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memri
February 10, 2006 No.
265

Unemployment in the Middle East – Causes and Consequences

Introduction

The International Labour Office (ILO) in Geneva, a specialized agency of the United Nations, recently issued its annual World Employment Report 2004-2005 (Employment, Productivity and Poverty Reduction).

The report finds that, despite a robust economic growth in 2005, the number of unemployed people worldwide climbed to new heights in 2005. According to the report, the total number of jobless stood at 191.8 million people at the end of 2005, an increase of 2.2 million since 2004 and 34.4 million since 1995.

Young people aged 15 to 24 comprise almost half of the world's unemployed and are more than three times as likely as "adults" to be out of work. The ILO called this figure "troublesome," given that youth make up only 25 per cent of the working age population. [1]

In terms of focus, the report brings together "three linked themes": employment, productivity and poverty reduction.

Unemployment in MENA - The Highest Rate in the World

The Middle East and North Africa [MENA] [2] stands out as the region with the highest rate of unemployment in the world. With an unemployment rate of 13.2 percent, the Middle East is ahead of sub-Saharan Africa, the poorest region in the world, which has the second highest rate of unemployment, 9.7 percent. The Arab League Economic Unity Council estimates unemployment in the Middle East (members of the Arab League only) at 20 percent. The number of unemployed people in MENA is particularly puzzling because the oil producing countries employ 7-8 million expatriate workers transmitting perhaps as much as $22 billion a year.

Labour Market Indicators

Region

Change in Unemployment Rate (percentage points)

Unemployment Rate

(percent)

GDP Growth Rate

(percent)

Employment-to-Population Ratio

(percent)

Annual Labour Force Growth Rate

(percent)

Annual GDP Growth Rate

(percent)

2000-2005*

1995

2005*

2004

2005*

2006*

1995

2005*

1995-2005*

1995-2005*

World

0.0

6.0

6.3

5.1

4.3

4.3

62.8

61.4

1.6

3.8

East Asia

-0.2

3.7

3.8

8.7

8.0

7.5

75.2

71.7

1.0

7.6

South Asia

0.2

4.0

4.7

7.1

7.1

6.4

58.9

57.2

2.2

5.8

Middle East and North Africa

-0.7

14.3

13.2

5.4

5.0

5.3

44.2

46.4

3.5

4.4

*2005 are preliminary estimates, p=projections.

The table above, adapted from ILO Table 1, page 23, provides data on unemployment, employment to population ratio, and Gross Domestic Product (GDP) as well as a perspective in MENA within the broader global context.

Employment to Population Ratios

Employment to population ratio is a measure of the percentage of working-age population who are employed. Although MENA has registered a notable increase in this measurement, it has remained the lowest in the world, with 45.4 in 1993, and increasing only slightly to 46.4 a decade later. The latter figure contrasts with a ratio of 62.5 worldwide and a ratio of 57.0 in densely populated South Asia. [3]

The little increase in MENA reflects changes in women's employment. The ratio for women, which increased from 20.4 in 1993 to 23.5 in 2003, indicates fewer social and cultural restrictions on women's employment, although the ratio of 23.5 remains the lowest in the world. [4] The figure for males, by contrast, has remained relatively constant (69.6 in 1993 and 68.6 in 2003).

Working Poverty in MENA

The ILO developed the concept of "working poverty" to cover those who work but do not earn enough to lift themselves and their families above the $1- or $2-a-day poverty line. [5] In terms of $1-a-day and $2-a-day poverty data, the Middle East and North Africa (MENA) fares much better than most other regions in the world. The report does indicate, however, that the incidence of working poverty is much higher in the non-oil producing countries than in the oil-producing countries. [6] Nevertheless, to halve $1 a day working poverty by 2015, the GDP must grow at 4-5 percent a year. To halve the $2 a day working poverty by 2015, the GDP must grow by 8-10 percent a year. [7] This rate of growth will not be easy to achieve without profound structural reforms in both the economy and polity of most countries involved, in particular the non-oil producing countries.

Low Productivity of Workers

The table printed above provides other startling data. While GDP in MENA registered an annual increase of 5.5 percent in 1993-2003, which is the second highest in the world, productivity, which measures how efficiently resources are used, increased by about 0.1 percent annually during the same period (for total of 0.9 percent over the last 10 years) which is better only than sub-Saharan Africa, which registered negative productivity. [8] It is only one-tenth of world average productivity increase of a little more than 1 per cent per annum.

