_ ~~14 5R3 _ a L. IeS' Regional Perspectives on World Development Report 1995 WVILL ARAB WORKERS PROSPER OR BE LEFT OUT IN THE TWENTY-FIRST CENTURY? Regional Perspectives on World Development Report 1995 WILL ARAB WORKERS PROSPER OR BE LEFT OUT IN THE TWENTY-FIRST CENTURY? THE WORLD BANK WASHINGTON, D.C. ( 1995 The International Bankfor Reconstruction and Development / The World Bank 1818 H Street, N. W, Washington, D.C 20433, U.S.A. All rights reserved Manufactured in the United States of America FirstprintingAugust 1995 This report has been prepared by the staff of the World Bank. The judgments expressed do not necessarily reflect the views of the Board of Executive Directors or the governments they represent. Editing, layout, andproduction by American Writing Corporation ISBN 0-8213-3346-1 ISSN 1020-3648 Contents Foreword v Summary 1 1 Legacies of a Tumultuous Past 2 Why did labor conditions deteriorate so much? 5 What can be done to improve labor outcomes? 7 2 An Integrating World 10 The globalization of trade 1 0 Less mobile labor, more mobile capital I I A window of opportunity 13 3 A New Social Contract 15 Re-regulating the labor market 15 Reforming education 17 Reducing poverty and helping rural areas 18 Refocusing the role of the state 19 4 Transition 22 Beyond containment 22 Equipping workers for change 23 Compensating those hurt 25 5 Looking Ahead 27 References 28 This report was prepared in conjunction with World Development Report 1995: Workers in an Integrating World. It was written by Ishac Diwan under the direction of Michael Walron. He was assisted by Vinod Ahuja, with help from Deon Filmer. Meta de Coquereaumont edited the report. Christian Perez laid out the text. Participants in the labor market workshop of the Economic Research Forum for the Arab Countries, Iran, and Turkey provided early input. Detailed comments were provided by Ragui Assaad, Massood Karshenas, and Mona Said. Many colleagues in the Bank reviewed several drafts and provided inputs and useful comments, includ- ing Sue Berryman, Abdallah Bouhabib, Luc De Wulf, Mourad Ezzine, Habib Fetini, Bruce Fitzgerald, Ahmed Galal, Guillermo Hakim, Bernard Hoekman, Roumeen Islam, Jamal Kibbi, Fritz K6nigshofer, Linda Likar, Egbe Osifo, Yuzuru Ozeki, John Page, Setareh Razmarah, Nemat Shafik, Ezzedin Shamsedin, David Steel, David Tarr, William Tyler, John Underwood, Willem van Eeghen, Jeannie Yamine, and Chang- Po Yang. iv Foreword T his report is devoted to the relationship between insecurity for workers are needed to complement market condi- policy, development, and the welfare of workers-the tions. Labor policy, however, must also avoid favoring those in incomes they earn, the risks they face, and the condi- good jobs at the expense of those in rural and informal sectors tions under which they work. It is my hope that the report will and the unemployed. be a useful contribution to the debates in Arab countries on Third, the two main ingredients of a successful transition the type of policy reforms now needed in the region and are the establishment of mechanisms to facilitate the retrain- inspire policy changes that allow more of the right kind of jobs ing and transfer of laid-off workers to new jobs, and compen- to be created. sation for those hurt by change. Labor conditions are central to the livelihood of working men More than ever before, policymakers need to have the wis- and women. They also have a powerful effect on the welfare of dom and courage to articulate a broad vision of a new social con- children, the old, and those unable to work. And it is precisely tract that is realistic and capable of benefiting most workers, in in order to use workers' human potential better that governments rhe context of a world that is changing rapidly and to which the are now trying to achieve a transition from an inward-looking, Arab economies must adapt quickly. state-dominated economy to one that relies more on markets and The prospects for Arab workers are fragile: prosperity will successful integration in the world economy. come with good policies and hard work, but those who do not Three important messages emerge in this report. The first keep pushing for improvement will fall behind very quickly. relates to government domestic policies for long-term growth. The full force of the Uruguay Round agreements on trade will The best way to improve the welfare of workers, increase labor be felt in just ten years; this is perhaps all the time left to build productivity, and reduce poverty is through policies that rely Arab competitiveness. The World Bank stands ready to help heavily on markets, emphasize educational investments in all the meet the challenge. people, and support family farms. A second message addresses the limits of laissez-faire and the vital need for market regulation in producing socially desirable Caio Koch-Weser outcomes. Defining basic standards, providing the framework Vice President for individual and collective contracts, and reducing income Middle East and North Africa Region v Summary T he economies of most Arab countries have gone from workers. This has distorted incentives and encouraged rent- boom (supported by high oil prices and foreign aid) to seeking. In the future the state must commit to the rule of the bust. Public sectors have stopped hiring. Labor oppor- marketplace in the interest of the majority of workers, but its tunities in the oil-rich economies are stagnant. And growth in commitment must be supplemented by public action to the modern private sector has remained marginal in most coun- ensure that markets deliver socially acceptable outcomes. tries. The region seems stuck in a low-productivity trap. Workers Labor regulations must guarantee some standards of fairness have paid dearly in falling real wages, soaring unemployment, in labor relations yet preserve the flexibility of labor markets. and shattered expectations. Mechanisms to reduce market risk should be balanced against The severity of the fall can be related to changes in internal the erosion of incentives to perform on the job. Education and external conditions that have rendered the structures inher- policies must equalize opportunities and retrain people with ited from the boom period unworkable. Labor demand, espe- outmoded skills. The role of independent unions must be rec- cially for educated workers, was kept high through policies that ognized, and the conditions for efficient collective bargaining protected and promoted the modern sector. But the combina- must be put in place. Policies to reduce inequality are impor- tion of declining public sector revenues, fast-rising labor supply, rant for narional cohesion, but redistribution should be finely rapid urbanization, and large gains in education have rendered targeted. The government must abandon activities in which the old social contract unaffordable. Unless private investment the private sector is more efficient, insist that its employees rises and its efficiency improves, the region will be unable to work harder, and pay them accordingly. grow at rates that can sustain rising incomes and falling unem- Reform programs have been implemented very gradually in ployment. This will require more reliance on markets and the the region, but a vision for a more workable economic structure removal of distortions to allow for better use of the existing is starting to rake shape. An important missing piece is how to human potential. get there, how to make the transition to a new growth path. Changing international conditions make such a shift more Shrinking public sectors and more open trade regimes will ini- pressing but also more risky. Private capital has become more tiallv hurt the old labor elite. But lack of change will lead to ris- mobile and goods markets have become more global at a time ing poverty and social polarization. The region seems to be on when the traditional sources of foreign exchange are on the a knife-edge between two equally undesirable outcomes-the decline. Increased globalization means open access to larger status quo and botched reforms-both leading to social insta- markets, but the increased competition this unleashes will bility and international marginalization. The fickleness of capi- make it harder to find a suitable place in the international divi- tal and the bumpiness of the peace process magnify the risks. The sion of labor. And the globalization of capital increases both region needs to find a third way that attracts capital and that cap- the rewards and the risks associated with change. Success will icalizes on existing skills. The credibility of reforms rests on their attract capital and create a virtuous circle of investment and social desirability. Mechanisms to facilitate the transfer of laid- growth; but the costs associated with failure also rise since off workers to new jobs. compensation for those hurt, and a wages will fall and capital will flee unless workers keep up with policy framework supporting reductions in poverty will be global competition. More than ever, a credible and realistic important ingredients of a successful transition. strategy is needed to link the region to the world economy. The The report covers the Arab countries, emphasizing those for possibilities of reduced regional tensions and stronger links which more data are available. The economies of the Mashrek- with the European Union offer a window of opportunitv. Egypt. Jordan, Lebanon, Syria. and the West Bank and Gaza- To support the transformation from state-led to market-led and of the Maghreb-Algeria, Morocco, and Tunisia-are growth will require a new social contract. In the past, well- stLdied in greater depth than the others. But in almost all cases, intentioned government policy ended up exacerbating the dis- lack of detailed data hampers the analysis. A better understand- tinction between modern and informal (including rural) ing of the complex forces at play in labor markets will require sectors, benefiting a small labor elite at the expense of other much more attention to the collection and analysis of data. A B Legacies of a Tumultuous Past D uring the 1960s and 1970s the Arab economies were productivity has stagnated in the non-oil-producing coun- among the fastest growing in the world. The young tries and has fallen by more than 4 percent a year in the oil- states advocated modernity and "the big push," producing countries (Figures la and lb). Labor market invested heavily in large infrastructure projects, built state conditions have deteriorated dramatically in the past decade industries and erected protective walls to nurture them dur- as well, wich rising unemployment, falling wages, and increas- ing infancy, and sought shared growth and social mobility by ing poverty: encouraging education and initiating nationalization and * Unemployment has risen enormously and now seems more land reforms. Fueled by the regional oil boom, average growth widespread than in any other region of the world (Figures 2a per worker was nearly 4 percent a year during 1970-85- and 2b). In Algeria. Jordan, che West Bank and Gaza, Yemen, comparable to that of East Asia, which is now viewed as the and perhaps Lebanon, unemployment rates are around 20 paragon of economic success. Since the second part of the percent; in Egypt, Morocco, and Tunisia unemployment 1980s, however, growth performance has been dismal. Labor rates are around 15 percent. .11a, . S.t ila I I Figure la. Annual GDP growth per worker Figure lb. Annual GDP growth per worker in the by region Middle East and North Africa (percent) (percent) -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 -15 -12 -9 -6 -3 0 3 6 9 Tm F _ I_r-T V 1 I ---1 1965-80 1965-80 Algeria 190-85 East Asia and Pacific 1980 85A-9 8 1985-931953 Europe and Central Asia :_~ ~ Egypt Latin America and . Iraq Caribbean Middle East and Jordan North Africa (non-oil producers)' Middle East and Morocco _ North Africa l (oil producers)b Saudi _ _ _ _ _ _ _ _ _ _ _ _ _ Arabia South Asia : ~~~~~~~~~~~~~ ~~~~Syria Sub-Saharan Africa Sy _ Tunisia OECD a. Weighted average for Egypt, Morocco, Syria. and Tunisia. b. Weighted average (shares of working-age population for the region) for Algeria, Iraq, Oman, and Saudi Arabia. Source: World Bank data for GDP: ILO 1986 and updates for working-age population. 2 L Et G A C I E S O F A T U M U L T U Cl 1 a R A S T Unemployment rates are exceptionally high in the region Figure 2a. Unemployment rate by region, 1993 Figure 2b. Unemployment rates in the Middle East (percent) and North Africa, 1993 (percent) 0 3 6 9 12 15 0 (ecn) 5 10 15 20 25 East Asia and = A Pacific ~~~~~~~~~~~~~Algeria Europe and Egypt 77X 7"7 Central Asia Latin America and Jordan Caribbean ;, Middle East and Lebanon North Africa' Morocco South Asia syria Sub-Saharan Africa e s Tunisia - OECD West Bank and Gaza Yemen 77e u Note: Weighted averages (share of working-age popufation) for sample of countries in the region; most recent data available. a. Algeria, Egypt, Iran, Jordan, Morocco, Syria, Tunisia, and Yemen. Source: Filmer 1994; Algeria, World Bank 1994a; Egypt, 1991 labor force survey; Jordan, World Bank 1994b; Lebanon. Issa 1993; Morocco, World Bank 1994c; Syria, Louis 1993; Tunisia, World Bank 1995d; West Bank and Gaza, World Bank 1994f; Yemen, Seif 1993. * In most of the region real wages declined sharply during sta- were rapid urbanization, rapid growth of the labor force, and bilization episodes of the mid-to-lare I 980s and have stag- rapid gains in education, all due in part to the long boom. nated since (Table 1). In manufacturing, for which data exist But there are also important differences in labor outcomes, for most countries, wage growth during the 1970s was com- due to differences in economic structures and in government parable to that of East Asia, Latin America, and Eastern responses to the shocks. One difference is in type of unemploy- Europe (Figure 3). While wages took off in East Asia in the ment (Table 2). In most countries the unemployed are pre- I 980s, they fell in other regions, but more sharply in the Arab dominantly first-time job seekers, reflecting the sudden swelling countries (by about 30 percent). of the labor supply as baby-boomers enter the labor market. But * Poverty levels, unlike unemployment, are low by interna- the proportion of young workers among the unempioyed is tional standards. Arab societies tend to be nearly as equal as especially large in Egypt and Syria, where first-time entrants those with a socialist tradition, and their poverty levels are a with secondary degrees lined up to wait for increasingly scarce third of those found in Latin American countries with sim- jobs in the public sector. In Jordan, Morocco, and Tunisia, how- ilar incomes (Figure 4). This is related partly to extensive ever, reforms have shaken up previously protected industries, consumer subsidies and partly to well-targeted transfers and over half the unemployed have lost a previous job. Labor between households. However, poverty has been rising fast conditions are likely to deteriorate further in countries that have in several countries. Throughout the region, the poor tend not yet introduced the structural reforms that involve labor re- to live in rural areas and have large households with few allocations. But where the shake-up of inefficient activities is well wage-earners; they are usually illiterate. Although some of advanced, labor conditions are likely to improve faster. the unemployed are poor, most of the poor cannot afford to Another difference is in the reasons behind the decline in remain unemployed, and they take up jobs in the informal wages. Wages declined sharply in the countries that had to economy. undergo large adjustments, such as Egypt, Jordan, and Syria. But There are many similarities in labor conditions among the average wages also declined for structural reasons in Morocco and countries of the region. On the demand side, these stemmed Tunisia, where many new jobs were in activities that are more from the oil-led boom and bust and the ripple effects through labor-intensive than the jobs generated during the earlier boom. the relatively integrated regional labor market and the external Besides the magnitude of the shocks, different policy choices assistance strategies of the Gulf countries. On the supply side have contributed to sharp differences in the dimensions of 3 W I LL 'A R A B W O R K r R a r- rD S r E R ? Table 1. Index of manufacturing wages in the Middle East and North Africa Figure 3. Movement of real manufacturing wages across regions Year Algeria Egypt Syria Jordan Morocco Tunisia (1970=100) 1965 .. 