Unemployment, Job Quality and Labour Market Stratification in the MED Region: The cases of Egypt and Morocco

FEM32-20 | November 2009

Title

« Unemployment, Job Quality and Labour Market Stratification in the MED Region: The cases of Egypt and Morocco »

By

Mona Said, The American University in Cairo, Egypt

Contributeurs

John Salevurakis, The American University in Cairo, Egypt; Christian Schluter, University of Southampton, UK; Jackline Wahba, University of Southampton, UK; Sherine AlAzzawi, The American University in Cairo, Egypt

Note :

This document has been produced with the financial assistance of the European Union within the context of the FEMISE program. The contents of this document are the sole responsibility of the authors and can under no circumstances be regarded as reflecting the position of the European Union.

Summary :

Both Egypt and Morocco have embarked on trade liberalization and economic reform programs since the mid 1970s. With the open door policy in the 1970s, Egypt began pursuing liberalization policies that were later followed by various trade agreements and in 1991 embarked on a structural reform program that included eliminating large fiscal and external imbalances, trade, exchange rate, and financial sector reforms aiming at liberalising the economy, and an ambitious privatisation program. Morocco embarked on similar programs in the 1980s by pursuing a structural adjustment program intending to re-orient the economy to the production of tradable goods. From 1989, a large privatisation programme of public firms went under way and since 1984, restructuring of the Moroccan economy towards export orientation started. Foreign trade has been liberalized as early as 1986, culminating with several association agreements.

Trade liberalisation initiatives in both countries took various forms: unilateral, bilateral and multilateral agreements and attempted to introduce greater external competition into protected domestic markets, remove distortions and enhance economic efficiency at both macro and individual firm’s level. We focus on the labor market implications of economic restructuring, mainly trade liberalization, in Egypt and Morocco. We study several labor market outcomes namely: unemployment, wages, and job quality.  In particular we examine the stratification of labor market by gender, education and sector over the period of trade reforms in the two countries.

First we examined the impacts of trade liberalisation on the structure of the labor market in both countries in Chapter II. An important aspect of the labour market during transition is the sectoral change in employment. We found evidence that Egypt and Morocco have undertaken various trade and economic reforms that have had significant impact on their labour markets. In both countries the shares of the public sector in total employment have fallen but the impact was more substantial in Egypt given the predominance of the public sector. During the 1990s, Morocco has experienced a decline in the share of agriculture and an increase in the share of manufacturing. In Egypt, the share of agriculture also declined, but so did the share of manufacturing.  However, the share of services in Egypt has increased.  Moreover, there was no tendency toward the feminization of the male-dominated sectors in Egypt.  In fact, the disproportionately female sectors (other than the civil service) de-feminized. Conversely, a significant growth of textile and garment manufacturing was experienced in Morocco which accounts for a significant portion of its feminization. These contradictory trends in Egypt and Morocco were driven by differences in the two countries’ structure of foreign exchange earnings. While Morocco relied increasingly upon the export of labour-intensive manufactured goods, Egypt became increasingly dependent upon service exports such as tourism. On the other hand, unemployment rates have increased during transition in both countries. However, in Morocco unemployment was the result of restructuring whilst in Egypt a larger majority of the unemployed were new entrants. These impacts have been felt unevenly given the stratification of the labor market in both countries with women, the youth and the highly educated were more affected than the rest of the labour force.

Secondly, in Chapter III, we examined the factors that determine the probability of leaving unemployment and whether this probability has changed in Egypt during the period of reforms. We investigated whether particular groups have experienced longer unemployment durations and lower hazard rates of leaving unemployment during the period of transition. We found that the probability of exiting unemployment to public sector has fallen, whilst that of exiting unemployment to informal private sector has increased during the period of transition. Although, education was the main determinant of exits to public sector with both males and females initially in the 70s having similar hazard rates, by the 90s the gender gap started to grow with higher hazard rates for educated men than for educated women. However, for exits from unemployment to informal employment, gender is the main determinant: men are more likely to exit to informal private employment than women regardless of their educational level. Although the hazard rate of leaving unemployment to formal private employment has increased in the 80s relative to the 70s, it has been rather stagnant in the 90s for men. As for women, the probability of getting a private formal sector is almost close to zero and has hardly changed for the past three decades. In addition, the findings indicate that education is an important determinant of exiting unemployment leading to a positive relationship with exiting unemployment to public sector, but a negative one with exiting unemployment to private informal sector.

