Preferred targeting of compensation following subsidy reform
80
71
70
61
Respondents, %
60
54
56
50 35
40 30 17
20 10
27
23 8
16
16 10
3
1
1
1
0 Egypt, Arab Rep. Only the poor
All except wealthy
Jordan All
Lebanon
Tunisia
Only the poor + investment in health and education
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 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!
Rebalance financing and priorities of SSN systems Consolidate fragmented SSN programs and improve their impact Establish a reliable yet flexible SSN infrastructure
Better quality JOBS
Foster competition
Rethink the social contract
JOBS
Enhance education and training systems
Social Safety Nets
22
Foster competition: policies toward the creation of good jobs in the private sector Enable firms to compete, invest and generate jobs Create a predictable and fair de facto business environment
• Reduce barriers to entry and competition • Build independent but effective competition authorities • Increase transparency of rules & procedures • Enact reforms to increase public sector accountability in regulatory enforcement
Invest in present & future entrepreneurs
• For micro-enterprises: tailored skills training • For high potential youth: entrepreneurship training, private-led incubators
For all the above: Enact reforms to increase access to finance
• Reform entry regulations, build credit registries, enable MFIs, reduce state ownership
Reduce subsidies biased against labor-intensive production
• Remove energy and some agriculture subsidies • Invest savings to foster better technology and to reduce labor costs
23
Rethinking the social contract
Public sector reform â&#x20AC;&#x153;Flexicurityâ&#x20AC;? * Realign incentives more closely to private sector: wages, work hours and dismissal risks
* Towards performance and meritocracy: fix disconnects between regulation and implementation
+ security in incomes + flexibility in dismissal rules
Open dialogue on collective wage agreements
* Unemployment insurance: alternative to rigid emp. protection laws ( i.e. Jordan)
* Allow for downward adjustments for recent graduates wage floors
* Stakeholders involvement: for better governance & communication on social insurance
* Widen the social dialogue to choose appropriate wage parameters: include youth, women and further CSO
24
Enhancing education and training systems Barriers Logic of selection does not follow a logic of learning Private sector and education & training systems operate in isolation The public sector as main ‘client’ of the education system Meritocracy deficit
Results
Selection of policy options
Conditions for change •
Low quality of skills
Low relevance of skills for private sector
Little importance of merit in access to jobs
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
•
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 25
Rebalance financing and priorities of SSN systems and establish a reliable, yet flexible SSN infrastructure
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
Consolidate fragmented SSN programs and improve their impact 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
Path towards a new social contract in MENA
Medium-run: Short-run: •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
Thank you!
29