98 76 .. 300 1970 100 100 100 100 100 East Asia 1975 87 116 78 96 and Pacific 1980 89 155 136 157 113 250 - 1985 80 181 123 157 93 100 1990 76 127 95 125 86 91 1991 124 92 115 88 94 200 - 1992 .. 114 .. 1ll 90 100 1993 .. .. .. .. 93 101 Latin America 150 Europe and Central Asia and Caribbean .7 Not available. Source: Bouattour 1994 for Tunisia; UNIDO for all other - . - - -- countries. 100 C --- Sub-Saharan Africa Middle East and North Africa 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 Note: Simple average of wage indices; when data are missing for some countries, the mean is calculated for the countries with data. Middle East and North Africa: Algeria, Egypt, Jordan, Morocco, and Syria. Source: UNIDO. Figure 4. Poverty and consumption levels Percentage of population below poverty line 30 - LAC 1990 Brazil rn 11985 LAC I 1985 \ Yugoslavia [ 20 _\ 1990 0~~~~~~~ EAP EAP 1990 China 1990 Malaysia Yugoslavia 1985 llf- Jordan 1990 1985 China 1985 E MENA 10 Egpt 1990 MENA 0Poland -Egypt 1990 1985 15 na Hungary 1990 * 1985 Tunisia 1985 Malaysia Poland Morocco 1990 1990 1985 198 J1985n a.18 El 1985 ~~~~~~~~~~~~ lgeria 1990 50 70 90 110 130 150 170 Consumption (purchasing power parity, 1985 dollars) Note: EAP: East Asia and Pacific; LAC: Latin America and Caribbean; MENA: Middle East and North Africa (includes Algeria, Egypt, Jordan, Morocco, and Tunisia). Poverty is defined as per capita monthly mean consumption below $30 in 1985 purchasing power parity dollars. The regression line is based on a sample of forty-three countries for 1985 and 1990. Source: Chen, Datt, and Ravallion forthcoming. 4 L Ec G A C I E 5 0 F A TU LM U L T U O U S P A S T First-time job hunters are hurt most by unemployment Table 2. Unemployment structure in Middle East and North Africa, 1991 (percent) Share of unemployed Unemployment Those with First-time Entrants (25 years secondary Country Total Men Women Rural Urban job seekers and younger) education Algeria 21.0 22.0 17.0 .. .. .. 40.0 31.3 Egypt 10.6 6.3 27.8 8.8 13.1 76.6 78.4 57.0 Jordan 18.8 14.0 35.0 .. .. 37.2 58.0 53.0 Morocco 12.1 11.6 13.0 5.6 20.6 45.6 41.0 24.9 Syria 5.7 .. .. .. .. 78.0 68.0 45.0 Tunisia 16.1 14.7 21.9 14.8 15.6 42.7 54.5 31.0 Yemen 12.3 14.0 6.0 11.4 16.3 32.0 .. 18.0 .. Not available. Note: Data for Tunisia are for 1993, and for Yemen, for 1992. In some cases the measure of unemployment is not consistent with ILO definition. Source: Algeria, World Bank 1994a; Egypt. 1991 labor force survey; Jordan, World Bank 1994b; Morocco, Living Standards Survey 1991; Syria, Louis 1993: Tunisia, World Bank 1995d: Yemen, Seif 1993. poverty. This can be demonstrated by comparing the experiences the external environment deteriorated much more, poverty of Egypt and Jordan with that of Morocco and Tunisia (Figure tripled. But in Morocco and Tunisia poverty was nearly cut in 5). In Egypt the proportion of the population under the poverty halfberween 1985 and 1990, an exceptional performance. These line ($30 a month per person in real dollars) increased by about two countries started economic reform earlier, and with a new 30 percent between 1985 and 1990 and has likely continued to trade orientation their countries generated many jobs of the type rise since then because labor demand has remained weak and most relevant to the poor. Well-targeted public spending cuts consumption subsidies have been reduced. In Jordan. for which were also achieved without hurting the poor. Labor market difficulties are quite different in the Gulf states and are addressed only tangentially in this report. The migrant labor force constitutes 35 percent of the labor force on average, dramatically in Morocco and Tunisia and as much as 80 percent in some countries. The main issues are related to long-term concerns about increased participation Figure 5. Population below poverty line of nationals in the economy, methods for managing -nigration, (percent) and the efficiency of the intricate system of labor market-based 15 subsidies as a way of sharing the oil rent among nationals. 12 L Why did labor conditions deteriorate so much? 1990 These are the outcomes. Here we examine the structures that 91 k k -produced them and the factors that have affected the demand for 6 _ 1985 | | and supply of labor. 6 Crashi)ng labor demand 3 .U- _ - . . Lnril the mid-I 980s, when oil prices collapsed, employment growth was driven by fast-expanding regional migration, public 0 sectors that were creating millions of modern sector jobs. and ris- Egypt Jordan Morocco Tunisia ing demand from complementary services. These sources of Note: Poverty is defined as per capita monthly mean emplovment growth are now largely gone. consumption below $30 in 1985 purchasing power The slowdown in the demand for labor in Europe and later parity dollars. Source: Chen. Datt, and Ravallion forthcoming. in the Gulfhas depressed labor markets in the sending countries. 5 W I L LL A RA W o R K Er R S R R D S P E R ? At the peak in the mid-1980s, there were more than 5 million the oil bust, private labor demand slumped. Public sectors ini- Arab workers in the Gulf countries, and perhaps half as many tiallyincreasedtheirhiring, financingtheirrisingdeficits through migrants from the Maghreb working in Europe. This exodus financial repression and external borrowing. In Algeria hiring accounted for 10 percent of the sending countries' labor force on grew at 10 percent a year after 1985, when private demand stum- average (much more for Jordan, Lebanon, the West Bank and bled. Half the new jobs created in Tunisia berween 1982 and Gaza, and Yemen), boosted wages at home, and generated large 1989 were in the public sector. Egypt and Jordan experienced remittances (up to 10 percent of GNP in Morocco. 12 percent similar changes. Public hiring accelerated and then crashed with in Egypt, 18 percent in Jordan, 22 percent in Yemen, and 30 per- the fiscal crises and stabilization programs of the late 1 980s. cent in the West Bank and Gaza). In the countries where public employment is large but falling, Regional and European labor markets have stopped growing. unemployment is large among the kind of workers that are over- In the late 1980s nearly one million Egyptians lost their jobs in represented in public service. This kind of unemployment tends Iraq. Work in the oil-rich economies took a plunge with the Gulf to be long lasting, with workers lining up until jobs in the pub- war in 1991, hittingJordanian, Palestinian, and Yemeni workers lic sector open up. In Egypt, Jordan, and Syria young workers hard. In Jordan returnees (about 10 percent of the labor force) with a secondary education make up 40 to 60 percent of the crowded out young entrants to the labor market, but they also unemployed (see Table 2). In Egypt workers with more than a invested part of their savings in new business ventures, increas- secondary education represent 26 percent of the labor force, but ing labor demand and reducing the effect of the shock. In the they hold 62 percent of public sector jobs and make up 57 per- West Bank and Gaza the return of highly educated Palestinians cent of the unemployed; in contrast, they constitute only 21 from the Gulf led to a crash in skilled wages, sending returns co percenc of private nonagricultural sector employment (Table 3). education nearly to zero. More recently, many Palestinian work- There is also high unemployment among women where they are ers were hit by the reduced access to the Israeli labor market, with disproportionately employed in the public sector, as in Egypt, the share ofthe labor force working in Israel dropping from about Jordan, and Tunisia. In Egypt, 71 percent of women with uni- one-third (mostly unskilled workers) in 1992 to less than 10 per- versity degrees work for the state, and their chances of being cent in 1995. In Yemen returnees represent about 13 percent of unemployed are about five times larger than for men. the labor force; unemployment soared and remained high as civil The private sector generated new jobs until the mid-I 980s as war broke out. rising incomes led to increased demand for labor in the service At the same time the public sector, which was the main sector. The construction industry alone employed more than 10 employer of skilled workers in many countries, is now under percent of the labor force in most countries of the region, and up pressure and has stopped hiring. The limics of state-led growth to 20 percent in the Gulf. Protected private industries became were recognized in the region as early as the 1 970s. But the mas- large employers in Jordan, Morocco, and Tunisia. More recently, sive external assistance received during the I 970s and early I 980s the rising scarcity of capital inflows, coupled with devaluations allowed the system to continue for an extra decade or so. With and some measure of financial liberalization, has hurt the service sector and wreaked havoc on firms in import-substitution sec- tors accustomed to two decades of cheap capital and readily avail- _ ;a 7- mm able foreign exchange. These sectors are now struggling and are hardly a source of employment growth. The creation of jobs that fit the new realities-in the private Table 3. Distribution of Egyptian workers by sector sector anddin the production ofcradables-has been slow in coun- and education, 1988 tries that did not undertake structural reforms, and while new (percent) jobs are expected to be more labor intensive, thev have tended to Educational attainment become excessively so. Most new jobs are in low-productivity, (age 10 and above) low-wage services and agriculture. To a large extent, this pattern Below Above is related to the lack of progress with reform and to the systemic Sector secondary secondary Total risks faced by private investors-in Egypt and Syria private Government and investment is a meager 7 to 8 percent of GDP (Figure 6). As a public sector 38 12 62 55 100 23 result, labor productivity continues to deteriorate (see Figure ib). Private nonagriculture 79 29 21 21 100 27 Agriculture 95 55 5 8 100 43 Bur in countries where reforms are more advanced, such as Unemployed 44 4 57 25 100 7 Morocco and Tunisia, jobs are growing fast in the private sector Total 74 100 26 100 100 100 and manufacturing. Private investment, some of it foreign, has Source: CAPMAS 1988. been rising and is approaching 15 percent of GDP. Because the 6 LE I A C I E2 S OF A T U M U L -T LJU O US P AR E T Private investment is higher in Morocco and Tunisia than in Egypt and Syria Figure 6. Investment as a share of GDP (percent) 35 30 25 20 Public 15 10 F . ~ L w. 1\ :: I I * Private 1982 1987 1993 1982 1987 1993 1982 1987 1992 1982 1987 1991 Morocco Tunisia Egypt Syria Source: Glen and Sumlinski 1995 for Egypt, Morocco, and Tunisia; IFC data for Syria. new jobs are more labor intensive than in the past, real wages fell but there is a secular rise in the participation rates of educated initially, but average wages have fared much better than in coun- women. Female participation rates are highest in Lebanon, tries where labor demand remained low Investment kept rising, Morocco, and Tunisia (about a quarter of the labor force), and and labor productivity and wages are starting to recover. lowest in Jordan, Yemen, and the Gulf. This is closely linked to demographics. Fertility rates are lowest in the first group (around Booming labor supply 4 percent) and highest in the second (around 7 percent). Although population growth has started to decline recently, it Most of this pressure is released in the sprawling cities of the averages more than 3 percent-the fastest rate in the world region. The urban labor force is growing at a rapid 4 to 6 percent (Figure 7). Rising standards of living had brought mortality rates a year in most countries, intensifying pressures on urban labor down sharply by the 1970s, but fertility rates are falling more markets and infrastructure (Figure 8). Past decades witnessed a slowly. Egypt, Morocco, and Tunisia are the only countries with dramatic shrinking in agricultural employment (Table 5), from 50 population growth rates below 3 percent. In the Gulf countries, percent of the labor force in 1960 to about 30 percent in 1990 Jordan, Syria, the West Bank and Gaza, and Yemen, population (Figure 9), and a parallel growth in urban populations. growth, between 3 percent and 5 percent a year, is among the Urbanization rates are more than 70 percent in Iraq, Jordan, fastest in the world (Table 4). Lebanon, andtheGulfcountries (exceptOman). Egypt, Morocco, In contrast, labor force participation rates in the region have Yemen, and to a lesserextentTunisiaalsoexperienced rapid urban- been among the lowest in the world, though they are catching ization, but they still have important agricultural sectors. up. Demography accounts for some of this: in many countries Such shifts between rural and urban sectors are a natural part more than half the population is under the age of fifteen. As the of development, but they were accentuated in the region by a pol- baby-boom of the 1970s continues to unfold, this percentage will icy mix that taxed agriculture and subsidized employment in shrink, and the labor force will grow faster than the population. cities (overvalued exchange rates, industrial protection, subsidies Other forces are at also at work. Reduced work abroad is con- to urban production). tributing to rising participation rates among men in the domes- tic economy (Egypt, Jordan, Yemen). Among women, rising What can be done to improve labor outcomes? school enrollment (Tunisia) and migration to the city (Egypt, Labor market difficulties in the region stem directly from the Morocco, Tunisia) are remporarily reducing participation rates, dramatic fall in labor demand and the steep rise in labor supply. 7 WI LL LA R Ar wo R K ER RRS r R OEt R ? Figure 7. Annual growth rate of working-age Table 4. Annual growth rate of working-age population, 1965-93 population (percent) (percent) 0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 -~~~~~1~ 7 ~ countzy 1960-75 1975-90 1990-2010a East Asia and Pacific an Bahrain 4.06 4.61 3.09 Europe and Egypt 2.46 2.56 2.45 Central Asia Iraq 3.17 3.57 3.30 Latin Amnerica and < g " g ' Jordan 2.74 3.33 3.44 Cari ~~~ -...,Morocco 2.39 3.10 2.68 Oman 2.64 4.51 3.68 Middle East and ~ ~ ~ ~~~~- Saudi Arabia 3.89 5.17 3.26 North Africa0 ~ Syria 3.06 3.51 3.91 South Asia g Tunisia 2.08 2.99 2.29 Yemen 1.20 3.65 3.83 Sub-Saiharan ",&E Africa 2 0'.g-) a. Projected. Source: ILO 1986 and updates. OECD g Note: Weighted averages of individual country growth rates: the weights are the shares of countries in the total working- age population in the region. a. Includes Algeria, Egypt, Iran, Iraq, Morocco, Oman, Saudi Arabia, Syria, and Tunisia. Source: ILO 1986 and updates. Figure 8. Annual growth rate of the urban labor Table 5. Sectoral distribution of labor in countries of force the Middle East and North Africa, 1990 (percen t) 0 1 2 3 4 5 6 (percentage of labor force) I- T - T-1 Country Agriculture Industry Services Egypt 11966-86) EAlgeria 17.3 36.7 46.0 Bahrain 2.0 29.8 68.2 Egypt 39.9 21.4 38.7 Iraq (1977-87) __ Iraq 13.6 19.1 67.3 Jordan 6.2 17.9 75.9 _ _ Kuwait 1.3 24.7 74.0 Morocco 11982-901 _ Morocco 43.4 25.7 30.9 -Ma Oman 44.5 23.8 31.6 Syria __975gi3_ Qatar 2.7 32.0 65.4 Syria (1975-83) _ Saudi Arabia 5.7 27.4 66.9 Syria 22.9 28.8 48.3 Tunisia 26.2 34.1 39.7 Tunisia (1984-89) United Arab Emirates 7.8 26.8 65.4 Yemen 70.2 9.9 19.9 Oi Urban population growth Source: ESCWA population and labor force database for Iraq, P1 Migration U Growth of parti cation Jordan, Kuwait, Saudi Arabia, Syria. and Yemen; CAPMAS March 1991 Labor Force Sample Survey for Egypt. For remaining coun- Source: Authors' calculations, using World Bank data. tries, data are from ILO 1986. 