MENA is the only region where productivity has not moved in tandem with GDP. The explanation for this unusual pattern is that the GDP growth was fueled primarily by the increases in oil revenues accompanied, according to the ILO report, by "stagnant productivity." It is a perfect example, the ILO says, of why in the long term, "decent employment creation and productivity growth have to go hand in hand with GDP growth. Only then will economic growth lead to poverty reduction." [9] By contrast, East Asia has managed to benefit from "the virtuous cycle" of productivity growth, employment generation, and GDP growth. [10]

The report does make a distinction in the level of productivity between oil- and non-oil producing countries. Saudi Arabia and the United Arab Emirates have a much higher productivity than non-oil producing countries such as Egypt, Morocco and Yemen. [11] What the report fails to mention is that the above-average higher productivity in the two oil-producing countries can at least be attributed to emigrant labor from South and East Asia who, like most migrant workers, are often highly motivated, and hence productive, as they seek to maximize their income during the life of their often fixed-term contract with their employers.

Notable Features about Middle East and North Africa

The most significant feature is the structure of the population. MENA is characterized by its growing young population, with 37 percent below the age of 15 years in 2000, and 58 percent below the age of 25 years. [12] The working-age population is increasing by three percent a year. The biggest challenge facing policy makers in the region is the high rate of youth unemployment, estimated at 25.6 percent in 2003, which is the highest in the world. Although fertility rate (births per woman) in the region may be declining, it is still higher than in other developing countries, and there is the concern that population growth could outpace economic growth. [13]

The unemployment rate of the MENA region has been hovering around the 13 per cent mark for the last decade. According to the ILO report this steady rate of unemployment reflects an average of 500,000 of additional unemployed per year. The increase in employment is not enough to absorb all those who enter the labor market annually. In May 2005, Taleb Rifa'i, regional director of ILO, asserted that the high rate of unemployment in the Arab world, which at one estimate reached 20 percent, will ultimately result in a state of underemployment, as most people will be forced to take up jobs for low compensation packages that do not suit their qualifications, and will further result in increased poverty. [14]

High Rate of Unemployment in the Arab Countries

Ahmad Gowaili, secretary-general of the Arab League Economic Unity Council, referred to an unemployment rate of 20 percent in the Arab countries. According to Gowaili, this percentage is translated into 22 million unemployed, of whom 60 percent are youth. This figure, he added, is likely to increase by three percent annually. He attributes the main cause of unemployment to the failure in most Arab countries to link educational orientation to the labor market requirements. [15]

The Challenge for Policy Makers

Apart from addressing the high unemployment rate among their youth, the other challenge for policy makers in MENA is to insure that the share of people working but still not being able to lift themselves and their families above $2 a day should be brought down. To reduce the unemployment by half in 2015, MENA needs GDP growth rates much higher than the historical growth rates of 3.5 percent. [16]

Experience elsewhere suggests that to achieve such a steady and high rate of growth with a corresponding rate of employment, it would be necessary to shift workers from a low productive employment, and from what the director-general of ILO called "the urban alleyways" of many cities in the region, into a more knowledge-based production of high value-added commodities. The shift to a more knowledge-based employment is also dictated by the limited prospects of increasing the scope of agriculture in most Arab countries. The Economic Unity Council of the Arab League points out that the Arab countries occupy 10 percent of the world territory, five percent of the world population, but only 0.5 percent of its water resources. [17] In fact, the Arab countries already import food commodities worth $15 billion, and rising. [18]

To reach a higher level of knowledge base, the Arab countries in the region would need to invest more in Research and Development (R&D). The Economic Unity Council of the Arab League estimates that the Arab countries spent 0.24 percent of their GNP on R&D. [19] Figures available elsewhere for individual countries show the big gap between the highest rated country in the world, Norway, with 1.6percent of GNP in R&D, and Egypt, among the lowest, with 0.2 percent of GNP spent on R&D. In between are Israel with 0.9 percent; Qatar, 0.7 percent; and Jordan and Tunisia, 0.3 percent. [20]

The Arab countries in MENA would also need to attract foreign direct investment (FDI). These countries remain the least attractive to FDI, acquiring only between one to three percent of total FDI, because of inhospitable environment for foreign-dominated businesses, various restrictions on foreign exchange, inefficient labor market, absence of an adequate commercial code, and stifling bureaucracy. Above all, there is a psychological mindset that equates globalization with imperialism: Instead of seeking to bring its benefits to their countries, many Arab intellectuals treat it with suspicion and mistrust. Hence has emerged the contrast whereby in 2005 China attracted $62 billion in FDI, against $6 billion in Arab countries - a lot of which went into the oil and gas sector.

