Unemployment rate is a misleading indicator to the labor market, conventional or not?

As we know, the number of people at work is generally related to whether an economy is growing or not. In other words, unemployment can be thought of as a double-edged sword; when economic activity is high, more people are needed to produce the higher amount of goods and services. Thus, it is very important to measure different aspects of the labor market in order to get a better feel for the health of the economy. The unemployment rate is probably the best-known labor market measure and certainly one of the most widely quoted.

The last session of the ERF’s Conference “The Egyptian Labor Market in a Revolutionary Era: results from the 2012 survey (ELMPS)” was a panel discussion on the labor markets in Egypt; we had the chance to interview Ragui Assaad (University of Minnesota), who was one of the panelists.  He argues that the unemployment rate, while useful, does not take into account a number of important features of the labor market, for example, it doesn’t show how the economy is doing during economic crisis and its effect on the labor market.

But is the unemployment rate really the most accurate indicator to the health of the labor market?

While the unemployment rate may be considered as the most informative labor market indicator reflecting the general performance of the labor market and the economy as a whole, it does not say anything about the type of unemployment; whether it is cyclical; not having enough demand for labor to employ all those who are looking for work, or structural; a longer-lasting form of unemployment caused by fundamental shifts in an economy, such as workers’ lack of requisite job skills or inability to move out of their regions. Moreover, it does not take into consideration the informal sector which constitutes a large share of the Egyptian labor market.

Facing discrimination in the Egyptian labor market?

Assaad also shed light during the session on the female participation in the Egyptian labor market. He explains that it was expected that the female labor force participation to have risen; instead it has fallen substantially which is an indication of the declining opportunity structure facing women especially public sector employment, upon which they have strongly relied in the past, and with continued weakness in private sector employment growth.

One of the main problems of the unemployment in Egypt is the poor underfunded education system coupled with a bloated public sector that can’t employ any more people.  Isn’t it time to start investing more in a dynamic private sector? What is it that the unemployment rate doesn’t account for? What other indicators can we look at while studying the Egyptian labor market? Why are the Egyptian youth finding it difficult to climb the job ladder? Why has the female labor force declined in the recent years? What can the government do to decrease the unemployment rate? All these remain unanswered questions!

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