8 LE: r AD CIE r S o F A T U M U L T U O U S r .A S T labor market conditions are still deteriorating in many coun- Agriculture jobs have shrunk dramatically tries. Labor now seems stuck in a trap of low productivity, low investment, and stagnant economic growth. Figure 9. Sectoral distribution of the work force in Consider these numbers. The regional labor force is growing the Middle East at about 4 percent a year. Investment is about 20 percent of Mid-1960s GDP, and the additional investment (as a percentage of GDP) industry needed to generate I percentage point of growth in GDP is 19% about 8 percent, a large number reflecting the low productivity Agriculture ( of capital. This means that employment growth will be about 54% 2.5 percent a year (for an elasticity of output to employment of \ Services 1). Clearly, this is too low to absorb the new entrants to the labor 27% vmarket, let alone reduce unemployment. If investment rises to 25 percent of GDP and the efficiency of investment doubles, 1990 employment would grow at more than 6 percent a year, allow- Industry ing for a gradual reduction in unemployment. But for this to Agriculture / 5% happen, both private investment and its efficiency will have to 30% double, a herculean task. Increased investment requires first and foremost major progress in reducing systemic risks, especially those related to social and macroeconomic instability. Increased efficiency will Services require the removal of distortions-in the markets for goods, capital, and labor-that hamper the full use of labor and huuman Source: ESCWA population and labor force database for Egypt capital. Improving labor productivity also requires continuous 1966, Iraq, Jordan, Kuwait, Saudi Arabia, Syria, and Yemen; progress in education, government services, and infrastructure. CAPMAS March 1991 Labor Force Sample Survey for Egypt The increasing globalization of the world's goods and capital 1990 Fg or remaining countries, data are from ILO 1986. markets makes the need for reforms all the more pressing. Slow and unconvincing change will lead to rising poverty and social Under the best of circumstances, job creation would have a hard polarization. But the reform path also presents new dangers and time catching up with the rise in labor supply and absorbing forces policymakers to make hard choices and find innovative those displaced by past shocks. But instead of a gradual recovery, solutions to difficult problems. 9 A I An Integrating World T hese are revolutionary times in the global economy. The the gains from larger external markets. It is nevertheless worrisome lives of workers in different parts of the world are becom- that estimates of the impact of the Uruguay Round are negative ing increasingly intertwined. The embrace by many for the Arab region (especially when the closer economicassocia- developing and post-centrally planned economies of a market- tion between Europe and Turkey and the countries of Eastern based development strategy, the opening of international mar- Europe is taken into account). Recent estimates suggest a one- kets, and the ease with which goods, capital, and ideas flow time loss of about $3 billion for the region as a whole (Table 6). around the world are bringing new opportunities to billions of The reasons? Most Arab countries did not commit during the people. But are these favorable developments from the point of Uruguay Round to sizable reductions in tariffs, so efficiency gains view of the region's workers? are small. At the same time, the terms of trade for Arab countries are likely to deteriorate. The international quota system under the The globalization of trade Multifiber Arrangement is slated to be dismantled, leading to The stakes are clearly high. Labor migration and official aid will lower prices for textiles, one of the region's chief exports. The not be as strong a source of growth in the future as they were in removal of export quotas will not bring large gains because growth the 1 970s and early 1 980s. Other sources of foreign exchange will of exports has been limited by supply rather than demand con- have to be sought to finance imports and support larger invest- straints. Subsidies on agriculture will be reduced in industrial ments. That makes increased exports a necessary component of countries, leading to higher food prices, an import item in many any future growth strategy. An economy oriented toward trade can Arab countries. The erosion of preferences in Europe will also tax also be good for workers. It allows them to shop around the world export potential in textiles and other labor-intensive products. for the cheapest consumption goods and the best technologies, These short-term losses could turn into a long-term decline, and to specialize in what they do best-going up the technology or the small negative effects of the Round could be overtaken by ladder at the speed at which they accumulate skills-instead of dynamic gains. Much will depend on the behavior of investment remaining hostage to domestic demand. An export-oriented strat- and capital flows. This in turn will be affected by government egy is also a powerful instrument for reducing poverty, as demon- economic policy, the flexibility of labor, and the effects of change strated by the recent experiences of Morocco and Tunisia (Box 1). on social stability. But the region is not yet well integrated into the world's mar- To share in the potential gains offered by the globalization of kets, and in most countries the level and progression of exports are trade, the countries of the region will have to lower their protec- low by international standards (Figures 1 Oa and lOb). Changing tive walls. Ideally, this would lead to increased labor efficiency and course from the import-substitution strategy of the past to export the emergence of new activities in which the region possesses promotion and stronger competitiveness will not be easy. comparative advantage. There may be job losses in some indus- Moreover, the external environment holds both opportunities and tries as firms once shielded by tariffs and subsidies go under. Such risks. The patterns of international trade have been changing fast structural change would need to be supported by large shifts of in the past two decades. Manufacturing, once an activity of rich workers away from government employment and into interna- countries alone, started to move to the poorer countries in the tionally competitive industries and by large investments in 1 970s, and some of them have successfully shifted into products emerging sectors. The risk is that capital will remain wary of risks, of increasing sophistication. The recently completed Uruguay and as a result wages will fall and jobs will be lost while few new Round codifies the rules of international trade and makes an jobs are created. The region then could get locked into an unde- export-led strategy less likely to meet with a protectionist backlash sirable outcome ofrising domestic instabiliry and low investment. in the industrial countries. However, the agreements also facilitate The risks are magnified by potentially harsh social dislocations the entry into the global market of such giant competitors as associated with the effects of the Round. How the poor fare will China. India, and the countries of Eastern Europe and the former depend on agriculture policies. Lower export prices will depress Soviet Union, increasing competitive pressures. Exporting will unskilled wages in the manufacturing sector. But if higher food become harder unless productivity improves or wages fall further. prices are passed on to farmers, their income would rise, reduc- The impact on the domestic economy of a change in the exter- ing rural poverty (see Table 6); this would cut migration pressures nal environment is usually small and can be easily overtaken by on cities, helping the urban poor offset their initial losses. Over 10 AN t I N T E a R A T I N G W O R L D Box 1. Wade rdfons In Morocco and Tun Wa: The 1990s are not the 1970s The experiences of Morocco and Tunisia, early trade reform- competition from China, Indonesia, Malaysia, and Turkey, en in the region, illustrare the opportunities and the difficul- which managed to improve their relative positions in ties ahead. Both countries stard to liberalize their trade European markets much faster (Box Table 1). And competi- regime in thecarly 1980s. Morocco virually eliminated quan- tion from iEastern European producers has recently risen. In ritative trade restrictions, and Tunisia reduced their coverage. 1989 their share of the EU non-oil export market equaled that Maximum tariffi were slashed from 165 percent in Morocco of the Middle East and North Africa region; by 1993 Eastern and 235 percent in Tunisia to 45 pertcent. Subcontracting for Europoes share had doubled, while the regiods stood still. In a European firms, especially in textile and clothing, boomed. fist-changing world, countries will have to keep running just Exports of textiles increased 15 percent ayear in Morocco and to stay in place. 12 percnt in Tunisia between 1985 and 1991. As a result, labor demand rose fast. In Morocco during 1984-94, total employment in urban areas rose at 5 percent I is hard to keep up with competition a yea, manufacturing employment at 10 percent, and employment in manufactures exports at 20 percent. But while employmnent expanded a lot, wages and productivity Box Table 1. Cost competitiveness in textiles, did nor. The old manufacuring sector was small and pro- clothing, and footwear, 1991 tected, using capital intensively and employing skilled work- (1985 100) ers at high wages. The new jobs in nanufactures exports were Unit Share of mainly labor intensive and low wage. It is precisely this adjust- Real Valhe lbor EU bhpoyb (percent) ment that allowed employment to grow so fast. The growing we. added per cost demand for unskilled labor was also a key element behind the Co'nw (ECU) worker (ECU) 1985 1991 dramatic fall in poverty in both countries, because it accom- Morocco 58 89 88 0.9 1.6 modated the rise in labor participation accompanying demo- Tunisia 62 105 76 1.0 1.6 graphic changes. China 53 126 55 2.3 4.9 While this tale is similar to past success stories from East Indonesia 51 154 43 0.2 1.6 Asia, it is much more difficult now than it was in the 1970s Malaysia 55 142 50 0.3 0.7 to sustain gains in global markets. Morocco and Tunisia Turkey 92 145 82 2.6 4,9 have needed devaluations and wage restraints to kep up with Source: World Bank 1994d. time, however, the expansion of labor-intensive exports should hurt the national labor force by depressing wages and reducing lead to improvements in their welfare. For the labor elite, the risks the trickle-down effects of growth. In all likelihood, regional are larger. They will initially be hit by higher food prices and ris- migration will be increasingly restricted in the future. In the past ingcompetition and, over time, byfallingprotecrion. Unless poli- a dynamic regional labor market served to channel regional pros- cies are put in place to convert their skills into the types demanded perity. Today, it is increasingly channeling negative shocks, with by the marketplace, they will see real wages fall. returning migrants in Gaza, Jordan, and Yemen pulling down With a robust supply response, it is the young unemployed wages. In the Gulfcountries the growth of the national labor force and future entrants to the labor market that stand to gain the and low oil prices have reduced the demand for foreign workers. most from an export-driven strategy. Such a strategy would The attempt to diversify has further reduced the demand for Arab enable countries to capitalize on the extraordinary progress workers, and frequent rotation is now used to reduce migrants' achieved in the past few decades in education. It also would allow attachment to their host country. Deteriorating conditions in labor productivity to increase at a faster rate than that achieved Egypt and Syria are also affecting Jordan and Lebanon, where the in the labor-abundant countries of Asia, reaching higher levels of inflows of unskilled migrants depress the wages of unskilled technological sophistication by the time the Uruguay Round nationals and lead to rising inequality. agreements take full force. In contrast, capital is increasingly more mobile. But the sources of capital, and the conditions needed to attract it in a Less mobile labor, more mobile capital way that can benefit workers, have changed dramatically. Some level of labor migration is beneficial to migrants, their coun- In the past large external inflows went to the public sector in try of origin, and the host country But unrestricted migration can the form of aid and loans and to the private sector as workers' 11 WI L LA AR a wm R K ER s RR Ms S a R ? Figure I Oa. Per capita exports of manufactured Figure 1Ob. Per capita exports of manufactured goods, by region goods in the Middle East and North Africa (U.S. dollars) (U.S. dollars) 0 50 100 150 200 250 300 350 0 50 100 150 200 250 300 350 400 1981 Algeria Eastern Europe 8 9 :EA igg- .:. .fg t g; g t::g u 5 l1993 Egypt E To To rest of 1 EU the world East Asia o i , O ~~~~~~~ ~ ~~~~Jordan 1 Former Soviet Lebanon - Union Morocco Latin America Syria Middle East and Tuniisia North Africa South Asia Sub-Saharan Africa Note: Middle East and North Africa includes Algeria, Egypt, Jordan, Kuwait, Lebanon, Morocco, Saudi Arabia, Syria, Tunisia, and United Arab Emirates. Source: Hoekman 1995. remittances. Simultaneously, large flows of private capital left the E . I I . or region, seeking better combinations of risks and returns abroad (Table 7). The legacy-high stocks of external public debt and of private assets invested abroad-is both an obstacle to market- driven growth and an opportunity (Table 8). Private investment Table 6. Simulated effects of the external environment is unlikely to be strong in countries that are not creditworthy. and the EU option Egypt, Jordan, and Morocco have improved their creditworthi- ness with some debt reductions. Debt reduction remains key in Wihotut Close association Syria and Yemen before a private sector-led growth strategy can be seriously contemplated. Total static effect on GDP The stock of capital that has left the region but could return Wagelions effect befolare ruralif profitabiliry rises is estimated at as much as 90 percent ofGDP, adjustment more than in any other region of the world. From Damascus to Agricultural wages 6 23 Rabat. most governments are now encouraging private capital Unskilled wages -1 0 inflows with liberal investment regimes, high interest rates, and Skilled wages -1 0 stable exchange rates. These efforts have reaped some initial suc- Wage effect after full but capital inflows have been invested mostly in financial rural-urban adjustment cess, Agricultural wages 