IEMed Mediterranean Yearbook 2012

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Panorama: The Mediterranean Year

Economy and Territory

Culture and Society

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Young Graduates in Southern and Eastern Mediterranean Countries: Untapped Potential Waiting in Employment Queues

Yusuf Kocoglu

Laboratory of Applied Economics for Development (LEAD),
University of the South, Toulon –Var, La Garde
Associate Researcher,
Centre d'étude de l'emploi, Noisy-le-Grand

Alexandra Flayols

Laboratory of Applied Economics for Development (LEAD),
University of the South, Toulon –Var, La Garde

The problem of the integration of youth (15-24 years of age) into the labour market in Southern and Eastern Mediterranean Countries (SEMCs) has grown worse over the past ten years or so to become a trigger for the revolt movements of the Arab Spring. Indeed, it is no coincidence that this wave of protest was started by the self-immolation of a young Tunisian university graduate after an altercation with a police officer regarding his “informal” economic activity as a street vendor. The persistence and aggravation of difficulties in entering the labour market for young people over the course of the past decade have generated profound malaise between youth, in particular university graduates, and society. The existing social cohesion was unable to withstand the deterioration of living conditions for youth after their long-term exclusion from the labour market. This economic exclusion was moreover reinforced by a more acute sense of social and political exclusion. In fact, greater contact with the world through the media and in particular information and communication technology (ICT) has modified the aspirations of young generations in the SEMCs on the functioning of society and the role they could play in it. As a result, the generation gap vis-à-vis adults and the authorities, still anchored in traditional patterns, rapidly grew to the point of fracture in Tunisia and Egypt.

Although the majority of SEMCs have undergone demographic transition, people under 25 years of age account for nearly half the population in 2010, that is, a proportion twice as high as in the North Mediterranean countries (26%). Though the significant weight of youth represents an advantage for these countries in the long term, it likewise represents a source of major challenges on the labour market. In fact, although more reliable over the preceding decades, demographic growth will continue to weigh on the labour market. According to UN forecasts, the population of the ensemble of SEMCs will grow by a quarter by 2030. Youth will then number some 70 million individuals, as compared to today’s 55 million. This prospect would entail that the labour market somehow be capable of absorbing these additional millions of individuals in the forthcoming two decades. In addition to this demographic effect, there will most certainly also be an economic activity rate effect. Indeed, the SEMCs have one of the most reliable activity rates in the world (cf. Chart 14). These findings are primarily associated with an activity rate of less than 25% for women in the majority of SEMCs, as opposed to an average of 52% worldwide. With the rise in school enrolment rate and average education level (cf. Chart 17), we should observe a significant rise in women’s activity rates in the region. In Turkey, for instance, women’s activity rate is 15% for those whose education level is lower than secondary school, whereas it rises to 75% for those with an educational level beyond secondary school. By projecting population dynamics, Blanc (2011) estimates that the SEMCs would need to create a minimum of 34 million new jobs by 2030 just to maintain the unemployment and economic activity rates at their current levels. If the goal is to supply jobs for all newcomers onto the labour market, this figure would be triple as high. The challenge is not only quantitative but also qualitative, insofar as handling the rapid rise in number of higher education graduates observed in the SEMCs.

An Increasingly Educated Youth

The new generation of SEMC youth displays the particularity of having a relatively high level of education. In fact, after having dedicated a great deal of resources to primary and secondary education from 1960 to 1990, the SEMCs witnessed a sharp increase in youth in higher education (post-baccalaureate) since the mid-1990s. For certain countries such as Tunisia, these numbers have risen fourfold, going from 100,000 students to over 400,000 in 2010. In Algeria, the progression has been just as significant, the number of students rising from 300,000 in 1995 to over 1.1 million in 2010. With relation to the overall population, the number of students in the SEMCs (except Morocco) is now attaining ratios comparable to those of North Mediterranean countries, i.e. from 3,200 to 4,000 students per 100,000 inhabitants. This rise in number of higher education students means a significantly numerous arrival of graduates on the labour market. Thus, in Egypt and Turkey, more than 400,000 new graduates arrive on the labour market each year. In Algeria, the figure is 150,000 and in Tunisia and Morocco, some 70,000. Thus the economies of these countries need to supply jobs corresponding with the qualifications and expectations of these new graduates, both in terms of salary and working conditions, at pain of seeing their situation on the labour market deteriorate even more.