In Chapter IV we examine further the interaction between education and institutional sector as determinants of stratification in labor rewards during the transition.   The main conclusion reached is that the impact of returns to schooling upon wages in Morocco and Egypt during the era of structural adjustment has diminished.  This is particularly due to low quality technical education which serves to compress the wage structure. We illustrate this by highlighting two diverging trends. In Morocco wages became compressed and the differential between the private and the public sector generally narrowed, especially for workers with technical or university degrees. Simultaneously, real wages in the public sector stagnated.  Generally, the Egyptian experience saw a polarization of wages in the two sectors, with almost symmetrical trends between men and women. The availability of more recent data for Egypt in 2006 allows for a more detailed analysis of returns of education across the entire earning distribution as the country enters into an era of rapid trade liberalization. Results show that in Egypt, returns to technical schooling decrease over the wage distribution. These findings imply that technical education may have a negative impact upon within-group wage inequality as the spread of returns drops for higher educational levels. One explanation is that there is an interaction between schooling and ability, in which the least able can benefit more from their schooling and the pay gap between the more and less able shrinks for higher educational levels. On the other hand, returns to university education in comparison to technical degrees increase over the earning distribution, and particularly so for males in the non-government sector.  For this group, university education has a decentralizing impact upon the distribution of earnings. Thus even in an environment of decreasing returns at the university level, the last decade witnessed great stratification between income groups in Egypt. High income groups appear to be able to utilize social capital to derive full benefit of university education, particularly in the private sector. On the other hand, technical secondary graduates, of lower income and academic achievement, are unable to derive any form of economic mobility from their education.  The above trends are consistent with a story of the decline of the public enterprise and manufacturing sectors, in an era of trade liberalization.

In Chapter V, we investigate this story further by focusing the analysis more specifically on the Moroccan and the Egyptian manufacturing sectors over their respective period of rapid trade liberalization. By doing so we are able to utilize the same labor data sets used in the previous chapters, but merge it (at the two-digit industry level) with trade variables that capture export orientation, import penetration as well as direct policy change relating to reduction of average tariffs, and use the merged data set to estimate an inter-industry wage premia model. The results indicate that for both Egypt and Morocco, after accounting for worker observable characteristics, industries that paid high tariff protection paid lower wages to workers. Although export promotion, as measured by the share of exports to total output in each industry, is by far the largest component of trade reform in both countries over the period understudy, it only proved to 7be a statistically significant determinant of wages in the Egyptian case. Export orientation and the change in export orientation are both significant and positively related to wages in 2006. In other words, for all manufacturing, trade liberalization in form of lower tariffs and trade openness in terms of export orientation (but not import penetration which is insignificant) appear to exert a positive influence on wages for the average worker in the manufacturing sector in Egypt.  There interesting sector and gender differentials as well. In Morocco, only private enterprise workers gain, whereas public enterprise witnesses substantial reduction in wages due to liberalization. In contrast, in Egypt both types of workers gained, and gains were even greater for public enterprise workers. The gender dimension seems to be consistent in both countries, though, with females in fact gaining much more from trade liberalization compared to their male counterparts. This lends some support to the theories of Gary Becker who argued that increased competition through trade would make it more difficult to discriminate against female workers

Finally in Chapter VI, we utilize data on quality of jobs in the Egypt to see the extent to which higher paid jobs resulting from trade reform also could fit the description of being     ‘decent’ or ‘high quality’ jobs. Our results highlight that institutional factors of job quality (social security, medical insurance, a contract, paid casual leave, paid sick leave, and whether the worker is a member of a trade union) have the strongest correlation with the trade variables used in the analysis. Tariff reduction per se, does not seem to have had a significant impact on either wages or job quality over this period. On the other hand, increased export orientation exerts a strong positive impact on wages, but a significant negative impact on all job quality indices in many specifications. Finally, industries with the highest import penetration levels have the lowest job quality, but those that had the largest increase in import penetration actually also saw large improvements in job quality. The above results underscore the clear distinction between wage and job quality outcomes in the Egyptian labor market, and the importance of separating the two when examining the effect of trade policy on labour in MED region in general.

Given our research, it can be seen that the stratification of the Egyptian and Moroccan labor markets, as evidenced by the movement of wages, by access to employment, and by the returns to education within various economic sectors and across demographic characteristics, is generally improving over the period in question. There is also some indication that the rewards to women in the workforce are increasing and that the economic divide between men and women is similarly narrowing in some but not all respects.  However, these advancement are taking place in an environment of gradually increasing levels of economic and social hardship such that certain groups are becoming simply “less worse off” than their counterparts over time.  This is particularly the case when one examines the data relating to unemployment in both countries, job quality as measured by formality and the stability of employment in Egypt.  Significantly, our research has shown that demographic factors such as gender, education and geography influence wage outcomes to a degree often exceeding more tangible trade reform variables.  Given this, there are very clearly cultural or historical forces particularly influencing the position of women, access to education, and the geographic distribution of unemployment and poverty in the labor markets of the developing world, including in the MED region.  Remedy to this state of affairs is unlikely to be found in a simple embrace of international markets and domestic liberalization but is more likely found in domestic political economy reforms aimed at producing a credible judicial structure and educational system to enforce equality and the elimination of unjust labor market segmentation.