0 3 instruments and real estate. This has allowed some countries to Unskilled wages 0 3 finance fiscal deficits (Lebanon). Other countries (Egypt, Jordan) Skilled wages -1 -1 accumulated most inflows in their reserves to avoid overleverag- Source: Diwan, Yang, and Wang 1995. ing weak banking systems. While safer in the short term, such 12 AN IS I N T F a R A^T I " G W r L F2 v D Capital inflows rose, then fell ... Table 7. Composition of capital flows to Maghreb and Mashrek countries, 1970-89 (billions of 1990 U.S. dollars a year) Maghreb Mashrek Type of flow 1970-74 1975-79 1980484 1985-89 1970-74 1975-79 1980-84 1985-89 Total net transfers 2.14 5.76 2.24 -1.36 2.99 10.19 12.77 7.86 Public 1.39 5.69 -0.54 -0.79 2.35 8.22 9.33 5.42 Net flow of debt 1.82 7.21 2.21 1.95 0.64 5.21 6.86 4.59 Grants -0.07 0.29 0.42 0.84 1.87 3.57 3.65 2.40 Interest payments -0.37 -1.60 -2.83 -1.18 -0.16 -0.56 -1.18 -1.55 Private 0.75 0.07 2.77 -0.57 0.64 1.97 3.42 2.44 Worker remittances 1.44 2.16 2.08 2.85 0.80 5.76 7.89 6.12 Other inflows 0.27 0.48 0.46 0.19 0.00 0.74 0.92 1.34 Capital outflows -0.96 -2.57 -2.57 -3.61 -0.16 -4.57 -5.37 -5.01 Note: Maghreb is Algeria, Morocco, and Tunisia; Mashrek is Egypt, Jordan, and Syria. Source: Diwan and Squire 1995. policies cannot be pursued indefinitely. Morocco and Tunisia are globally competitive, a richer regional division of labor is likely to again the exception. Foreign direct investment, a more stable emerge. Several small economies (Bahrain, Dubai, Jordan, source of finance, has risen sharply, reaching nearly $1 billion in Lebanon, perhaps the West Bank and Gaza) will develop regional Morocco in 1993 and $600 million in Tunisia in 1994. specialties from banking to communications and winter resorts. In the future, capital will move around even more, but this is Stronger links wich Europe could develop into an important a double-edged sword. Success breeds success because more cap- source of growth. Europe has a keen interest in enlarging its ital is attracted. But capital outflows punish failures faster and market to stabilize its southern Mediterranean rim, an interest harder. Thus the dangers of bad policies are intensified, especially reinforced by the spread of regional blocs such as the North for labor, which bears the brunt of the resulting adjustment costs. American Free Trade Agreement (NAFTA) and the Association Lebanon (1991), Turkey (1993), and Mexico (1995) are of Southeast Asian Nations (ASEAN). The European Union reminders of how hard the fall can be for labor when macro- economic fundamentals deteriorate and financial capital is volatile. The real challenge is not only to attract capital, but also ... leaving behind large public debts and private to get it to commit to long-term investments. But to attract cap- savings ital into risky and irreversible decisions, the macroeconomic, microeconomic, and social fundanentals must be strong. Table 8. Present value of external debt and accumulated savings abroad, 1991 A window of opportunity (percentage of GNP) There are some bright spots on the horizon that offer the promise CountFy Savings abroad Present value of debt of greater prosperity: prospects for regional stability and for 80 69 stronger links with Europe. These possibilities open the way to a Egypta 271 71 realistic third way that would allow governments to escape the Jordan 163 208 dilemma of either holding to a status quo that huns the poor or Lebanon 51 opening rapidly to trade and hurting the labor elite. These Morocco 36 73 Syria 161 75 opportunities hold the potential of making reform that much Tunisia 36 60 more attractive and realistic. Yemen .. 74 The peace process is crucial. Private capital is unlikely to flock Regionb 90 71 to what is perceived as a war zone. While the peace process is not .. Not available. likely to lead to rapidly expanding new regional trade, the regional a. Assumes the full conditional debt reduction granted by the usel tolea toraplly xpaamgnew eginaltrae, tle eginal Paris Club. market is coming of age and offers regional niches for competi- o. Excludes Lebanon and Yemen. tive firms with a comparative advantage. As countries become Source: Diwan and Squire 1995. 13 W I L L A R A a W o R K Er R S P R O S R rE R ? already has deep linkages with the Maghreb countries and is and (with other donors) making adjustment finance available. about to sign a free trade agreement with Tunisia. Egypt, Jordan, This would cushion the effects of reforms on skilled workers Morocco, and the Palestinians have started negotiations to reach employed in the public sector and facilitate privatization. some form of partnership. * A closer association with Europe will help establish the credi- Clearly, the potential for increased interactions is huge, but bility of reform in the region. A rapid opening of the European progress for the Arab countries as a whole has been slow, with market and slower opening of the region's markets would allow exports to the European Union growing at only about 2 percent time for adjustment. As exports expand in the early years, deliv- a year during 1989-93. Tunisia has been the best performer (per ering the domestic side of the deal will become more attractive. capita non-oil exports of about $220 in 1989 and $320 in 1993), But a clear timetable for the convergence of policies is needed followed closely by Morocco ($117 in 1989 and $138 in 1993) to anchor expectations. and at a distance by Egypt, Jordan, Lebanon, and Syria. But * As trade with Europe becomes more open, so will trade within Europe is already the largest importer from the region (85 per- theregion.Theresultinglargermarketwillencouragetheemer- cent of Tunisias and Morocco's exports, 50 percent of Algeria's gence of regional hubs, leading to larger foreign investment. and Egypt's, and 30 percent of Jordan's), mainly of manufactures * If the peace process progresses as hoped, the European option and some agricultural products (see Figure lOb). If a offers a mechanism for gradually integrating Israel into the Mediterranean free trade zone emerges, the losses associated with region, further reducing tensions and contributing to stability. trade diversion will be small. * * 0 A large free-trade area would give the countries of the region The peace process and the EU option provide only a window preferences relative to Asia (especially in light industry and agri- of opportunity. Whether the countries of the region find a favor- culture) and level the playing field with Eastern Europe and able place in international markets will depend mainly on their Turkey (which benefit from the new trade preferences in own policies. The structures inherited from the past are a heavy Europe). This would benefit the region's unskilled workers and burden, and rising international competition makes it harder to to a lesser extent its skilled workers (see Table 6). Trade break into new markets. For trade reforms to succeed in boost- liberalization on other fronts will also be necessary to minimize ing productivity, countries will have to convince capital that the losses associated with trade diversion. chances of success are high enough to offset the risks, and con- But deeper links with the European Union offer several orher vince labor that the future will be bright enough to compensate benefits that go well beyond the static gains from trade: for short-term losses in employment and wages. Part of being *The hope is that the European Union would help in the con- convincing is having a vision of the new role of the stare as one version of import-substitution sectors by assisting in the that facilitates the working of markets and at the same time pro- retraining of displaced workers, transferring new technologies, tects social interests. 14 CHAI'TER 3 A New Social Contract or many Arab countries, the system inherited from the outcomes different from those that would emerge naturally At past-a dominant public sector, protected industry, bias best, such policies can work in the short term. In the long term, against agriculture, distorted education system, unen- they hurt workers. Labor policy has been irrelevant to small farm- forced labor standards-has become increasingly costly and ers, who still account for the poorest group of workers in the unsustainable, benefiting a shrinking minority at the expense of region. It also has been irrelevant for the large and growing num- the majority of workers. A new social contract that fits in better ber of workers in the urban informal sector. These distortions have with the new realities is in the making. What is needed now to been recognized where they are most glaring: the labor code is benefit broader segments of the population, to fully utilize and being reformed in several countries, including Egypt, Jordan, expand human potential, and to stabilize social tensions is a set Morocco, and Tunisia, but change is slow. of policies that reduces dualism, equalizes opportunities, and In the Maghreb countries and Egypt an elaborate web of labor relies on markets for the things they do best-encouraging regulations has pushed much economic activity into informal sec- investment and productivity growth. There is also an important tors (Table 9). The web of government regulations in these coun- role for government in regulating markets, protecting the vul- tries has created a two-tier system that overprotects formal sector nerable, and improving working conditions when markets fail. employees and underprotects informal sector ones. In Egypt for- The long cycle of most Arab countries, from a boom with an mal sector workers enjoy full job security and can be laid off only inward-looking, state-led growth strategy to a situation of stag- if a firm is liquidated. As a result, labor regulations are enforced nation and slow decay, is extreme but not unusual. Other coun- mainly in the public sector, and most Egyptian workers end up tries that have attempted to promote employment by protecting completely unprotected. In the Maghreb countries high legisla- a nucleus of industrial jobs or expanding public sector employ- tively imposed minimum wages and large severance payments ment failed over the long run as well-whether in Latin America have discouraged employers from hiring permanent workers, or in the former Soviet Union. What a nation's work force needs hurting the job prospects of younger skilled workers and push- most is growing demand for its services, together with large ing unskilled workers into the informal sector (Box 2). investments in schooling, roads, and technology. But that is not While the multitier system may have been a good second-best enough if rising human resources are nor used effectively, as in response to the shocks of the past (it allowed some flexibility), the former Soviet Union or several Arab countries. It is true that both management and labor would be better served by regula- these economies achieved high degrees of equality But so did tions that apply throughout the economy. Excessive regulation East Asian countries, and they also achieved rapid growth reduces labor demand in the modern sector by raising labor costs through a strategy of supporting family farms, avoiding policies and creating skilled unemployment. For the informal seccor, that segment labor markets, and encouraging vigorous growth in where most unskilled workers work, the high but unenforced formal employment through exporting. The shift from self- labor standards mean that good regulations are not imple- employment to labor market involvement was equalizing mented. Because firms cannot legally establish long-term con- because it liberated workers from a reliance on ownership of land tracts providing workers with benefits below mandated levels, job and capital-factors that are more unequally held than human turnover and search unemployment are high, and firm-specific skills. The public sector in these countries focused on what it training is below desirable levels. One resuir is that firms fail to could do best, providing a stable macroeconomic environment provide their employees with adequate physical resources, for saving and investment and strong support for econom ic infra- depressing productivity and wages. Since the unski1led segment structure and social services, notably general schooling. of the labor force is where much of the future growth is expected Four dimensions of the new social contract are crucial: useful to take place, governments would better serve their people by labor market regulations, better education, shared growth bene- developing a regulatory framework that can apply to all workers. fiting the rural sectors, and a refocused role for the state. Deregulation must thus be part of the re-regulation effort, designed to improve the incentives for the modern sector. Four Re-regulating the labor market dimensions of labor regulation stand out: income security, min- Much labor policy in the Middle East has been well-intentioned imum wages, protecting female workers, and the role of labor but misguided. Regulations have sought to impose labor unions. 15 W I L L A R A B W O R K E R 5 P R 0 5 P E R ? : Box 27 How the law prec Moroccan wokrsk Labor law in Moroco sets a mnimmum wage and tighdy restricts dismissals. The minimnum wage is about 60 per- Table 9. Informal sector employment in Algeria, Egypt, cent of the average urban wage, which is quite large by Morocco, and Tunisia international standaids. Nornwage costs imposed on (percent) employers are also high (20 to 35 peicent of was), effec- Share In tively. raising the minimum wage even higher. Between Share in private sector Share of 1984 and 1994 the minimurm wage rose by 25 percent. Activity/country Year employment employment activity while. average wages stagnated. Recent empirical work All nonagriculture suggests that this has reduced the demand for young Algeria 1985 28.9 83.5 100.0 skilled workers in the formal sector while the number of Egypt 1976 43.6 85.7 100.0 unskilled workers employed at less than the minimum 1986 39.7 82.7 100.0 Morocco 1982 57.0 73.9 100.0 wage, especially in small firms, has risen. 