Young Graduates in the Face of Mass Unemployment

With the exception of Israel, the situation of youth on the labour market is critical for the ensemble of countries in the Mediterranean Basin with unemployment rates of between 20% and 45% (cf. Chart 15). Nonetheless, due to their greater demographic weight, in the SEMCs (except Israel), youth represent from a third to 60% of the unemployed (Chart 16) while they represent from 17% to 20% in North Mediterranean countries. The ratio tends to increase with the financial crisis, which hits youth particularly hard and which increases structural problems concerning the transition from the educational system to the labour market. This situation of mass unemployment for youth constitutes the main challenge for the SEMCs insofar as this has important consequences for the dynamics of the economy, inter-generational balance and the relationship of youth with society, and can have important political repercussions, as the Arab Spring events have demonstrated.

CHART 1 Unemployment Rate by Age Group (2010)

Source: KILM. Note: The SEMC figure corresponds to the average of the following countries: Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palestine, Syria, Tunisia and Turkey.

CHART 2 Unemployed Youth as a Percentage of the Overall Number of Unemployed (2010*)

Source: KILM. Note: The SEMC figure corresponds to the average of the following countries: Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palestine, Syria, Tunisia and Turkey.

An Unsettling Relationship between Education and Youth Unemployment

The problem of youth unemployment in the SEMCs, in particular among university graduates, is not cyclical but structural, though it has been aggravated by the actual crisis. In fact, the sustained growth of the skilled labour supply in the SEMCs has met with a labour demand that is not as dynamic. As a consequence, the unemployment rate of young university graduates has increased over the 1st decade of 2000 in the majority of the SEMCs. A growing relationship between unemployment rate and education level can be observed (Chart 17). These findings are all the more worrisome as they may jeopardize the individual and collective incentives for investing in human capital. Indeed, on the individual level, if a degree is no longer an assurance for getting a job and at a higher wage, investing in human capital will no longer be profitable. On the macroeconomic level, public expenditure in education will no longer be appropriate if they do not generate the positive effects expected (innovation, greater adaptation to technological progress) over long-term growth. In contrast, in countries on the European shore of the Mediterranean, there is certainly a negative relationship between education level and unemployment rate. In Spain, the unemployment of individuals having only a primary education level is double that of individuals with higher education. Another case in point is France, where the unemployment rate of graduates of higher education is three times lower than that of individuals with only a primary education level.

CHART 4 Unemployment Rate According to Education Level (2010*, 15 Years of Age and Older)

Source: KILM and Martín (2009). Note: * Or latest year data is available

Why the High Unemployment Rate Among Young Graduates?

The growth of the unemployment rate among university graduates reveals insufficient creation of qualified jobs, despite a sustained economic growth rate in the region (5% per year on average). This latter result indicates that the correlation between the GDP growth rate and the net creation of qualified jobs is weak due to a growth pattern low in total factor productivity (Blanc et al., 2007). To explain these weak productivity gains in the SEMCs, the significant weight of the public sector as well as the low added value content of employment in the private sector are the elements most often put forth.

A Public Sector with Too Much Weight?

Historically, the public sector constituted the main job opportunity for university graduates in the SEMCs. Although this bias of qualified labour towards the public sector, a priori less productive than the private sector, was not optimal for the economy on the long term because it slowed productivity gains, it did ensure a certain social cohesion between youth and society. This social contract has slowly crumbled under the effect of two developments. First of all, the number of graduates has quickly increased, as described above, and secondly, recruitment into civil service has slowed or even tapered off. Indeed, in the 1990s, the SEMCs, under the impulse of structural adjustment programmes, introduced privatisation and economic liberalisation policies in their economies and had to cope with strong budgetary constraints. Hence, in Morocco, the total public and semi-public sector in employment (including non-graduates) decreased by 2.5 percentage points from 1999 to 2010. In Egypt, where the public sector has much more weight, it fell by 4 points from 1995 to 2004 and in Tunisia, by 6 points from 1997 to 2003 (Kocoglu, 2011). The attractiveness of the public sector for graduates can be ascribed to the numerous advantages associated with public employment (job security, access to social security funds and an advantageous retirement system). In the case of the SEMCs, there is also a higher starting salary than in the private sector. Indeed, in the majority of SEMCs, the public sector offers higher salaries than the private sector, the gap being particularly significant in Morocco, with the average public sector salary being 75% higher than the average salary in the private sector. These advantages, in particular the higher salaries, affect the search strategy of job seekers by modifying their reservation wage, among other things, particularly among graduates, and thus fostering segmentation of the labour market.

