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.

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Is the Egyptian labor market post-revolution in a weaker position?

Egypt’s young people have enormous potential to drive the economic and social revitalization of their country, yet this critical sector of the population represents the vast majority of Egypt’s unemployed and underemployed.  Overall unemployment reached 13% in the fourth quarter of 2012 (CAPMAS 2012); in which youth market labor force (ages 15-24) grew 3.1% per year 1998-2006, whereas it  contracted to 4.2% in 2006-2012.

The second session in the ERF Conference on “The Egyptian Labor Market in a Revolutionary Era: Results from the 2012 Survey” focused on the main labor markets trends in Egypt. Two papers were presented in which they complement each other; Dr. Ragui Assaad presented the first paper “The evolution of labor supply and unemployment in the Egyptian Economy: 1998 – 2012“.

This paper analyzes the evolution of labor supply and unemployment in Egypt in the period from 1999 to 2012, focusing on the impact of the demographic phenomenon known as the youth bulge and the impact of the world financial crisis and the marked economic slowdown following the January 25th 2011 revolution.  It was found that the female share of the unemployed has increased from 54% in 1998 to 63% in 2012 despite the fact that they are only 23% of the labor force

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The political economy of transformation in the Arab region: Between cronyism and dualism

This post was written by Kaouthar Gazdar (PhD in Economics, University of Sousse) & Hajer Kratou (PhD student in Economics, University of Carthage & University of Auvergne)

The second session of the ERF workshop on “The political economy of transformation in the ERF region” introduced two important papers by Ishaq Diwan (Harvard Kennedy School) and Ragui Assaad (University of Minnesota, USA).

Entitled “Crony capitalism in Egypt”, Diwan’s study analyzes the nature and extent of Egyptian “crony” capitalism by comparing the corporate performance and the stock market valuation of politically connected and unconnected firms, before and after the 2011 popular uprising that led to the end of President Mubarak 30 years rule.

Ishac Diwan (Harvard Kennedy School, USA)

Ishac Diwan (Harvard Kennedy School, USA)

By looking closely at capitalism in Egypt, the paper is an attempt to understand why Arab capitalism has not been very dynamic; in other words the reasons behind the low performance and innovation of firms.

Diwan addresses the question of corruption in Egypt while analyzing the performance of politically connected firms which benefited from facilities regulations, government contracts, licenses access, protection from foreign and domestic competitions, as well as from subsidies energy under the Mubarak regime. “Egypt could have performed much better in terms of economic growth and job creation if the privilegies and exclusions were not as much”, he stated.

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EdPlaCo-MK – A tool for greater gender wage equality in Macedonia

It goes without saying that research on economic and social development nurtures the debate within the development community. However, one should question the added value of evidence-based research in the policymaking process. An outstanding research proposal was presented and discussed yesterday at the GDN 14th Annual Conference on Inequality, Social Protection and Inclusive Growth.

Macedonian labor market shows a relatively large gender employment and participation gaps, coupled with considerable gender wage inequality. Marjan Petreski and Nikica Mojsoska Blazevski, (University American College Skopje, Macedonia) presented today his research proposal “EdPlaCo-MK – A tool for greater gender wage equality in Macedonia”. The research proposal aims at contributing to reduce the gender wage gap in the Macedonian labor market. An assessment of the gender wage gap will be conducted, taking into consideration the different characteristics of the working-age males and females in Macedonia, as well as the effect of the high inactivity and unemployment of the low-skilled women on the gender wage gap.

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Questioning the effectiveness of the social protection mandatory regulations for maids in Ecuador

Maids in Ecuador represent one of the sectors that suffer from low income and poor social security. In 2008, a new regulation was implemented, mandating maids’ enrollment in social security. Visits control of households kicked off in 2010, ensuring thus compliance by household employers. A minimum wage was also imposed to ensure a better social protection of maids.

Although such policies appear advantageous, at first glance, for maids in Ecuador; they remain questionable.

Sara Wong (Polytechnic University – ESPOL) argues that this social protection policy resulted in a decrease not only of the number of maids working without social insurance, but also in the number of maids employed.

At the GDN 14th Annual Conference, Wong proposed a different angle to look into the effectiveness the Ecuadorian mandatory regulations for maids, to see whether the compulsory requirements of the mandatory minimum wage and social security coverage have had a negative impact on maids’ employment. The research proposal aims to provide complementary policies ensuring social protection benefits for maids in Ecuador.

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Research Network on Inequality and Poverty

Combating poverty and inequality is on the top of priorities for many development organizations. This is why the Latin American and Caribbean Economic Association (LACEA), the Inter-American Development Bank and the World Bank came together to launch their joint initiative “Network on Inequality and Poverty”. The objective of the initiative is to advance the state of knowledge and expertise regarding the causes and consequences of poverty, inequality, and social exclusion, as well as the whole range of policies, institutions and social structures that influence their dynamics, and finally the impact of public action.

As every year, an NIP meeting took place prior to the LACEA Annual Conference, on October 31st. Discussions were held on women’s participation in the labor market, the impact of fields of specialization on the man/woman’s position in the labor market and the possible correlation between a woman’s participation in the labor market and her earning.

According to Jaime Ruiz Tagle, Universidad de Chile, men and women interact based on the values they grew up on and the roles they see for each other. A conservative woman will commit to do her utmost in the household, participate in the labor market for shorter hours, and therefore will participate with less income in the household.

In this video, Virginia Robano, George Washington University, questions the possible correlation between working as a part-time and earnings. Educated females have the choice of working part-time or full time. According to her, two females with similar high education characteristics may opt for different options, which affects their respective earnings.

Hugo Rolando Ñopo, Inter-American Development Bank, explains that the decision men and women make regarding their respective fields of specialization affects their income once they join the labor market. The differences we see in the labor market are usually marked according to the decisions men and women make when choosing their field of specialization. In his view, one area that could be worked on today is the gender stereotyping in the labor market when it comes to skills and expertise.