1991 63.0 Firimg individual workers in permanent positions for Tunisia 1980 46.7 72.3 100.0 economic reasons (mismatch,technical change) is forbid- 1989 35.0 den by law, although collective layoffs are allowed with Services official authorization.. Other restrictions on dismissals Algeria 1985 32.7 97.1 65.7 involve severance pay and judirial recourse. The average Egypt 1976 40.9 93.1 59.6 severance payment ordered by the courts is two months 1986 30.0 79.7 46.4 : i . Morocco 1982 53.1 79.2 47.0 for each year of servceonsiderably more than the Tunisia 1980 35.0 76.3 35.5 legally mandated two weeks per year of service. This has Construction encouraged the spread of temporary employment con- Algeria 1985 25.0 63.2 19.1 tracts (less than a year), which are not covered by dismnissal Egypt 1976 76.2 98.8 14.4 regulations. Onlyabout 36 percent of the 800,000 urban 1986 81.0 97.2 24.6 jobs created between 1986 and! 1992 were permanent Morocco 1982 63.2 63.2 13.5 positions. And the share of unskilled workers in perma- Tunisia 1980 70.6 74.9 22.9 r Tunisi 1980 70.6 74.9 22.9 nent employment fell from 75 percent in 1984 to 42 per- Manufacturing, mining, cent in 1990. and industry Algeria 1985 22.1 69.5 15.2 Egypt 1976 47.1 82.5 20.5 1986 38.8 73.3 22.6 Minimum wages Morocco 1982 71.7 71.7 38.3 Well-designed minimum wage legislation can be helpful, but there Tunisia 1980 46.1 62.7 32.9 .s a legislation . Tunisia 190 4__27 3__ s a risk of overshooting. Minimum wage levels are especially high Not available. in Morocco (1.7 times GDP per capita), Algeria (1.3), and Tunisia Note: Components may not add up to 100 because of unclassifi- (about 1.0). In these countries minimum wage legislation has able activities. Source: Calculated from Charmes 1993 for Algeria, Morocco, become a means for governments to dictate average wages. This and Tunisia and from CAPMAS surveys for Egypt. leads to wage compression in the modern sector and drives firms to apply capital-intensive techniques. The result is higher unem- Income security ployment among skilled workers and a movement of unskilled Labor turnover is typically high in a market economy. Markets workers to the unprotecred informal sector (see Box 2). Reducing must be able to adjust rapidly to shocks, mainly through move- the cost of labor to employers can reduce unemployment, elimi- ments of labor among sectors. Labor flexibility in the region is facil- nate the bias against the formal sector, and better protect the truly itated by the intricate structure of kinship-based transfers, but vulnerable. Since payroll taxes are large in most of the region, the more is needed in the face of large aggregate shocks. The form of effective minimum wage paid by employers can be reduced by cut- the intervention depends on the stage of development. ting payroll taxes rather than by reducing the minimum wage itself Unemployment insurance can be useful in middle-income coun- tries with good administrative capacity. In others, freely negotiated Protecting female workers severance payments are the best solution. But legally mandated sev- Regulations intended to protect women have backfired in many erance payments that are higher than the market and other restric- countries, and now constrain many young, educated women tions on firing unduly reduce labor demand in the formal sector. seeking jobs in the formal private sector. In the past mandares 16 A N E W S O3 c I A L C OaN T r A C T such as low retirement age and generous maternity benefits Collective bargaining between firms and independent labor encouraged women to stay in school and to work in the public unions is a more effective way than government mandates to sector, where these advantages are well enforced. As a result female determine wages and working conditions in a market economy. workers in several countries tend to be more educated than men This is especially the case when markets function well, because the and to be disproportionately represented in the public sector. pressures created by competition push unions and employers to But these advantages are costly, and reduce the demand for seek ways to increase productivity rather than fight over rents. women's labor in the private sector. Male-female wage differen- Governments need to lay down the rules for such negotiations, tials tend to be large, especially in the informal sector. In the spelling out the rights of workers and firms, dispute resolution formal private sector, regulations that discourage wage discrimi- mechanisms, and basic health and safety regulations (which nation result in fewer job offers for women. As a result unem- unions can monitor). ployment rates among women tend to be larger than among men Unions often engage in debates on labor issues at the national (see Table 2). In order to reduce female unemployment without level. However, because only a small proportion of the work force having to resort to preferential public sector hiring, labor poli- is represented by unions, decentralized bargaining is usually cies need to set benefits at reasonable levels and shift their costs preferable. This practice has long applied in Hong Kong and away from employers and toward society as a whole. Japan and now applies in Chile and the Republic of Korea. Decentralized outcomes will not always work. Old-age pensions The role of labor unions (where portability is important) and response to macroeconomic The intensity and character of union activism varies in the Arab shocks are two areas where centralized bargaining can be useful. world. The unionized share of the labor force is largest in coun- tries with a large public sector (about 25 percent in Algeria and Reforning education Egypt). In Morocco and Tunisia union membership is smaller There have been tremendous gains in educational achievements (around 12 percent), but unions play an important role. Unions in the past two decades throughout the region, albeit starting across the region are becoming more active in the face of a dete- from avery low base. Average years of education per worker have rioratinglabormarket.InBahrain,Egypt, Lebanon, and Morocco risen from 1.7 in 1965 to 5.5 in 1985 (Figure I1), a larger rise strikes have become more prevalent in recent years (in Egypt there than in any other region in such a short span of time. Relative were eight in 1990 and sixty-three in 1993). But too often, gov- to their level of income, attainment levels are highest in Egypt, ernments in the region have repressed unions or overly politicized Jordan, and Tunisia (Table 10). These achievements offer hope the bargaining process. In some cases they have responded to pres- for the future. Nevertheless, progress in several countries has not sures from strong unions by raising standards, such as minimum kept pace with gains in income. Primary enrollment is nearly wages, above levels at which the poor and unskilled can compete. universal-except in Morocco, Saudi Arabia, and Yemen, where Adult education levels in the region are . . . as a result of impressive gains in some catching up to world standards . . . countries Figure 1 1. Mean years of schooling by region, 1985 Table 10. Mean years of schooling in the Middle East 0 1 2 3 4 5 6 7 8 and North Africa East Asia and Pacific Country 1960 1990 1995 (exci. China) : Algeria 1.74 5.06 6.37 Latin America and . Bahrain .7 5.81 6.23 Caribbean - A § c o e < > * ;Egypt 2.75 4.94a Middle East and ' 7 Iraq 0.92 5.17 5.90 North Africa Jordan 1.56 6.56a Kuwait .. 5.95 7.05 South Asia ..... . . Morocco 0.38 2.48a Sub-Saharan Syria 2.17 5.86 6.66 Africa ' Tunisia 1.32 3.58 4.22 Not available. China ; a. 1987 figures. Source: Ahuja and Filmer 1995; Dubey and King 1994. Source: Barro and Lee 1993; Nehru, Swanson, and Dubey 1993; ILO 1986 and updates. 17 W I LL AL ^ A ra W CR o K r-- R s R R s R rc R ? 97-Tnml~~ 1 I ~I Table 11. Gross enrollment rates by education level and gender, 1993 (percent) Adult Illiteracy rates Primary Secondary Higher Counby Total Women Total Men Women Total Men Women Total Men Women Algeria 43.0 55.0 96.2 102.3 89.7 61.8 67.2 56.0 11.0 14.8 7.2 Bahrain .. .. 99.7 99.5 99.9 93.5 92.8 94.1 20.3 18.4 22.2 Egypt 52.0 66.0 102.4 109.8 94.4 83.2 90.7 75.1 19.7 25.1 13.8 Iraq .. .. 112.7 120.2 104.8 48.6 58.2 38.4 12.6 15.2 9.8 Jordan 20.0 30.0 .. .. .. .. .. .. Kuwait 27.0 33.0 94.5 96.4 92.7 82.9 85.7 79.9 16.9 16.0 17.9 Lebanon .. .. 128.0 133.6 122.3 69.8 71.0 68.5 26.0 30.9 20.8 Morocco 51.0 62.0 67.1 78.3 55.3 34.6 39.5 29.5 10.0 12.2 7.5 Oman .. .. 103.5 106.4 100.4 57.2 61.3 52.7 6.1 6.6 5.6 Qatar .. .. 104.1 108.0 100.1 83.7 81.3 86.4 31.5 18.4 46.3 Saudi Arabia 38.0 52.0 80.4 85.1 75.5 50.9 55.2 46.3 13.5 14.3 12.8 Syria .. .. 109.2 114.8 103.4 53.6 61.0 46.0 17.7 20.2 15.0 Tunisia 35.0 44.0 116.5 121.8 110.7 47.7 52.1 42.9 9.1 10.5 7.6 United Arab Emirates < 5.0 < 5.0 115.8 117.6 113.9 77.0 73.4 80.8 11.9 6.0 19.8 Comparators Argentina 5.0 5.0 109.2 106.4 112.0 68.9 63.8 74.2 42.5 39.0 46.1 Botswana 26.0 35.0 116.9 114.9 119.0 48.0 46.4 49.6 3.9 4.2 3.5 Chile 7.0 7.0 98.1 98.7 97.3 73.7 70.8 76.7 21.8 23.6 19.9 Rep. of Korea < 5.0 7.0 106.8 105.1 108.7 91.8 92.0 91.4 40.1 51.6 27.4 Malaysia 22.0 30.0 93.5 93.5 93.5 58.0 56.0 60.1 8.7 8.8 8.6 Philippines 10.0 11.0 110.2 110.5 109.8 75.1 73.7 76.6 29.0 26.8 31.3 Not available. Note: Gross enrollment rates. Source: World Bank data for illiteracy rates: UNESCO 1993 for enrollments. it is below 75 percent-but dropout rates are high in many To gain the most from education, the economic environment countries. The primary enrollment gap between men and must be reformed to benefit more from existing skills. In several women is still high, reaching 25 percent in Morocco and rang- countries high unemployment rates among skilled workers are ing between 10 and 20 percent in Algeria, Egypt, Iraq, Saudi traceable to nonmarket-based incentives-employment guaran- Arabia, Syria, and Tunisia (Table 11). As a result illiteracy rates tees for graduates, subsidized higher education-that have dis- are also high, especially for women; in Algeria, Egypt, Morocco, torted the education system. In Egypt and Jordan this is reflected and Saudi Arabia the majority of women are still illiterate. And in low returns to education (Figure 12). Distorted incentives enrollment in secondary and higher education is low in a num- encourage too many people to seek degrees in fields that promise ber of countries, including Morocco, Oman, and Saudi Arabia. jobs in the public sector (though the wait may be several years) Education is the main way workers increase their productiv- but that are not in high demand in the productive sectors of the ity and incomes. In the right environment, it is the most direct economy. Despite chis apparent oversupply of skills, the private way of equalizing opportunities across income groups and gen- sector complains that educated workers lack the skills needed in der. There is an urgent need to redouble efforts in basic educa- the marketplace. tion, education of girls, and access in rural areas. The poorest The quality of education must also be upgraded to the households tend to be the least educated, and education remains demands of the twenty-first century. The emphasis needs to shift the main influence on population growth and female labor force to cognitive skills and computer literacy. But recent budget participation and fertility. And as global competition by low- squeezes have hurt the quality of education. Class sizes are rising wage producers intensifies, skill accumulation is the only viable throughout the region, and achievement test scores have plum- strategv But this option is closed to countries without universal meted in several countries. More attention and money need to go basic education at the primary level and increasingly at the sec- to education. To increase effectiveness, higher education must be ondary level. linked more closely to business needs. And given budget 18 A I r--E W S C I A L CD O N T R A C T regulations to deal with the worst abuses, and other protective mea- Education pays off for the dynamic economies sures to improve the conditions of children who continue to work. Poverty is now to a large extent a rural phenomenon. In Figure 12. Returns to education Egypt, Morocco, and Tunisia some 60 to 70 percent of the poor (wage with schooling/wage without schooling) live in rural areas. Yet policies are still often unfavorable to agri- 0 1 2 3 4 _ culture. Infrastructure investment is most often concentrated in Egypt Prima urban areas. It has been estimated that agricultural terms of trade women Postsecondary would have been 45 percent higher in Egypt and 35 percent Vocational secondary EgyPt higher in Morocco in the mid-1980s had the policy regime been men neutral. There has been some progress recently in correcting this _ _ rdanbias, especially in Algeria, Egypt, and Tunisia. As food prices rise women following the Uruguay Round agreements, it will be crucial to pass these increases on to peasants for reasons of fairness and effi- Jordan ciency. As macroeconomic adjustments take hold and realistic men men ___ ---exchange rates become the norm, attention must turn to the dis- Morocco t rortions generated by the trade regime and to inefficiencies men and women within the rural sectors. Within agriculture, subsidies on water, Turkey fertilizer, and credit have favored large farms over small farms, women which are usually much more productive and more labor inten- Turkey --1 sive. The strategy had high efficiency costs and hurt the poor. men The uneven system of subsidies (especially on water) and taxes West Bank favored some crops at the expense of others without regard for and Gaza- men economic rationality, further distorting production patterns. Working conditions are often more hazardous and insecure Source: Angrist 1992; Assaad 1994; Tansel 1992; World Bank for rural workers (and those in urban informal markets) than for their formal sector counterparts, yet labor legislation rarely constraints, cost recovery must increase at higher levels of educa- reaches them. Their working conditions are best improved tion, with financial aid targeted only to poorer students. through direct public action in such areas as water and sanita- tion, roads and drainage, and environmental health. One of the Reducing poverty and helping rural areas biggest problems in rural areas is underdeveloped capital and Until the early 1990s state subsidies helped keep poverty low by insurance markets for reducing agricultural risk. In bad times reducing the cost of consumption goods (subsidies were 3.4 per- farmers have to sell their land (at fire-sale prices) to survive, cent of GDP in Algeria, 6.5 percent in Egypt) and health and increasing asset inequality and undoing the land reforms of the education. These subsidies were designed more to distribute past. There is no easy solution. Almost everywhere, loan subsi- broadly the rents accruing to governments than to reduce dies end up mainly with the middle class. Works programs are poverty. Now that budgets are tighter, the instruments for one effective means of risk reduction for able-bodied men and poverty alleviation need to be more narrowly focused. women, and if wages are kept low, targeting can be near perfect In the long term the most effective instruments are labor-inten- because of self-selection. For many years India's Maharashtra sive growth and education policies. Targeted interventions also State guaranteed rural residents employment in public works have a place, whether through means testing or, preferably, self- schemes, an arrangement that freed them to grow riskier and selection, such as low-wage works programs or subsidies on infe- more profitable crops. Similar small-scale schemes in Egypt, rior goods. Tunisia's experience illustrates forcefully the long-term Morocco, Tunisia, and the West Bank and Gaza have helped off- benefits of an active education policy-average schooling per set large aggregate fluctuations (agriculture in Morocco, labor worker and GDP per capita are about twice Morocco's-and the market disruptions in Gaza). To have more impact. these pro- beneficial effect of good targeting-public spending was cut with- grams need to be expanded and made more predictable. out pushing more people into poverty. Direct action to help the vulnerable makes sense in dealing with child labor and other cases Refocusing the role of the state where the market may produce undesirable outcomes, such as dis- It is perhaps in their role as employers that the Arab states have crimination against women, children, or other groups. Desirable marked their societies the most. The Arab states emerged fol- actions include support to poor families without a wage-earner, lowing independence from France or Britain or later through 19 W I - LAL A R8A W O R K IE R P rF o Sm F E R ? revolutions. Building the insitutions, basic infrstruaure, and socialistAlgetia (31 percentofthelaborforce), followed atadis- industriesofthe newsrtesdrewpopular supportand fed nation- tance by Egypt, Syria, and Tunisia (around 10 percent); in the alisric ideaL. In most countries srtes intervened of historical OECD countries and Latin America, the figure is only 5 percent. nLcessiry in the Maghrteb departiung French colonialists left Involved so heavily as an employer, the state has been dis- behind interventionist attitudes and few businesspeople. In the tracted from attending to the cenaral concerns of govemment, iMashrek srate cxpansion was associated with socialism, nation- such as macroeconomnic srabiity, infrastructure, fiscal justice, and alization, and the lingering wars with IsraeL Only Leanon (and education. The balance needs to tilt away fiom involvement in to some ex, nt Morocco) retained an unabated liberalism. areas where private activity is more efficient and toward more Several generations later, the weight of a large but poor pub- intervention in these other areas. Reducing the size and eco- lie sector now weighs heavily on the economy of most coiuntries nomic role of the state helps to increase overall efficiency. to raise of the region. Kuwait is the extreme in public sector employ- public seczor efficiency, and to improve fiscal stability and boost ment, with 92 percent of its nationals on the public payroll the credibility of the reform agenda. Adjustment should entail (Figure 13). In poorer countries the state ernploys from 30 per- decompressing wages, enforcing stricter job standards, laying off cent (Morocco and Tunisia) to 45 percent (Jordan) of the labor redundant workers, and recruiting highly skilled individuals for force. In all countries central govemments are larger than the sensitive positions. average for middle-income countries (which is 10 percent in Turkey and Greece, and 15 percent in Spain and Portugal) or Ovira effucieny even for rich OECD countries (18 percent). Public enterprise Maintaining large public sectors unjustifiably burdens rhe employment is also high in several countries It is highest in economy. In jordan, for example, tax revenues have risen to nearly30 percenrofGDP, reducing competition and real wages in the private sector. .