A comprehensive strategy is needed to counter growing unemployment rates. Mona El-Fiqi leafs through a recent study A study conducted by the Egyptian Centre for Economic Studies (ECES) concluded that the labour market suffers from a mismatch between demand and supply of skilled workers. It also noted that the capacity of generating jobs -- particularly in the private sector -- is limited, and that job creation is a tough challenge for the economy. The study, published in August, explained the poor performance of the labour market as a result of several factors, including inadequate macroeconomics and labour policies. "The government undertook several reform measures to boost economic growth, increase investments and raise the competitiveness of the Egyptian economy," the research began. "However, the Egyptian economy is still suffering from major shortcomings, such as an unfavourable business environment, poor export performance, severe fiscal imbalance and a low level of investment." To overcome the unemployment problem, the ECES study recommended that a national employment strategy should be drawn up, with the objective of creating jobs particularly in sectors with the highest employment elasticity. The strategy should also attempt to address the mismatch between labour supply and demand, while both macroeconomic and labour market polices should be revised according to best practices and experiences abroad. Finally, all this should become an integral part of Egypt's national plan for development. So far, labour market policies have been unable to bridge the gap between labour supply and demand or resolve other market failures. According to the study, the impact of active labour market policies and regulations has been limited, which denotes poor policy design and lack of coordination between macroeconomic, labour market policies and regulations. In three sections, the ECES paper addressed which macroeconomic and market policies should be adopted to increase employment, in light of poor government management of unemployment and job creation. The first section is a brief analysis of the labour market, while the second and third examine the impact and limitations of recent macroeconomic and labour policies on job creation. The study stated that the labour force increased from 17 million in 1995 to 22 million in 2005, at an average annual growth rate of 2.8 per cent. Meanwhile, unemployment among the 15-64 years- old age group amounted to 19.3 million in 2005. According to research statistics, employment distribution by sector ownership demonstrates that almost 25.8 per cent of the labour force work in the government, 4.5 per cent in the public sector, while the private sector employees account for 69.7 per cent. The unemployed increased from 10.3 per cent in 2004 to 11.2 per cent in 2005, the majority of whom were new entrants on the labour market. Unemployment was concentrated among two education groups, namely secondary school graduates at 62 per cent and university graduates comprising 27 per cent. The study noted that while the economy is characterised by a large and growing informal sector that has been a major source of job creation for some time, these jobs are sub-standard in terms of wages, sustainability and work conditions. "Informal employment reached 8.3 million in 2004, and rose to nine million in 2005," according to the research. "This represents 47 per cent of total employment." According to the ECES research paper, the labour market suffers from major distortions, namely a disparity between supply and demand in job openings and a mismatch between the skills required by employers and those offered by workers. These distortions are mostly the outcome of prolonged policies that failed to promote economic growth and increase employment. The study also evaluated the impact of recent investment, trade and other macroeconomic policies on job creation, since this requires more investment -- especially in labour-intensive activities. "Despite the slight increase in investment from 19 per cent in 2004/2005 to 19.9 per cent in 2005/2006, it is still below the level needed to create more jobs in the economy," according to the study. In addition, investments are mainly allocated to sectors with low employment-intensity growth. "Over the past few years, the government made several attempts to increase direct investments and succeeded to raise them from $3.9 billion in 2004/ 2005 to $6.1 billion in 2005/2006," it added. "However, recent surveys by the World Bank (2006) and the World Economic Forum's Global Competitiveness Report 2006/2007 ranked Egypt in a lower position in terms of business environment and competitiveness." The paper recommended that services and labour-intensive manufacturing industries should be encouraged, since they have strong forward and backward links with other sectors. The establishment of industrial clusters also has a positive effect on job creation, particularly for labour-intensive industries such as textile, furniture and automotive. As for trade policy, the ECES explained that despite trade liberalisation efforts which resulted in increased non- oil exports, the export structure remains heavily dominated by resource- based and low-tech exports which account for nearly 90 per cent of manufactured exports. This figure is considered an indicator of a gradual decline in Egyptian exports on the international market, since the share of low-tech exports worldwide is retreating rapidly. The study added that the impact of trade agreements on employment has so far been negligible; for example, the EU partnership agreement with Egypt did not address the issue of employment directly. At the same time, promoting economic growth and investment -- and ultimately increasing employment -- requires monetary and fiscal policies to be aligned with these objectives. Monetary policies influence job creation through inflation, foreign exchange and bank credit, while fiscal policy affects employment through public spending taxes and transfers. The paper also assessed labour market policies since they affect the demand side by directly creating additional jobs through public works programmes. For example, the public works programme implemented through the Social Fund for Development mainly aimed to improve infrastructure in rural and deprived urban areas, as well as create jobs. The study added, however, that these projects -- which included roads, water supply and sewage -- were capital-intensive and worker wages on average did not exceed 30 per cent of total cost.
