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F E M I S E R E S E A R C H P R O G R A M M E 2007-200 8 Unemployment, Job Quality and Labour Market Stratifi cation in the MED Region: The cases of Egypt and Morocco Research n°FEM32-20 Directed By Mona Said, The American University in Cairo, Egypt In collaboration with: John Salevurakis, The American University in Cairo, Egypt; Christian Schluter, University of Southampton, UK; Jackline Wahba, University of Southampton, UK; Sherine Al Azzawi, The American University in Cairo, Egypt November 2009 Ce rapport a été réalisé avec le soutien financier This document has been produced with the financial assis- de l’Union Européenne au travers du Femise. Le tance of the European Union within the context of the FEMISE contenu du rapport relève de la seule responsabilité program. The contents of this document are the sole respon- des auteurs et ne peut en aucun cas être considéré sibility of the authors and can under no circumstances be comme reflétant l’opinion de l’Union Européenne. regarded as reflecting the position of the European Union. Unemployment, Job Quality and Labour Market Stratification in the MED Region: The cases of Egypt and Morocco Coordinators: Dr. Mona Said (mona_said@aucegypt.edu), Dr. John W. Salevurakis (jsalevurakis@aucegupt.edu) Dr. Jackline Wahba (j.wahba@soton.ac.uk) Researchers: Mona Said (The American University in Cairo), John Salevurakis (The American University in Cairo), Christian Schluter (University of Southampton), Jackline Wahba (University of Southampton), Sherine AlAzzawi (The American University in Cairo) Abstract Our study focuses on the labor market implications of trade liberalization in the MED region analyzing the cases of Egypt and Morocco. Following an exploration of the structure of the Egyptian and Moroccan labor markets, particularly employment and unemployment trends during their liberalization processes, we investigate the determinants of unemployment duration during this transition. Our analysis then turns to assessing the impact of tariffs and trade openness upon the job quality and wages of Egyptian workers in 1998 and 2006. We also specifically highlight the role of educational attainment upon wages while noting the influence of demographic characteristics such as gender, education, and geography upon wage and job quality outcomes. The results of our work exhibit the variable impact of trade openness and tariffs upon job quality and wages highlighting the need for targeted trade policy which strikes a balance between the benefits of liberalization and the social and economic stabilization sometimes brought by targeted protectionism. FEMISE Internal Consultation 2007-2008, Contract FEM 32-20 Note: This document has been produced with the financial assistance of the European Union within the context of the FEMISE program. The contents of this document are the sole responsibility of the authors and can under no circumstances be regarded as reflecting the position of the European Union. 1 1 Executive Summary Both Egypt and Morocco have embarked on trade liberalization and economic reform programs since the mid 1970s. With the open door policy in the 1970s, Egypt began pursuing liberalization policies that were later followed by various trade agreements and in 1991 embarked on a structural reform program that included eliminating large fiscal and external imbalances, trade, exchange rate, and financial sector reforms aiming at liberalising the economy, and an ambitious privatisation program. Morocco embarked on similar programs in the 1980s by pursuing a structural adjustment program intending to re-orient the economy to the production of tradable goods. From 1989, a large privatisation programme of public firms went under way and since 1984, restructuring of the Moroccan economy towards export orientation started. Foreign trade has been liberalized as early as 1986, culminating with several association agreements. Trade liberalisation initiatives in both countries took various forms: unilateral, bilateral and multilateral agreements and attempted to introduce greater external competition into protected domestic markets, remove distortions and enhance economic efficiency at both macro and individual firm's level. We focus on the labor market implications of economic restructuring, mainly trade liberalization, in Egypt and Morocco. We study several labor market outcomes namely: unemployment, wages, and job quality. In particular we examine the stratification of labor market by gender, education and sector over the period of trade reforms in the two countries. First we examined the impacts of trade liberalisation on the structure of the labor market in both countries in Chapter II. An important aspect of the labour market during transition is the sectoral change in employment. We found evidence that Egypt and Morocco have undertaken various trade and economic reforms that have had significant impact on their labour markets. In both countries the shares of the public sector in total employment have fallen but the impact was more substantial in Egypt given the predominance of the public sector. During the 1990s, Morocco has experienced a decline in the share of agriculture and an increase in the share of manufacturing. In Egypt, the share of agriculture also declined, but so did the share of manufacturing. However, the share of services in Egypt has increased. Moreover, there was no tendency toward the feminization of the male-dominated sectors in Egypt. In fact, the disproportionately female sectors (other than the civil service) de-feminized. Conversely, a significant growth of textile and garment manufacturing was experienced in Morocco which accounts for a significant portion of its feminization. These contradictory trends in Egypt and Morocco were driven by differences in the two countries‘ structure of foreign exchange earnings. While Morocco relied increasingly upon the export of labour-intensive manufactured goods, Egypt became increasingly dependent upon service exports such as tourism. On the other hand, unemployment rates have increased during transition in both countries. However, in Morocco unemployment was the result of restructuring whilst in Egypt a larger majority of the unemployed were new entrants. These impacts have been felt unevenly given the stratification of the labor market in both countries with women, the youth and the highly educated were more affected than the rest of the labour force. Secondly, in Chapter III, we examined the factors that determine the probability of leaving unemployment and whether this probability has changed in Egypt during the period of reforms. We investigated whether particular groups have experienced longer unemployment durations and lower hazard rates of leaving unemployment during the period of transition. We found that 2 2 the probability of exiting unemployment to public sector has fallen, whilst that of exiting unemployment to informal private sector has increased during the period of transition. Although, education was the main determinant of exits to public sector with both males and females initially in the 70s having similar hazard rates,