Creating Jobs for the Youth Imed Drine and James Thurlow World Institute for Development Economics Research, United Nations

University (UNU-WIDER)

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There are many similarities across MENA countries

• Youth unemployment rates are extremely high

• Unlike most regions, unemployment rates are highest amongst more educated youth

Youth and adult unemployment Youth unemployment by education

0%

5%

10%

15%

20%

25%

30%

35%

Alg

eria

Egyp

t

Iran

Jord

an

Mo

rocc

o

Syri

a

Tun

isia

Turk

ey

Un

em

plo

yme

nt

rate

Youth

Adult

0%

10%

20%

30%

40%

50%

60%

Jord

an

Egyp

t

Tun

isia

Un

em

plo

yme

nt

rate

Basic education

Tertiary

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But there are also many differences

• Youth unemployment rates are much higher for women in some countries, but not in others

• Pressures to find a job also vary across countries

Youth unemployment by gender Youth willingness to work in next 7 days

0%

10%

20%

30%

40%

50%

60%

Egyp

t

Jord

an

Mo

roo

co

Tun

isia

Un

emp

loym

ent

rate

Male

Female

0%

20%

40%

60%

80%

100%

Jord

an

Egyp

t

Tun

isia

Shar

e o

f u

ne

mp

loye

d Male

Female

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MENA has region-wide problems, but needs country-specific solutions Case study: Youth unemployment in Tunisia

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High and persistent youth unemployment

• Most unemployed youth are actually less educated

• But unemployment rates rise with education levels

• So providing more schooling may not solve the problem

• Q1: Why don’t wages fall to reduce unemployment?

40%

53%

7% Primary

Secondary

Tertiary

Share of unemployed youth by education

Unemployment rates

0%

10%

20%

30%

40%

50%

60%

Ad

ult

You

th

Pri

mar

ly

Seca

nd

ary

Tert

iary

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Wide regional variation in unemployment rates

• Tunisia has a coastal “core” and an inland “periphery”

• Youth unemployment is much higher in the periphery

• Male-female differentials

narrow towards the core

• Average monthly wages

are much higher in the core for similarly-educated workers

• Q2: Why don’t young people

(women) migrate to the core?

Unemployment rates (%)

23%

35% 28%

44%

0%

10%

20%

30%

40%

50%

Core Periphery

Male Female

6

458 372

0

200

400

600

Core Periphery

Average monthly wage in private sector (3.5 years after high school; dinar)

• There are vacant jobs available

• But youth’s “reservation wages” may be high relative to their skills

• Demand-side explanation:

– Firms value experience and

skills more than education

Evidence: Fewer adults have

completed primary school and

yet they have less unemployment

0

50

100

150

200

250

2004 05 06 07 08 09 10

Vacancies (1000s)

Hiring (1000s)

Q1: Why don’t wages fall?

Primary

Secondary

Tertiary

Education levels of the employed

Adults

Youth

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Vacant jobs in major urban centers

• Supply-side explanation:

– We suspect that educated youth won’t accept lower wages

– They overestimate the value of schooling

because their “reference wage” has been

biased by the public sector

Evidence: Wages are higher in the

public sector at similar education levels

– Families provide a strong fallback position

Evidence: 85% of unemployed youth rely on their family for their incomes and housing

Q1: Why don’t wages fall?

8

625

461 518

396

0

100

200

300

400

500

600

700

Public Sector Private Sector

Total "Techniciens superieurs"

Monthly Net Wages (dinar)

Q2: Why don’t young people move to the core?

• The usual explanations don’t apply to Tunisia:

– No language barriers or ethnic discrimination

– No lack of jobs in the core coastal region

– Education levels of youth are not lower in the periphery

0%

20%

40%

60%

80%

100%

Male Female Male Female

Shar

e o

f u

ne

mp

loye

d

Tertiary

Secondary

Primary

Negligible education differences between regions

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Q2: Why don’t young people move to the core?

• Regional unemployment gaps are largest for women

– Means that women’s migration is particularly constrained

– May be due to cultural preferences

• But unemployment gaps also exist for men

– A lack of job information or social networks

Evidence: 80% of the youth who find a job rely on personnel effort (“connections”) and not official channels

– High migration costs and family fallback reduces mobility

Evidence: Although poorer, periphery households still support 87% of unemployed youth (higher than in core)

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Tunisia needs youth-focused labor market policies

• Reservation wage problem

– Current policy: US$100 a month to university graduates

– Better policy: wage subsidy for all young formal employees

Lowers effective wage demands, reduces the “cost of inexperience”, and incentivizes on-the-job training

• Regional mobility problem

– Current strategy: Public sector investment and jobs in the periphery (this is costly and unsustainable)

– Better strategy: Subsidize youth mobility (e.g., reduce migration costs by providing better information systems, housing and transport for young job seekers)

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In the long-run, MENA needs a new growth strategy

• Youth unemployment is a major problem for MENA

• But adult unemployment is also too high

• So while youth-focused labor market policies are crucial, they will not be enough to address MENA’s long-term challenges

• Arab Spring offers us a good opportunity to think about new development models that could promote global competitiveness and labor-intensive growth

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