Abstract
It is well-established that Arab labor markets share certain common characteristics, including an oversized public sector, high unemployment for educated youth, weak private sector dependent on government welfare for their survival, rapid growth in educational attainment, but much of it focused on the pursuit of formal credentials rather than productive skills, and low and stagnant female labor force participation rates. I argue in this paper that all of these features can be explained by the deep and persistent dualism that characterizes Arab labor markets as a result of the use of labor markets by Arab regimes as tool of political appeasement in the context of the authoritarian bargain social contract that they have struck with their citizens in the post-independence period. Even as fiscal crises have long destabilized these arrangements in most non-oil Arab countries, culminating in the dramatic political upheavals of the Arab spring revolutions, the enduring legacy of dualism will continue to strongly shape the production and deployment of human capital in Arab economies for some time. This will undoubtedly pose serious challenges to any efforts to transform these economies into dynamic, rapidly growing and more equitable globally competitive economies.
Highlights
The stylized facts about the structure and operation of Arab labor markets are fairly well established
I argue in this paper that the longstanding practice of providing public sector employment at higher than market-clearing compensation as a tool of political appeasement has led to the misallocation of human capital in Arab economies, and to the wrong kinds of human capital investments, and inefficient queuing by educated workers for government jobs
The consequences of these disastrous policies persist well after the policies themselves have been suspended and continue to shape labor markets in the long term. They include the large overhang of excess employment in the public sector, the existence of large stocks of inappropriate human capital, one of the longest lived assets in the economy, continued institutional distortions in education systems, which continue to be oriented toward credentialism rather than skill formation, and distorted expectations among young job seekers that lead to queuing for public sector jobs and high youth unemployment
Summary
The stylized facts about the structure and operation of Arab labor markets are fairly well established. The slowdown in government hiring in recent years first resulted in a drop in employment rates among women and a sharp increase in unemployment, but later translated into declines in participation among educated women in certain countries; a factor that has countered the decisive shift in favor of greater educational attainment and that has kept overall participation rates flat This dynamic is clearly illustrated, which examines various forms of female participation in economic activity by level of educational attainment in Egypt, Jordan and Tunisia over time. On the other hand, unemployment was caused by an
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