A 2004 survey on labour market integration of Tunisian university graduates (Ben Halima et al., 2011) illustrates the “binary” situation of young graduates well. Eighteen months after graduating, employed graduates enjoy an average salary higher than those who obtain employment in the private sector, all else being equal. This salary advantage only involves holders of a Master’s degree, which is the degree nearly half the graduates from Tunisian universities obtain. When Master’s Degree holders pass the entrance examination for civil servants, they then obtain a job, namely in the public education system, with a “high” monthly salary. Should they fail the entrance exam, they either become unemployed or obtain a job with a very “low” salary in the private sector, and most often in the informal private sector. For other degree holders, there are no significant salary differences between public and private-sector employment. This second finding demonstrates that the private sector is not sufficiently attractive to graduates in terms of salary.

Thus, the combination of rarer job openings in the public sector and rapid growth in the number of graduates has led to the formation of long “queues.” Apparently, young graduates from the SEMCs are involved in income search strategies oriented towards obtaining public employment, leaving aside activities that would be more productive for the economy’s growth. As a consequence, young people choose general courses of studies allowing access to public employment. Once graduated, they wait, unemployed, until they can find a job corresponding to their expectations in terms of salary and work conditions, which the public sector is the most likely to offer them. In some cases, they run the risk of long-term unemployment, which can turn into “exclusion through unemployment.” In Morocco, for instance, the long-term unemployment rate, which is 44% for those without a university degree, rises to 77% for university graduates, with an average unemployment duration of 40 months, as opposed to 24 months for the former. In Tunisia, the average duration is 28 months for university graduates, as compared to 19 months for non-graduates. Moreover, the majority of long-term unemployed university graduates are first-time job seekers, highlighting the difficult transition from the university to the labour market. The problem of long-term unemployment among young graduates is key for several reasons. In the first place, the non-integration of youth into the labour market renders any initiatives to return to employment more costly and uncertain. It entails the depreciation of human capital, which is their main asset on the labour market, and can effectively divert future generations from investing in education and encourage them to emigrate.

The Difficult Transition to the Knowledge Economy

The productive structure of SEMC economies is still oriented towards sectors with low-skilled labour needs (agriculture, services, tourism and low-technology manufacturing industries). In Tunisia, for instance, 90% of the jobs in the textile and clothing sector are for low-skilled personnel, senior management representing less than 5% of jobs. The private sector in the SEMCs does not create sufficient skilled jobs to absorb the massive inflow of new graduates. In the 2000s, Tunisia created an average of 30,000 jobs per year for graduates, whereas double that amount would be necessary to grant each university graduate a job (Kocoglu, 2011). This discrepancy between labour supply and demand thus explains the significantly high unemployment rate among university graduates from a quantitative point of view.

The transition towards an economy richer in skilled labour requires structural policies and significant transition periods. The inclusion on the labour market of a generation of educated youth particularly requires the development of a formal private sector more oriented towards sectors fostering the emergence of economic activities with high added value, such as new technologies. The corollary of upscaling of the production structure would be a decrease of the informal sector, which plays a major role in the economies of the SEMCs (up to 50% of non-agricultural employment in Morocco and Egypt). In the absence of this upscaling adjustment of production, the rapid rise in education level will not result in very significant productivity gains, thus penalising long-term growth.

The discrepancy between labour supply and demand for graduates can likewise be ascribed to the content and quality of training. First of all, university training seems to be too oriented towards general education to the detriment of technical and scientific training, and secondly, in certain aspects, its quality seems relatively poor (Martín, 2009). Companies seek skills, but degrees are not the means by which youth indicate their skills and their level of productivity to companies in the case of countries with a high graduate unemployment rate. We are thus witnessing the failure of the signalling effect of degrees due to two factors. The first, of a quantitative order, is related to the rapid rise in number of students in higher education. Access is too easy, or recruiters believe it to be so, leading to rapid depreciation of degrees and cancelling the positive signalling effect normally associated with degrees. The second factor concerns the quality of education and the aptitudes required to complete it. If recruiters are convinced that obtaining the degree in question reveals no information on the potential “productivity” of individuals, they will not be able to use the degree as an element for candidate selection. This factor becomes stronger when students are concentrated in only a few disciplines. In fact, the heterogeneity of positions available on the labour market requires a return to heterogeneity of skills. One of the challenges of education policy in the future consists of modifying the perception that recruiters, in particular in the formal private sector, have of graduates, restoring credibility to the signal transmitted by a degree in higher education.