The Consequences of High Rates of Unemployment

With a persistently high level of unemployment, many educated young Arabs are seeking opportunities outside their countries. In doing so, they seek to escape the obligation to accept jobs outside their specialization, inadequate scientific and technological infrastructure, low income opportunities for the highly skilled, and political instability or political oppression in the native countries; and they seek to gain opportunities for entrepreneurship with minimal bureaucratic constraints. [21]

Among the lower skilled, migrations may be tied to the serious phenomena of human trafficking and grave physical risks. It is common nowadays to read about boats loaded with illegal workers sinking on the way from North Africa to southern Europe. Moreover, as a result of a high rate of unemployment, "different forms of passive and active violence are on the upswing reducing the spaces for dialogue, conflict resolution and consensus building." [22]

Conclusion

Like any other commodity, oil is subject to price fluctuations, and these are often pretty sharp. A declining oil price with a high unemployment rate is, in the words of Augusto Lopez Claros, chief economist of the World Economic Forum, "a lethal combination." [23]

In the words of ILO Director General Juan Somavia, "the world is facing a global jobs crisis of mammoth proportions, and a deficit in decent work that isn't going to go away by itself." Clearly, the statement is particularly pertinent to the situation in MENA, and especially to the Arab countries in that region.

Unemployment is a grave source of hopelessness, and hopelessness drives people to extremes. This was clearly demonstrated in the twentieth century in the rise of Nazism and Fascism. Unemployment has the great potential of being a source of political instability and even violence, and it is to no one's advantage to treat this economic dislocation with equanimity.

Klaus Schwab, the president of the World Economic Forum, warned that unemployment in the Middle East was "a time bomb" that would require the creation of 100 million new jobs in the next 10 years to defuse it. [24]

* Dr. Nimrod Raphaeli is Senior Analyst of MEMRI's Middle East Economic Studies Program.


[1] A statement by ILO director-general at the World Economic Forum in Davos, Switzerland, January 25, 2006.

[2] The Middle Eastern and North African countries covered in the report are: Bahrain, Djibouti, Islamic Republic of Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Somalia, Syrian Arab Republic, United Arab Emirates, West Bank and Gaza Strip, and Yemen; the North African countries include Algeria, Egypt, Libyan Arab Jamahiriya, Morocco, Sudan, Tunisia.

[3] ILO Report, Table 1.3, p.27.

[4] Ibid., p.56.

[5] ILO Report, p.26.

[6] Ibid., p. 56.

[7] Ibid., p.32, table 1.4.

[8] Ibid., p.56.

[9] Ibid., p.30.

[10] Ibid., p.31.

[11] Ibid. pp. 57-58.

[12] According to the study by UNDP, the percentage of population under 15 in 1999 stood as follows in selected countries: UAE (26.7); Libya (34.7); Egypt (36.0); Iran (38.7); Jordan (40.2); Syria (41.7); and Saudi Arabia (43.4). Op. cit., pp.52-53.

[13] Ibid., p.56.

[14] People's Daily Online, May 8, 2005. The unemployment rate of 20 percent in the Arab countries was stated by Ahmed Gowaili, secretary-general of the Arab League Economic Unity Council. Al-Ahram (Egypt), January 26, 2006

[15] World Tribune.com (February 10, 2003) and Al-Ahram (Egypt), January 26, 2006.

[16] ILO Report, p.58.

[17] Al-Ahram (Egypt), January 26, 2006.

[18] Loc. cit.

[19] Loc. cit.

[20] UNDP, pp.52-53.

[21] ILO Report, p.61.

[22] “Dealing with the Global Jobs Crisis,” opinion piece by Juan Somavia, director-general of International Labour Office, January 25, 2006.

[23] Tehran Times.com (Iran), April 5, 2005.

[24] Al-Hayat (London), February 10, 2006.