* _ - Lare public sectors also create odher distortions. Although - _- public sector wages have failen across the region (especally in Fgypt, where they fell by half in the past decade), rhey have Figure 13. Workers in the public sector as a share of remained higher than in the private sector for the average oublic total employrment servant- In Morocco and Tunisia wages are higher in the public (percent) sector at all skill level In Egypt and Jordan wages are now lower 0,waft 2,0 40 _ 8,0 lDO in the public sector, bur recent studies show that once all benefits Kuwait__________are taken intio account, pay in the public and pri-ate sectors is 20 ( 1992) rto 40 percenr higher than in the privatesector for the average pub- Algena ! lic servant. Pay in the civil service tends to be more sensitive to (1rd1) seniority than in the private sector, less sensitive to perfirrnance, (1991) a mote compressed across sklsl levels, and less rewarding of scarce (1991) skilL Womer, older workers, and workers with intermediate lev- Tunisia els of educ;nion tend to earn higher wages than they would con- (gypt m and in the private sector. This encourages students to acquire a (1992) _ype of education that is not in demand by the private sector, dis- (1991) torts the education system, builds up xDecctarions that are likely Morocco, ~~~~~~~~~~~to be frustrated, and results in higer unemployment among these (1992) categories of workes. West Bank and Gaza (1995) Yemnen Public sawr effi enLy (1993) Although it is difficult to measure prodtivity in the publc sec- 8 Centrai govenment U Public enterprises tr, the qualiy of public serice seems to have failen dramaticaly. a. Nationals (o- Pulblic sectors across the region have preferred to reduce mvest- b. Urban areas nly. Source: Algena. IMF 1994a; Bahrain. IMF 1991; Egypt, CAPMAS mnent and wages rather than employmenr (Figure 14a and 14b). 1992 Labor Force Sample Survey Jordan. 1991 Employ7ment, As a result public servants are often underequipped and work in Unemployment. Returnees. and Poverty Survey; Kuw-ait, Word overcrowded conditions. In profssion-al ocupations wage corn- Bank 1994e: Morocco. IMF 1994b; Syria, Louis 1993: Tunisia, World Bank 1995d: West Bank and Gaza, World Bank 1994t pression has loweed morale and prompted absenteeism. In pub- Yemen. Self 1993. Iic enterprises finandal difficulties plus the high capital intensity 20 A N Er-W S 9 D IA L CO N " T r A C T Public sectors have reduced wages and investment rather than employment Figure 14a. Public and private earnings in Egypt Figure 14b. Wage bill as a percentage of capital Ratio Index expenditure 1 120 0 0.5 1.0 1.5 2.0 2.5 1.8 - I Index of real public pay, Algeria 1975-80 (average) 1.6 _ .*r / \1976=100 _ 110 1993 1.4 _ se \/ ~~~~~~~~~~~Bahrain -1A:: > 1.4 - - ~~~~~~~~~~~~100 Egypt 3 3 1.2 - 77 f f;90' 8 \ Jordan 1.0 Ratoof 80 Kuwait _ public to - 0.8 _ tl _ gprivate S 0 Morocco 7-- 0.8 earnings - 70 Mo co>. 0.6 -j 60 Tunisia Co r- 0 0) 0 H co en v In (0 r cl) 0) 0) 0) 0 0) 0 0 0 0 0 0 r - 'H ,H 'H H - ,H '- - '- ,H Source: Zaytoun 1991. Source: IMF various years. of the past mean that many enterprises are using outmoded tech- and in Turkey in 1994, public sector wage increases initiated a nology and obsolete equipment. Improving the efficiency of the fiscal crisis ending with large devaluations and huge losses for public sector is an important goal. Doing so will require boosting workers. investment, correcting the wage structure, and laying off redun- When public sectors are large, the credibility of reform dimin- dant workers to avoid putting unsustainable stress on budgets. ishes. Promises to cut the public sector in the future-once pri- In the oil-rich economies of the Gulf, the problems of an inef- vate activity rebounds-are not very credible. Old policies have ficient public sector are entwined with the long-term welfare of created an oversized public sector with established vested interests the population. Public sector jobs are used to distribute oil rents that is hard to cut back. Although public hiring has stopped in to nationals, who receive wages several times higher than those Algeria, Egypt, Jordan, Morocco, Syria, and even in the oil-rich paid in the private market (which employs mainly migrant work- countries of the Gulf, people still look to the state as the employer ers). In Kuwait, for example, public sector jobs pay two to three of last resort. That has meant that whenever the fiscal accounts times market wages. This strategy is now at an impasse since the have improved, public recruitment has risen, even where it has national labor supply has outstripped any reasonable needs of the become clear that additional workers produced less than they cost. public sector. This strategy eliminates all incentives to join the In the countries with large public enterprises (Algeria, Egypt, private sector, leads to an overstaffed and inefficient public sec- Syria, and Tunisia), reform would enlarge fiscal deficits unless the tor, and reduces the size of oil rents. It would be far better to rely public sector contracts first. Liberalization of prices, investments, on public sector restraint, privatization of utilities, and direct dis- and trade and other measures to increase competition magnify the tribution of oil receipts to nationals, losses of the public enterprises. Financial market reforms also hurt public enterprises with large capital costs (relative to labor) and Macroeconomic stability and the credibility of reforms large debts. Macroeconomic stability is constantly threatened by pressures for wage increases for the large numbers of public employees. A new social contract would support a more efficient econ- Public sector wages (excluding public enterprises) range from 10 omy more attuned to the competitive realities of the twenty-first percent of GDP in Egypt to 15 percent in Morocco. In most century. How to get there is the key issue. The short-term nega- countries the fiscal deficit would rise by 2 to 5 percentage points tive impact of change falls mainly on the educated labor elite. But of GDP if public sector employees regained the real wage losses the status quo hurts the poor. This poses a formidable political they have sustained since the mid-1980s. In Lebanon in 1991 dilemma, an issue taken up in the last chapter of this report. 21 mm MO W T* ~ ~~ S Transition rab countries are struggling with the difficult transition economic stability, at least in the short term, without having to from state ownership, intervention, and protectionism undergo drastic public sector retrenchment. to a more efficient mode of social organization. They * With public sectors two to three times the size of those of the are not alone in this adventure. A similar process is under way in reforming countries of Latin America, larger unemployment at Latin America, Eastern Europe, the former Soviet Union, China, the outset of reform, and fragile sociopolitical equilibrium. India, and Viet Nam, affecting more than half the world's 2.5 bil- governments were keen to avoid changes that could generate lion workers. Transition is usually a time of rapid change and massive layoffs. Workers in the public sectors also have pre- acute social dislocations. This is especially likely to hold in the ferred wage cuts to layoffs. region, where unemployment among the educated is high to * Unlike the case in other regions (but like the case in China), begin with and many skilled workers will need to shift to new job creation is not held back by tight supply in labor markets. activities. What type of policy actions can speed recovery and Job creation would not have to await job destruction since new reduce social dislocations? employees could be drawn from the ranks of the unemployed or from rural areas. Beyond containment * A resolute, strategic orientation to a market-based economy, Some structural change has begun, with reforms varying in with its short-terms costs in lost jobs, did notseem to have clear sequencing and speed (Table 12). Morocco and Tunisia have fol- benefits when weighed against the discouraging effects of lowed a broad reform agenda for some time. The successes of regional instability on private investment. these early reformers have encouraged other countries to accel- The strategy of containment has managed to stabilize the erate the pace of their programs. Egypt and Jordan have recently macroeconomic situation and to prevent the kind of economic begun far-reaching reforms. In Lebanon and the West Bank and collapse that occurred in Russia. But the accumulated losses have Gaza, the reconstruction of administrative and physical infra- now reached levels comparable to those experienced in Eastern structure is high on the agenda. Algeria, Syria, and Yemen are Europe, without the robust supply response that has started to plagued by serious macroeconomic and microeconomic prob- emerge there. Private investment is responding where reforms are lems. All three are considering steps to eliminate macroeconomic more advanced (Jordan, Lebanon, Morocco, and Tunisia), but imbalances, reduce policy distortions, and improve the manage- even there the supply response has not been vigorous. ment of public resources. Everywhere, entrepreneurs and investors are holding back on A shake-down period is required to clear out the accumulated long-term investments. structural problems of the economies of the region. Labor mar- The main reason for the delayed recovery seems to be the ket flexibility has acquired a bad name as an euphemism for push- credibility of reforms: for many countries the external environ- ingwagesdown andworkers out, but it isan essential component ment is still uncertain, and the new social contract is still in the of reform. Workers need incentives to move into jobs where they making. Governments will have to take more risks to bolster can be more productive. But change has been slow precisely in credibility. Reforms that make job destruction inevitable still the areas that affect workers most-trade liberalization and pub- have to be initiated. Indeed, slow progress on trade liberalization lic sector reform. There has been no quick and clean break with and public sector reforms is a sign that the new social contract the past, as in Eastern Europe or Latin America. Gradualism has has not yet been "sold" at home and will have to pass futtire polit- been the watchword. The underlying principle seems to be that ical tests. the state woldd contain the problem areas in the public sector by An important role for transition policies is to put in place freezing new hiring and allowing wages to fall. Job creation measures that encourage labor flexibility while reducing its dis- would be left to the private sector. The economy would be slowly locating effects. Rather than supporring labor demand by hiring opened to international competition and the public sector would more workers-which undermines the credibility of reforms- slowly contract, so that job losses would take place after job cre- countries would be better served by shifting public expenditures ation. Several factors made this strategy attractive: toward such programs that can smooth the deflationary effects * Public sectors in the region are not as large as in Eastern Europe of public sector retrenchment, enhance the credibility of reforms, or Russia, so governments felt that they could maintain macro- and help workers move into areas of higher labor productivity. 22 T R A N 1S I T I 0 N Countries are at different stages of reform Table 12. State of reforms Macro- Bias economic Trade against Financial Labor Public Country stability refonns agriculture sector Education regulations sector Mashrek Egypt I P I A P P p Jordan I P I A I I P Lebanon P A A A I P West Bank and Gaza P P p P I I P Syria p p P P I p p Yemen p p p P P IP Maghreb Algeria P P I P P P P Morocco I I I I P P I Tunisia A I I I A P I Gulf countries I I P A A I P A = advanced or not needed; I = initiated but incomplete; P = pressing but not yet started. Source: Authors' assessments. (Table 13 summarizes best practices in both types of programs.) by the worldwide trend in labor demand toward workers with Two types of policies can help during the transition: active poli- greater genera] skills and higher education. As a result, workers cies that assist workers by equipping them for change and pas- with firm-specific skills but litdle general education may end up sive policies that provide temporary transfers to reduce income having to chose between unemployment and lower wages. This losses during layoffs. OECD countries typically spend 2 to 3 per- trend is already apparent in Algeria and Egypt, two countries with cent of GDP on labor market programs (including unemploy- large public sectors and narrowly specialized workers. ment benefits), mainly passive, while formerly communist Most industrial and transition economies run public retrain- countries spend between I and 5 percent of their GDP, mainly ing programs, but evidence of their effectiveness is weak. If coun- on active programs. In the region, however, such programs are tries decide to introduce such programs, they should launch still in their infancy. small pilot projects first. While government subsidies make sense, private provision can improve the effectiveness of retrain- Equipping workers for change ing. In Chile targeted groups receive vouchers, allowing them to Workers must have access to resources and information to be able buy training services in a competitive market. An area in which to take advantage of new opportunities without losing their accu- private provision and financing of retraining is unlikely to be ade- mulated human capital in the process. Various policy actions can quate is the retraining of disadvantaged workers (women, older help increase their mobility. But the effectiveness of active pro- men with low levels of education). The financial returns to such grams depends on how well they target the groups having diffi- training are low, but often the externalities can be high in