Active Employment Policies Addressing Youth

SEMC authorities have realised the problem of young university graduate employment and, since the beginning of the 2000s, have implemented measures for assisting and guiding them towards inclusion on the labour market. These measures consist of a combination of several types of programmes. First, governments have set up policies of youth job subsidies, which can allow youth to find a job on the labour market if well targeted. However, this type of measure runs up against the well-known problem of windfall effects for businesses as well as the effects of substitution of the remaining population by the targeted population. Moreover, the jobs created using this system may disappear with the end of subsidies. Other public policies attempt to foster youth internships, allowing them to gain in-company experience. However, training is insufficient to guarantee access to employment, as jobs still need to be created. Governments have likewise attempted to improve follow-up on the unemployed to help them in their job search or develop “youth” jobs in the public sector for missions of general public interest. Finally, policies of aid to business start-ups could meet the economy’s needs in job creation and the expectations of youth in terms of independence and freedom. These active employment policies have only had limited success. Tunisia is a good case in point. Compared to other graduates, those having undergone an internship through the Work Experience Scheme (SIVP) have a slightly lower unemployment rate (30% as compared with 36%), but a slightly lower rate of integration into unlimited-term employment (22% as opposed to 28%). If we add the windfall effect for employers, a constant due to employment subsidy policies, the cost-effectiveness ratio of this measure does not seem very positive. Moreover, active employment policies are particularly targeting graduates, leaving less space for unqualified youth, rendering their situation more difficult.

Conclusion

Youth constitute a significant potential for the economic development of the SEMCs, insofar as they are increasingly educated. Nonetheless, the sharp rise in graduate unemployment rates over the 2000s emphasises that this potential not only remains untapped, but even pushed aside into “exclusion through unemployment.” For this potential to be tapped, a systematic approach to the problem is required in order to implement structural measures. Such measures should go beyond short-term policies designed to address the urgency of the situation by creating public jobs or subsidised temporary jobs reserved for youth. In particular, the content of the education supply should be improved (by focussing on common skill foundations) together with its quality in order to better adapt it to the needs of the economy. Policies should also provide support for activities creating qualified jobs such that the productive system can be upgraded insofar as technological content and product quality, as well as support for the creation of innovative new companies via facilitated financing mechanisms.

References

World Bank. “The Road Not Traveled: Education Reform in the Middle East and North Africa”, MENA Development Report. Washington DC, 399p., 2008

Ben Halima M., Kocoglu Y., Ben Halima B. “Insertion professionnelle des diplômés universitaires en Tunisie: comparaison public-privé,” 28ème Journées de Microéconomie Appliquée (28th Applied Microeconomics Conference), Sousse, 2 and 3 June 2011.

Blanc F. “Perspectives d’emploi en Méditerranée,” in Cécile Jolly, ed., Demain la Méditerranée, Scénarios et projections à 2030, Med 2030 Consortium, Construire la Méditerranée series, IPEMED, 2011, p. 51-70.

Blanc F., Galal A, Louis M., Reiffers J-L. “Le défi de l’emploi dans les pays méditerranéens / The Challenge of Employment in the Mediterranean Countries,” FEMISE Research Report No. FEM3d-02, November 2007.

Kabbani N., Kothari E. “Youth Employment in the MENA Region: A Situational Assessment,” SP Discussion Paper No. 0534, World Bank, September 2005.

Kocoglu Y. (2011): “L’emploi des jeunes dans les PM,” in Towards a New Med Region: Achieving Fundamental Transitions,annual FEMISE report on the Euro-Mediterranean Partnership,  Galal A. and Reiffers J-L, eds., FEMISE, October 2011.

Martín I. Labour Market Performance and Migration Flows in Arab Mediterranean Countries. A Regional Perspective, Final Report, Robert Schuman Centre, European University Institute, Florence, November 2009.

Stampini M. and Verdier-Couchane A. “Labor Market Dynamics in Tunisia: The Issue of Youth Unemployment,” African Development Bank Group, Working Papers No. 123, February 2011.

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http://www.femise.org/PDF/Femise_A2011fr.pdf  FR

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