The Role of Public Sector Employment in Labor Market Outcomes András Bodor Economist The World Bank WB-ILO MENA LM Policy Course, 2010 October 25-29
Outline I. The Conceptual Role of Public Sector Employment in Employment Outcomes II. 1) Social contract Tarik Yousef argument 2) Unemployment private sector employment link Ragui Assaad argument Characteristics of MENA Public Sector Employment 1) Wage structure: incentives for investment in human capital 2) Nonwage benefits 3) Labor mobility labor market transitions III. Testing the Assaad Hypothesis IV. Productivity in the Public Employment Sector V. Policy Implications
I. THE CONCEPTUAL ROLE OF PUBLIC SECTOR EMPLOYMENT IN EMPLOYMENT OUTCOMES
General Framework for Assessing Labor Market Outcomes of Policy Interventions DEMAND FOR LABOR SUPPLY OF LABOR Macroeconomic environment LABOR MARKET FRICTIONS Demographic trends Investment climate Skills composition / productivity of the labor force (Global) business cycle Tax wedge Regulatory environment Labor market intermediation Labor market regulations & institutions Formal / informal & urban / rural segmentation EMPLOYMENT & UNEMPLOYMENT OUTCOMES Distortions caused by public sector employment Social insurance mechanisms Distortions caused by subsidies Migration ECD, basic education, higher education, TVET ALMPs Household level labor force participation strategies
The History of the Social Contract in MENA - Tarik Yousef Source: Yousef (2004)
What Causes High Unemployment in the Arab World? Ragui Assaad 1. Lack of Economic Growth? 2. Lack of Human Development? 3. Youth Bulge? 4. Rapid Inclusion of Women in the Labor Force? 5. Lack of Dependence on Manufacturing and Heavy Reliance on the Service Sector? Low Explanatory Power of These Traditional Explanations!!!
Alternative Explanation of Persistent High Unemployment in the Arab World 1. Public sector employment distorts the labor market by artificially raising expectations and encouraging queuing. 2. Public sector employment results in inappropriate investments in human capital. 3. Education system becomes oriented to producing credentials rather than skills, thus causing the skill mismatch problem.
II. CHARACTERISTICS OF PUBLIC SECTOR EMPLOYMENT IN MENA
% Private Public Composition of Employment in Selected MENA Countries 100 80 60 40 Private Public 20 0 49.1 40.6 39.1 30.7 15.7 11.8 Yemen Iraq Egypt Syria Morocco Lebanon
Yemen: Wages as a Function of Years of Education by Sector of Employment
Wage rate (in LE/hour) Egypt: Wages as a Function of Years of Education by Sector or Employment 3.500 Public sector 3.000 2.500 2.000 1.500 Private formal 1.000 Private informal 0.500 0.000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Years of education attained
0 Density.2.4.6.8 Egypt: Wage Distributions by Sector of Employment Kernel Density Plot of Hourly Wages -2 0 2 4 6 Log hourly wages kernel = epanechnikov, bandwidth = 0.1103 public private informal private formal
20% 15% Syria: Rate of Return to Education by Sector of Employment Public Private - Formal Private - Informal 18% 13% 10% 5% 4% 4% 4% 7% 5% 5% 5% 4% 2% 7% 5% 9% 9% 0% Primary Preparatory Secondary Int. Institute University + Source: Syria MILES National Team s calculations based on 2008 Labor Force Survey Data
% of people having found jobs 90 80 70 60 50 40 30 20 10 0 Syria: School to Work Transition Patterns by Education Attainment Patterns of School to Work Transition by Educational Attainment Levels University HE Institute General Secondary 1 3 6 12 24 48 Number of months after leaving education Vocational Secondary Source: Syria ETF School to Work Transition Survey 2010
Incentives for Investing in Human Capital in the GCC: the UAE Case 56 48 40 32 24 16 8 0-8 -16 Illiterate:base Read &Write Returns to Education for FEMALES By Nationality Primary Secondary Ascending levels of Education First Univerisity Postgraduate Univ UAE/GCC Nationals Arab Non-GCC Western Nationals Developing Economies Source: 2009 UAE Labor Force Survey Source: Vazquez-Alvarez (2010)
