Underemployment, weak private sector growth: Warning signs for Egypt economy

Deya Abaza, Sunday 8 Dec 2013

Shrinking female workforce participation and job growth also revealed in 14-year study, prominent Egyptian labour economist tells Cairo Economic Research Forum

Unemployed Egyptian men crowd coffee shops in a country with a fledgling economy (Photo: Reuters)

Underemployment, or the phenomenon of working less than 40 hours a week due to a lack of employment opportunities, has more than tripled in Egypt in the six years leading to 2012, revealed a study of Egypt's labour market presented at an Economic Research Forum conference Saturday.

The paper, co-authored by labour economist Ragui Assaad and Caroline Krafft of the University of Minnesota, in collaboration with the state-owned statistical body CAPMAS (the Central Agency for Public Mobilisation and Statistics), makes several important observations on Egypt's labour market from 1998 to 2012 through a series of surveys over the period.

One important development is the visible underemployment rate, which climbed from 2.8 percent in 2006 to 9.6 percent in 2012.

"This is a sign of serious distress in the labour market," said Assaad, "because underemployment in Egypt is affected by cyclical changes, unlike unemployment, which is mainly structural."

According to the researchers, one of the main causes for unemployment in Egypt, which "tends to primarily affect first time job seekers," according to Assaad, is a demographic "youth bulge" caused by a dramatic drop in infant mortality rates in the late 1970s and 1980s.

This caused pressure upon this generation's entry into the labour market around 1998, causing unemployment to spike to 11.7 percent, according to Assaad.

"The good news is that this bulge has now largely been integrated into the labour market," he said, but warned that the "echo'' of that earlier youth bulge, in the form of a new generation, would be making its way into the labour force within the next decade, causing renewed pressure on the market.

Annual net job growth declined to 1.1 percent in 2011, down from 4.6 percent in 1998, however.

The data also showed that small firms are failing to make the transition into large firms. "Employment continues to be dominated by firms with 1-4 employees, and this has only decreased slightly, from 47 percent of employment in 1998 to 45 percent of employment in 2012," the study reports.

Mid-sized firms of 10 to 99 accounted for 18 percent of employment by comparison in 2012, a phenomenon common to developing countries known as the "missing middle," where employment is concentrated in micro enterprises and large firms, and which indicates, according to Assaad and Krafft, the existence of barriers to the growth and formalisation of small firms characteristic of a dynamic economy.

The percentage of first-time male job seekers ending up in informal private wage employment increased dramatically from 1980 to 2011, surpassing 60 percent, while the percentage in public work has declined steeply.

"Almost half of first-time jobs in recent years were informal private wage positions," whereas in the early 1980s, "individuals were nearly equally likely to have a public first job as an informal private wage job (30-35 percent)," the study shows.

The 2011 revolution exacerbated disparities between the public and private sectors, with 56 percent of those currently employed in government who experienced a revolution-related change in work conditions three months prior to the 2012 survey reporting an improvement, and 43 percent in the public enterprise sector, while workers in other sectors predominantly felt a change for the worse.

Egypt's women constituted 63 percent of the unemployed in 2012, up from 54 percent in 1998, although they constitute 23 percent of the labour force.

Women's participation in the workforce itself has declined. "Despite an increase in the adult female population from 22.7 million to 24.5 million, the female labour force has in fact contracted, "from 6.2 million in 2006 to 5.6 million in 2012 of the market labour force" the study reveals.

"This is a notable reversal of past trends, namely the expansion of the female labour force over 1988-2006," Assaad and Krafft confirm.

An inhospitable labour market, especially for educated women, and a lower opportunity cost for not working combine to create this trend, according to Assaad and Krafft.

"As opportunities for government employment have diminished, especially for new entrants and young women, women have withdrawn from the labour force," Assaad and Krafft assert.

Among unemployed women, almost all are educated at the secondary level or above. Female university graduates represent a growing proportion of unemployed women, especially in urban areas where they represent 46 percent in 2012, compared to 18 percent in 1998.

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