CAIRO: While the latest figures show that unemployment in Egypt fell to 9.1 percent in the first quarter of 2010, concerns persist over the long-term effects of the financial crisis on the labor market and the government’s role in job creation.
Unemployment had stabilized at 9.4 percent in the last three quarters of 2009, according to the CAPMAS, rising from a low of 8.4 percent in the second quarter of 2008 as a result of the global and domestic economic slowdown.
According to renowned economist Samir Radwan, in an International Labor Organization report titled “Economic and Social Impact of the Financial and Economic Crisis on Egypt,” the labor market is strongly linked to the effects of the crisis.
“The prolonged labor market recession and the consequent social deterioration are the most serious aspects of the global financial and economic crisis as it reflects on Egypt,” writes Radwan.
“The labor market outcome of the crisis has been uneven as it affects certain groups disproportionately — notably women, youth and migrant workers, and a higher incidence for urban workers,” Radwan adds.
CAPMAS numbers confirm Radwan’s analysis as around 76 percent of the unemployed were in the 15-25 age bracket, with 92 percent of the unemployed being holders of medium and high level graduate degrees.
The Economist Intelligence Unit (EIU) Country Report for May 2010 states that the slowdown will cause unemployment to remain high but decrease slightly in the current year.
“Some effects of the overall slowdown will be felt, especially through the labor market, and this means that private consumption will pick up only gradually. We estimate that the rate of growth leveled out in the second half of 2009 and will slightly pick up again in the first half of 2010,” said the report.
“Overall, we forecast that real GDP growth will reach 4.9 percent in 2009/10. Although respectable given the global context, this will not be sufficient to lift employment growth significantly,” the report added.
Egypt’s GDP grew at an annualized rate of 5.8 percent in the three months to March 2010
Reham ElDesoki, senior economist at Beltone Financial, said in a recent statement, “We had expected unemployment could rise to as much as 10 percent in the aftermath of the crisis, as the private sector’s ability to absorb new entrants to the labor market declined with the drop in economic growth.
“We had also indicated that due to the poor quality of the education system, most of the unemployed fall in the semi-skilled labor segment, with unemployment being lower in the skilled labor and informal sectors,” added ElDesoki.
Experts agree that the informal sector is integral in assessing unemployment in Egypt.
The seventh “Egyptian Competitiveness Report (ECR)” published by the Egyptian National Competitiveness Council (ENCC), ranks Egypt 126th out of 133 countries in labor market efficiency, showing a weak performance in the indicator.
The report, released in May, cites the informal sector as the cause of a major imbalance in the labor market by giving it a “dual structure.”
“The breadth of informal employment suggests that bureaucracy, human resource challenges and financial hurdles deter employers from taking on formal workers. To fill the gaps, a large and vulnerable population of informal employees has emerged,” said the report.
“Unlike formal employees, informal employees have no legal rights, their work is not regulated, and they do not receive the benefits enjoyed by employees in the formal economy,” the report adds.
The EIU report claims that the government is doing what it can to decrease unemployment, focusing on infrastructure development.
“The government’s fiscal stimulus packages, aimed particularly at spending on infrastructure, will continue to offset some of the negative effects of the slowdown on the manufacturing sector and employment, and will help to sustain investment and household demand,” the report explained.
However, most reports cite education reform as the key to improving the labor situation.
“In almost all the reports related to economic development in Egypt, skill shortage has been underlined as a deficit that has to be compensated for through educational and training policies,” Radwan says.
The CAPMAS report indicated employees in the brokerage and insurance sectors received the highest average salary at LE 3,588. The lowest average salary of LE 540 was in the education sector, which reflects the relative prioritization of education by the private sector and the government.
The ECR also emphasized the importance of education reform in improving the labor market.
“The key approach to increasing productivity in Egypt is to improve educational attainment because it is associated with a productive, skilled, adaptable workforce, and encourages higher labor market participation rates,” says the report.
“Financial incentives aimed at enhancing labor supply are important because they can help protect the most vulnerable groups of the labor force from long-lasting exclusion from the labor market,” the report adds.