terms culty finding new jobs, improve the job prospects and wage of improved social cohesion (as shown, for example, by the results potential of participants. and avoid distortive effects. Distortive of the Hungarian retraining measures that target the "best" effects include substitution effects-firms hiring subsidized among the disadvantaged groups). workers rather than other workers-and dead-weight costs- firms taking the subsidy even though they intend to hire work- Temporary public employment schemes ers in its absence. Unless they are carefully structured, active labor Temporary employment programs can serve as a bridge between market programs can be risky investments, since the cost can jobs in periods of major change and reduce poverty, although exceed the benefits they bring to workers. they do not improve the long-term job prospects of participants. At the depth of the recession of the 1980s, the public sector in Retraining programs Chile employed 12 percent of the total labor force. Temporary Workers whose jobs disappear often find that they lack the right public employment schemes are also widely used in the Czech skills for the new jobs being created. This mismatch is exacerbated Republic and Poland. Recently, the Social Fund in Egypt 23 W I L L. A A A W O3 R K ER R S r FR o S P E R? Table 13. Policies to compensate labor during public sector retrenchment Policy Effectiveness and recommendations Equipping workers for change Retraining Expensive. Limited number of robust evaluations, even in OECD countries. State financing (but rarely provision) desirable in some cases for those hurt by changes, at least on welfare and political grounds. Job search assistance Inexpensive and often effective in OECD countries in increasing job placements, although relevant only for a fraction of job-seekers. Employment subsidies Expensive, often risky, with only minor net effects in OECD countries. Likely to undermine reforms. May make sense if tightly targeted and restricted to short period after hiring. Allowances (grants, loans, prepayment Expensive. Net employment effects rarely properly evaluated. Apply only to a of benefits) to support business start-ups small minority of workers even in OECD countries. Public employment for disadvantaged youth Mixed results. Rarely properly evaluated. Some positive effects of programs and public support of apprenticeship carefully targeted on dropout minorities when mixed with on-the-job training. Administratively intensive and difficult to implement outside OECD countries. Providing transfers Unemployment benefits Useful in first stages of transition from central planning. Disincentive effects of long-duration benefits found in OECD countries. Benefits should be simple. Severance pay Often part of formal sector contract; can be key to downsizing public sector. Old-age and disability pensions Major cash benefit scheme in post-centrally planned economies. Often used in lieu of unemployment benefits. Often require immediate cost-containment on fiscal grounds. Long-term reform toward funded arrangement desirable. Social assistance and family benefits Can reduce poverty of those laid off in transition. Means-testing can be difficult. Family benefits generous in post-centrally planned economies and may not need to be cut back on fiscal grounds. Public works Effective antipoverty measure in developing countries if wages kept low. Source: World Bank 1995e. increased its financing of such schemes, especially in poorer firms are allowed to hire recent graduates on a temporary basis, regions. Self-targeting works well if wages are kept low enough, paying them less than the official minimum wage and even but there can be substitution effects (firms hiring these rather receiving a subsidy for employing inexperienced workers. than other workers) unless the programs are restricted to public Morocco has been experimenting with schemes to assist young investments that would not have taken place without the avail- labor market entrants acquire practical experience. While the ability of cheap labor. risks of substitution are high, they must be weighed against the gains generated by expanding the supply of labor in the mod- Youth programs ern sector. Human capital accumulated during schooling can deteriorate over time in countries with long-term unemployment among Supporting business startups the young, so that young entrants to the labor market get stuck Some countries have tried to help those among the unerri- in low-productivity informal activities. The risk is magnified by ployed wishing to start their own businesses. Many countries high labor standards that discriminate most against workers have experimented with credit schemes and other programs with low levels of experience and expertise. such as those with to encourage microenterprises, but few rigorous evaluations a secondaryeducation orvocational training. In some countries have been done. Experience with special credit programs in 24 T Q A ^ N S I T I 0 1N Sub-Saharan Africa and Latin America suggests that they have from other social programs. In Egypt, for example, recent rarely brought benefits. In industrial countries these schemes estimates suggest that fully compensating all redundant public have been of interest only to a limited number of the unem- sector workers could cost up to 7 percent of GDP. ployed. In the post-centrally planned economies with under- In the past decade more than fifty countries have used trans- developed financial sectors, the schemes have been more fer schemes (or compensation) to assist in downsizing publicsec- effective in generating new employment opportunities. Such tors (Box 3). Countries in Eastern Europe now devote as much as programs should be approached with great care in the Middle 1 percent of their GDP to such activities. During major reorga- East and North Africa because of the risks of displacing more nizations the desirablelevel of severance paywill usuallybe greater traditional sources of finance and of benefits going to well-to- than the compensation mandated under labor contracts, which do groups. Rather than concentrating on startups, govern- are not designed to compensate for the loss of employment in ments should focus on easing the difficulties that informal periods of wholesale change. Because it is administratively sim- firms have in tapping into the formal financial system. pler, a special severance scheme that tops up nationwide severance programs is better than an extension of unemployment benefits. Wage subsidies The early involvement of unions is crucial for success, and for rea- Wage subsidies must be limited and very well controlled to play sons of fairness any severance scheme offer should be open to all a positive role in times of major change. In industrial countries public sector employees. they have proven ineffective in speeding up adjustment. Wage Ideally, redundancy programs would be voluntary. Workers subsidies can easily undermine reforms by keeping unprof- would be offered a menu of options including early retirement, itable firms afloat, while substitution effects can negate their cash payments, annuities, retraining programs, guaranteed wages benefits if workers whose wages are subsidized replace those not backed by subsidies to new employers, and transfers to other covered by subsidies. Wage subsidies should be considered only public sector jobs. Many recent severance schemes in industrial in cases where targeting is easy, such as depressed areas. When and developing countries are of this voluntary type. The menu well controlled, wage subsidies can be a less expensive alterna- approach can improve targeting at lower costs since workers tive to transfers and yield a better outcome in terms of social choose the option they value most. Wage decompression and the cohesion in isolated areas. use of vetos can help reduce the problem of "brain drain"-the best workers taking the severance package and getting a new job Provision of information elsewhere. Workers cannot take advantage of new opportunities unless For a severance package to fully compensate redundant they know about vacancies and wages. In many developing workers, its value must approximate the "rent" workers receive countries workers must rely on informal exchange of infor- by holding on to their public sector job. Payment will therefore marion to find new jobs. Official job search assistance can have to be somewhat worker specific, taking into account such help. Although inexpensive compared with retraining, it is characteristics as current wage, the time needed to find a new not a panacea. Even in industrial market economies only a job, alternative wages, gender, seniority, and years of denied small percentage of job seekers-usually no more than 10 to public sector service. Compensation should be high enough to 15 percent-get their jobs through public employment make it attractive to workers to accept redundancies even when offices. Private employment services should be allowed to they can expect lengthy search periods before finding a new job, operate as well. but not so generous that accepting the package appreciably improves workers' current welfare. Payments could also be made Compensating those hurt during unemployment and until a new job is found rather than In the short term two groups stand to lose: skilled workers in as a lump sum, but on a declining scale in order for displaced protected sectors and the educated who are unemployed. Public workers to have incentives to find a new job quickly. servants cannot just be fired; they need to be compensated for Several countries in the region-Egypt, Jordan, Kuwait, the losses of job security and future wages that had been Morocco, Oman, Tunisia, United Arab Emirates-have started promised to them. Many of the educated unemployed went to to privatize public enterprises, but only firms that are not mas- school because of the promise of a public sector job. They too sively overstaffed. As the programs start addressing the real prob- should expect some assistance during the transition. lem firms, governments will need to decide whether to lay off In deciding how much assistance to provide, policymakers redundant workers before privatization or to leave the task to must balance several important interests. Assistance is vital for the new owners. There is no accepted wisdom on this score: maintaining popular support for reform and boosting its credi- Spain dismissed redundant workers before privatization, but bility. But part of the cost will have to be financed by diversion Central and Eastern European countries did nor. For firms with 25 W I LL A RA W O R K E R 9 P R O S P ER ? BoX 3.; ow othr counbies have designed compensation packages CGountries havedeveloped a variety of ways of compensatng workers with identified projects, and the cash was used to public sector workes whose jobs are being cut Sr Lanka col atealize a commercial loan. recentdy oilred a kero ali public sector emplayeabased. A recent study of public sector retrenchment in the f :7 E E ; j i g t i; j ja ge Fiv of the had tEE . . i on a Irmulxt. ast monthly wage 55- age- age * 55 . years transport sector looked at six countries. Fie of them had of servtie 30. A simpleri package in the United Kingdom voluntary schemes. (Brazil, Chile, Ghana, Sri, Lanka and called for payment of 0.5 week-per year of service for wotk- Yugoslavia); Mauritius did not. Two of the five also had ers ages18-21,1 week forwarkers ages 22-41, and 1.5 weeks tsome mandatory programs (Chile and Ghana). The volun- for workers ages 42-64. tary programs wee used tO reduce redundancy in the rail- Menusvairy oo."A Spanish programo (1985-8) offered ways, and the mandatory programs in the ports. In Europe three choices to civil servantsJin the occupations being dirn- most large restructuringprograms offered voluntary sever- mnated:. early retiremnent (chosen by 251 percent), severance ance (which paid more than the mandatory compensation pay in cash and unemployment compensation for up to eighl- levels). A survey of 2,000 British establishments in 1984 teen months (chosen byO 40percent), and 80 percent of last found that 824 that had reduced their work force the year wage earned guaranteed until retirement oplus freererraining before, 578 used natural attrition, 311 redeployed their rand -subsidies fr finns that hire the worker permanently workers, 289 used early retirement, 162 used voluntary (ichosen by 35 percent). ther option is to let workers schemes, and 206 used compulsory programs (of which decide whether to be paid in a lump sum or in annuities, as 102 fired those most recently: hired). Large firms with in the Jaaic Railways restructuring program. The cash strong unions used voluntary programs, while small firms severance withsmal present value was preferred by the more with weak unions used compulsory programs. In the enterprising workers, who used the money to start, small United States large corporations usually lay off workers businesses. To guard against overconsumption and poor using voluntary programs to avoid legal problems relating quality projects, a similar option was restricted in Ghana to to discrimination. a negative value (once the social liability to their workers is taken They help maintain social cohesion at a time when job destruc- into account), there is no alternative but to deal with redun- tion and job creation are intensified, generatingintensesocialdis- dancy before privatization. In all cases, imposing restrictive hir- location. But the problems are extensive in some countries of the ing or firing terms on the new owners defeats the purpose of region, and these policies are not a panacea. They cannot be privatization and is reflected in a lower sale price. expected to smooth our all temporary losses. This means that * * * policymakers must above all convince workers that the losses will Active labor market policies and compensation of workers indeed remain temporary. A credible vision of a better future is hurt by change are a necessary component of a reform program. in the end the most convincing instrument. 