Morocco: Sector of Employment and Life-cycle Earnings Profile: Morocco Source: Bodor, Robalino and Rutkowski (2008)
Egypt: Labor Market Transition Patterns 2008-09 by Sector of Employment Public 2009 Formal Private 2009 Informal Private 2009 Total Public 2008 95% 3% 2% 100% 1,113 30 27 1,170 Formal Private 2008 20% 45% 35% 100% 103 229 173 505 Informal Private 2008 4% 8% 88% 100% 75 155 1,681 1,911 1,291 414 1,881 3,586
National The Impact of the Size of Public Sector Employment on the Degree of Informality in MENA -0.93-0.80-0.84-0.71 Public Sector Dummy and Informality -0.39 0.00 Morocco Lebanon Egypt Syria Iraq Yemen Urban l -0.78-0.84-0.92-0.65-0.31 0.00 Morocco Lebanon Egypt Syria Iraq Yemen Rural l -0.96-0.78-0.83-0.83-0.50 0.00 Morocco Lebanon Egypt Iraq Syria Yemen -1.00-0.80-0.60-0.40-0.20 0.00
III. TESTING THE ASSAAD HYPOTHESIS : HOW CHANGES IN PUBLIC SECTOR EMPLOYMENT POLICIES AFFECTED EMPLOYMENT OUTCOMES IN MENA
Share of Public Sector Employment among Secondary Plus Education in MENA 2000-05 Yemen Syria Morocco Egypt 2005 2000 Jordan 0 20 40 60 80 Source: Assaad (2008)
Egypt: Shift in the Composition of Formal Sector Employment 1998-2006 Formal Employment in 1998 Formal Employment in 2006 31% 54% 35% 53% Government Public Enterprise Private firms 15% 12%
Egypt: Trends of the Creation of Formal Jobs by Sector 1998-2006 1,600,000 1,400,000 1,200,000 1,000,000 800,000 New Formal Jobs New Informal Jobs 1,478,408 600,000 400,000 200,000 0-200,000 358,879 263,216 21,466-38,622 Government Public Enterprise Private firms
Share of Public Employment within the Employment of Secondary Plus Education Source: Assaad and Ramadan (2008)
The Impact of Reduced Expansion of Public Sector Employment: Syria Source: Assaad and Ramadan (2008)
The Impact of Reduced Expansion of Public Sector Employment: Egypt Source: Assaad and Ramadan (2008)
IV. PRODUCTIVITY IN THE PUBLIC EMPLOYMENT SECTOR
15% Productivity Issues and Public Sector Employment: SOEs in Syria Wage Growth and Productivity in the Public Industrial Sector 10% Annual Real Wage Bill/Employee Growth Rate 5% 0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007-5% -10% Annual Productivity Growth Rate -15% Source: Central Bank of Syria various quarterly bulletins
Why Does Public Sector Productivity Matter? GDP GDP E LF Pop WA Pop E LF Pop WA Pop g GDP Pop g GDP E g E LF g LF Pop WA g Pop Pop WA
700% Output per Worker by Economic Sector in the UAE (% of Government Services Sector) 600% 500% Financial Corporations Sector 400% Government Services Real Estate and Business Services 300% 200% Transport, Storage and Communication Electricity, Gas and Water Manifacturing 100% 0% 2001 2002 2003 2004 2005 2006 2007 2008 Source: Based on UAE National Accounts Data
Total Compensation per Worker (% of Average Compensation in the Government Services Sector) 160% 140% Financial Corporations Sector 120% Government Services Sector 100% 80% Transport, Storage and Communications 60% Electricity, Gas and Water 40% 20% 0% 2001 2002 2003 2004 2005 2006 2007 2008 Source: Based on UAE National Accounts Data
V. POLICY IMPLICATIONS
Possible Policy Interventions with the Aim to Improve Total Employment Outcomes Freeze Expansion of the Public Sector? Performance / Productivity Based Pay in the Public Sector? The difficulty of measuring performance / outcomes in the activities of the public sector Example: Education Outcomes Amending the Institutions of the Expired Social Contract? Still no regular job search effort if registered in the public sector employment queue in several MENA countries Altering the Role of Social Dialogue / Trade Unions in the Public Sector? Classifying Employees of SOEs under the Private Sector Labor Law? Approximating Public and Private Sector Employment Regulations?