26 CHAPTER 5 Looking Ahead T he main reason that reforms have not yet deepened in two outcomes is in the dynamics of the transition. Bad outcomes the region is that most governments have not yet been are likely to perpetuate themselves with social instability and flee- able yet to articulate a vision that is realistic and con- ing capital. Good policies could unleash opposite forces, bring- vincing. But in many of the countries this vision is starting to ing in capital and making success easier. There is a thin line come together. The vision capitalizes on past successes in edu- between rising with a virtuous circle and falling with a vicious cation and infrastructure. A key challenge is how to salvage parts one. Good economic policies, strategies, and execution can make of the old industrial base, and how to retrain those workers a big difference. But time is running out. The full force of the whose skills have become outmoded. Uruguay Round agreements will be felt in the next ten years. This The peace process, ifsuccessful, will reduce the strategic uncer- is perhaps all the time left for the governments in the region to tainty that has infected the region. The promise of a special rela- build competitiveness. tionship with the European Union is another important anchor, for it provides access to markets and locks in reform. More active reforms and supportive policies are now needed to ensure a suc- Wage gains for unskilled workers are dramatically cessful transition. Compensation policies for those hurt by higher in the high-case scenario, reducing change, proper labor market regulation, and mechanisms to inequality insure some degree of income security are important ingredients. The risks are large. With low or shallow investment, skiUled Table 14. Two scenarios for the Middle East and North workers will have to accept low-productivity jobs, leading to Afri 1994-2010 harsh social dislocations. Reforms thus pose a major political (percent) challenge, especially where public sectors are large and unem- ---- Low-case High-case ployment among the educated is of long duration. The difficult scenario scenario dilemma, however, is that lack of reform is likely to perpetuate low productivity and lead over time to rising poverty. Inputs in the growth process Investment share in GDPa 20.0 25.0 In an uncertain world with mobile capital, both optimistic Annual growth of total factor and pessimistic expectations may seem realistic. The projections productivity0 0.5 1.5 developed for World Development Report 1995 illustrate well the Overall performance fragility of the region's future (Table 14). In the "high-case" sce- GDP per capita growth8 1.4 3.4 nario growth is fast and domestic inequalities fall. By 2010 the Export growth0 3.3 5.5 labor productivity and wages of unskilled workers are 60 percent Labor outcomes Wage growth, unskilled workersb -2.0 63.0 higher than current levels, those of skilled workers 40 percent. Wage growth, skilled workersb 27.0 39.0 But in the "low-case" scenario the incomes of unskilled workers a. Average over period. remain stagnant at best, those of skilled workers rise only slowly, b. Total growth, 1994-2010. and inequalities rise sharply. The main difference between the Source: World Bank 1995e. 27 References Bibliographic notes by the Institute for Social and Economic Policy in the Middle Chapter 1 is based on surveys by Amerah (1990); Al-Qudsi, East, February 7-8, Harvard University, Cambridge, Mass. Assaad. and Shaban (1994); Karshenas (1994); and Pissarides Al-Khawagea, Leila. 1993a. "Developing Countries, Labor (1993). Recent country-specific papers are listed in the Markets, and Structural Adjustment" (in Arabic). Egypt bibliography. Contemporaine431. Cairo. In Chapter 2, the analysis of the effect of the Uruguay Round . 1993b. "Disguised Unemployment in the Public is from Diwan, Yang, and Wang (1995). The analysis on capital Sector: The Case of Egypt" (in Arabic). Paper presented at the movement is from Diwan and Squire (1995). The analysis of the Experts Meetings on Unemployment in the ESCWA coun- effects of trade liberalization in Morocco and Tunisia draws on: tries, July, Amman, Jordan. World Bank (1994c, d; 1995c, d); Zouari-Bouattur (1994); and Al-Nafi'i, Abdallah M. 1993. "Educated Unemployment in the Currie and Harrison (1994). Gulf" (in Arabic). Paper presented at the Experts Meeting on In Chapter 3 the discussion of the informal sector draws on: Unemployment in the ESCWA countries, July, Amman, Charmes (1993); Handoussa and Potter (1992a); and Fergany Jordan. (1994a). Of labor market policies in Morocco and their effect on Al-Qudsi, Suleyman. 1993. "Microeconomic Analysis of Labor the labor market on World Bank (1994c, d; 1995c). The dis- Markets in Jordan and Kuwait." University of California, cussion on the effects of labor regulation on women draws on Davis. Assaad (1995) and World Bank (1995b). Of desirable policies on Al-Qudsi, Suleyman, Ragui Assaad, and Radwan Shaban. 1994. Cortazar (1994). Estimates of the rates of return on education "Labor Markets in the Arab Countries: A Survey." Economic draw on Angrist (1992) for the West Bank and Gaza; Assaad Research Forum Working Paper 9401. Cairo, Egypt. (1993) for Egypt; Tansel (1992) for Turkey; World Bank Amerah,MohamadS. 1990. "Major Employment Issues in Arab (1994b) for Jordan; and World Bank (1995c) for Morocco. Countries." Paper Presented at the Senior Policy Seminar on Information on state subsidies and poverty came from van Employment Policy in Arab Countries, sponsored by the Eeghen (1995). Estimates of bias against agriculture are from World Bank Economic Development Institute and the Royal Schiffand Valdes (1992). On biases within agriculture in Egypt, Scientific Society, June 25-27, Amman, Jordan. see Richards (1989). The section on the state draws on Said Angrist, Joshua D. 1992. "Wages and Employment in the West (1994) and Al-Qudsi, Assaad, and Shaban (1994). Comparison Bank and the Gaza Strip: 1981-1990." Maurice Falk Institute between private and public compensation for Jordan is from for Economic Research Discussion Paper 92.02. Tel-Aviv. World Bank (1994b); for Morocco, World Bank (1995c); Assaad, Ragui. 1993. "The Employment Crisis in Egypt: Trends Tunisia, World Bank (1995d); and Egypt, Assaad (1994). and Issues." Humphrey Institute of PublicAffairs, University In Chapter 4, the discussion on active labor market policy of Minnesota. draws on the surveys of Lehmann (1995) and Calmfors (1994). . 1994. "The Effects of Public Sector Hiring and The discussion on compensation uses Diwan (1994). For Compensation Policies on the Egyptian Labor Market." estimates of cost of compensation in Egypt see Al-Khawagea Background paper for World Development Report 1995. (1993b) and Assaad (1994). World Bank, Washington, D.C. -_____ 1995. "Do Workers Pay for Social Protecrion? An References Analysis of Wage Differentials in the Egyptian Private Ahuja,Vinod,andDeonFilmer. 1995. "Educational Attainment Sector." Paper presented ar the Economic Research Forum in Developing Countries: New Estimates and Projections." Labor Market Workshop, June, Cairo. Background paper for World Development Report 1995. Barro, Robert, and Jong-Wha Lee. 1993. "International World Bank, Washington, D.C. Comparisons of Educational Attainment." Journal of Al-Faris, Abdul-Razak F 1992. "Development Pattern and Monetary Economics 32:363-94. Structural Changes in the Labor Market in the United Arab Bernard, Chantal. 1991. "Le Marche du Travail urbain en Emirates." Paper presented at the conference on The Algerie." Paper DP 34. Institut International d'Etudes Sociales Economics of Labor Mobility in the Middle East, sponsored Discussion. Geneva. 28 R F E R E r-- N c E S Calmfors, Lars. 1994. "Active Labor Market Policy and Handoussa,HebaA."TheBurdenofPublicSectorEmployment Unemployment: A Framework for the Analysis of Crucial and Remuneration: The Case of Egypt." American Design Issues." OECD Economic Studies 22. Paris. University, Cairo, Egypt. Charmes, Jacques. 1993. "Comment mesurer la contribution du Handoussa, Heba A., and Gillian M. Porter. 1992a. "Egypt's secteur non structure a la Production Nationale dans les pays Informal Sector: Engine of Growth?" Paper presented at du Tiers-Monde?" Review oflncome and Wealth (December): the Middle East Studies Association conference, October 429-44. 28-31, Portland, Oreg. Chen, Shaohua, Gaurav Datt, and Martin Ravallion. Handoussa, Heba A., and Gillian M. Potter. eds. 1992b. Forthcoming. "Is Poverty Increasing in the Developing Employment and StructuralAdjustment: Egypt in the 1990s. World?" Review of Income and Wealth. Cairo: The American University in Cairo Press. Cortazar, Rene. 1994. "Labour Policy in Democratic Chile." Hoekman, Berhard. 1995. "The WTO, the EU, and the Arab Paper presented at the International Forum on Latin World: Trade Policy Priorities and Pitfalls." Paper presented American Perspectives organized by the Inter-American at the Economic Research Forum conference on Long-term Development Bank and the OECD, November, Paris. Prospects in the Middle East, June, Tunis, Tunisia. Currie, Janet, and Ann Harrison. 1994. "Trade Reform and ILO (International Labour Organization). 1986. Economically Labor Market Adjustment in Morocco." Paper presented at Active Population: 1965-2025. Geneva: International Labour Labor Markets Workshop sponsored by the World Bank, Office. July 6-8, Washington, D.C. IMF (International Monetary Fund). 1991. "Bahrain: Recent Diwan, Ishac. 1994. "Public Sector Retrenchment and Economic Developments." Washington, D.C. Severance Pay: Nine Propositions." In S. A. Chaudhry, G. . 1 994a. "Algeria: Recent Economic Developments." J. Reid, and W H. Malik, eds., CivilService Reform in Latin Washington, D.C. America and the Caribbean. World Bank Technical Paper . 1994b. "Morocco: Review ofAdjustment Experience." 259. Washington, D.C. Washington, D.C. Diwan, Ishac, and Lyn Squire. 1995. "Public Debts and Private - . Various years. Recent Economic Developments. Assets: External Finance in a Peaceful Middle East." Middle Washington, D.C. EastJournal 49(1): 69-88. Issa, Najib. 1993. "Unemployment and Reconstruction in Diwan, Ishac, Chang-Po Yang, and Wang Zhi. 1995. "The Lebanon" (in Arabic). Paper presented at the Experts Arab Economy, the Uruguay Round Predicament, and the Meetings on Unemployment in the ESCWA countries, July, European Union Wild Card." Paper presented at the Amman, Jordan. Economic Research Forum conference on Long-term Karshenas, Massoud. 1994. "Structural Adjustment and Prospects in the Middle East. June, Tunis, Tunisia. Employment in the Middle East and North Africa." Dubey, Ashurosh, and Elizabeth King. 1994. "A New Cross- Economic Research Forum Working Paper 9420. Cairo. Country Education Stock Series Differentiated by Age and Lehmann, Hartmut. 1995. "Active Labor Market Policies in the Sex." World Bank, Washington, D.C. OECD and in Selected Transition Economies." Background Fergany, Nader. 1992. "A Characterization of the paper for World Development Report 1995. World Bank, Unemployment Problem in Egypt." In Heba Handoussa Washington, D.C. and Gillian Potter, eds., Employment and Structural Louis, Michael. 1993. "Employment and Unemployment in Adjustment: Egypt in thle 1990s. Cairo: The American Syria" (in Arabic). Paper presented at the Experts ,Meetings University in Cairo Press. on Unemployment in the ESCWA countries, July, Amman, 1994a. Human Development in EKypt(in Arabic). Cairo: Jordan. Al Mishkat. Moghadam, V. M. 1994. "Women in the Textiles and Garments - 1994b. Urban Women, Work, and Poverty Alleviation in Industry in the Middle East and North Africa." World Egypt. Cairo: Al Mishkat. Institute for Development Economics Research of the United Filmer, Deon. 1994. "Estimating the World at Work." Nations University. Helsinki. Background paper for World Development Report 1995. Mussa, Abd-EI-Azm. 1995. "The Effects of Liberalization in World Bank, Washington, D.C. Agriculture on Rural Labor Markets in Egypt" (in Arabic). Glen, Jack D., and Mariusz A. Sumlinski. 1995. Trends in Private Center for Research on Agricultural Economics. Cairo. Investment in Developing Countries 1995: Statistics for Nehru, Vikram, and Ashok Dhareshwar. 1993. "A New 1980-1993. Washington, D.C.: International Finance Database on Physical Capital Stock: Sources, Methodology, Corporation. and Results." Revista de Analisis 8:37-59. 29 w I L L A " vA " J K Er R r R o 9 u E R T Nehru, Vikram, Eric Swanson, and Ashutosh Dubey. 1993. "A World Bank. 1994a. "The Democratic and Popular Republic of New Database on Human Capital Stock: Sources, Algeria Country Economic Memorandum: The Transition to Methodology, and Results." Policy Research Working Paper a Market Economy." Middle East and North Africa Region, 1124, World Bank, International Economic Department, Washington, D.C. Washington, D.C. . 1994b. "Hashemite Kingdom of Jordan Poverty Ozar, Semsa. 1994. "Patterns and Trends in Female Labour Force Assessment." Middle East and North Africa Region, Participation: Some Reflections on the Middle East." Population and Human Resources Operations Division, Bogazici University, Istanbul. Washington, D.C. Pissarides, Christopher A. 1993. "Labor Markets in the . 1994c. "Kingdom of Morocco: Poverty, Adjustment, Middle East and North Africa." Discussion Paper 5, and Growth." Middle East and North Africa Region, World Bank, Middle East and North Africa Region, Country Operations Division, Washington, D.C. Washington, D.C. . 1994d. "Kingdom of Morocco and Republic of Richards, Alan. 1989. "Agricultural Employment, Wages, and Tunisia Export Growth: Determinants and Prospects." Government Policy in Egypt during and after the Oil Boom." Middle East and North Africa Region, Country Operations Paper prepared for the International Labour Organization. Division, Washington, D.C. University ofCalifornia, Santa Cruz. . 1994e. "Kuwait Country Economic Memorandum: Rucker, Robert L. 1990. "The Employment Challenge in Kuwait Labor, Employment and Population." Middle East Tunisia." USAID Tunisia. and North Africa Region, Technical Cooperation Unit, Saad-Eddine, Ibrahim. 1994. "Governance and Structural Washington, D.C. Adjustment: The Egyptian Case." Ibn Khaldoun Center for . 1994f. "The West Bank and Gaza. The Next Two Years Development Studies, Cairo. and Beyond." Middle East and North Africa Region, Sahahdine, Mohamed. 1991. 'Le marche du travail urbain au Washington, D.C. Maroc." Institut International d'Etudes Sociales, Discussion . 1995a. "Egypt: Structural Adjustment and Labor Paper 33. Geneva. Market Reform." Middle East and North Africa Region, Said, Mona. 1994. "Public Sector Employment and Labor Washington, D.C. Markets in Arab Countries: Recent Developments and . 1995b. "Jordan: Women and the Labor Force." Middle Policy Implications." International Monetary Fund, East and North Africa Region, Human Resources Division, Washington, D.C. Washington, D.C. Schiff, Maurice, and Alberto Valdes. 1992. The Plundering of . 1995c. "Kingdom of Morocco: Country Economic Agriculture in Developing Countries. Washington, D.C.: Memorandum: Toward Higher Growth and Employment." World Bank. Middle East and North Africa Region, Country Operations Seif, Abdallah. 1993. "Returning Migration and Unemployment Division, Washington, D.C. in Yemen" (in Arabic). Paper presented at the Experts . 1995d. "Republic of Tunisia: Growth, Policies and Meetings on Unemployment in the ESCWA countries, July, Poverty Alleviation." Middle East and North Africa Region, Amman, Jordan. Country Operations Division, Washington, D.C. Shaban, Radwan A. 1993. "Palestinian Labor Mobility." . 1995e. World Development Report 1995: Workers in an International Labor Review 134 (5-6): 655-71. Integrating World. New York: Oxford University Press. Shafik, Nemat. 1992. "Has Labor Migration Promoted Economic Zaytoun, Mohaya A. 1991. "Earnings and the Cost of Living: IntegrationintheMiddleEast?"MiddleEastandNorthAfrica An Analysis of Recent Developments in the Egyptian Working Paper 1. World Bank, Washington, D.C. Economy." In Heba Handoussa and Gillian Potter, eds., Tansel, Aysit. 1992. "Wage Employment, Earnings and Returns Employment and StructuralAdjustment: Fgypt in the 1990s. to Schooling for Men and Women in Turkey." Yale University Cairo: The American University in Cairo Press. Economic Growth Center Discussion Paper 661, New Zouari-Bouattur, Salma. 1994. "Evolution de Marche du Travail Haven, Conn. Tunisien 1983-1993." Universite de Sfax, Tunisia. 30 World Development Report 1995 Workers in an Integrating World Full text edition available in the following languages: English (Hardback) ISBN 0-19-521103-0 Stock No. 61103 $37.95 English (Paperback) ISBN 0-19-521102-2 Stock No. 61102 $19.95 Forthcoming: Arabic ISBN 0-8213-2897-2 Stock No. 12897 $19.95 Chinese ISBN 0-8213-2896-4 Stock No. 12896 $19.95 French ISBN 0-8213-2892-1 Stock No. 12892 $19.95 German ISBN 0-8213-2894-8 Stock No. 12894 $19.95 Japanese ISBN 0-8213-2895-6 Stock No. 12895 $19.95 Portuguese ISBN 0-8213-2899-9 Stock No. 12899 $19.95 Russian ISBN 0-8213-2898-0 Stock No. 12898 $19.95 Spanish ISBN 0-8213-2893-X Stock No. 12893 $19.95 Regional Perspectives on World Development Report 1995 Seven companions to World Development Report 1995, each with additional material on the labor market issues in the particular region. 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