1 The Macroeconomics of Labor Market Outcomes in MENA over the 1990s: How Growth has Failed to Keep Pace With a Burgeoning Labor Market

2 Unemployment in the Region is High: Unemployment, 2001 * MENA MENA East Europe Latin High South Sub- Maghreb GCC Asia & &Central America/ Income Asia Saharan and Mashrek Pacific Asia Caribbean OECD Africa * Or most recent year available. Note: Regional unemployment rates weighted by labor force. Sources: See Annex Table 1 for detailed description of sources. 50%-- 40%-- 30%-- Algeria/Libya/Yemen West Bank and Gaza Iraq Syria Lebanon/Morocco Iran/Tunisia Jordan Egypt Oman/Saudi Arabia United Arab Emirates Bahrain Kuwait Unemployment rate, latest available year

3 And Unemployment Has Worsened for Most Economies in the Region: Labor Force Growth versus Employment Growth over the 1990s Labor Force Unemployment as % of Labor Force Employment (%, latest year total MENA CountryGrowth (%) Growth (%) Period available) labor force Algeria Iran Morocco Yemen Jordan Egypt Tunisia Bahrain Kuwait Oman

4 Some Simple Analytics

5 Growth of Output per Laborer in MENA has been Low Average Average Yearly Average Average Average Yearly Yearly Average Growth of Yearly Yearly Growth of Labor Force Yearly GDP Output Per Labor Force GDP Output per Growth Growth Laborer Growth Growth Laborer MENA 1990s East Asia, 1970s Algeria Philippines Egypt Hong Kong Iran Indonesia Jordan Korea Lebanon Malaysia Morocco Singapore Syria Thailand Tunisia Yemen Bahrain Oman Saudi Arabia UAE MENA EAST ASIA GCC Mahgreb Others

6 Decomposing Per Capita Growth: Accumulation and Productivity Growth per Laborer in MENA, Growth of Growth of Growth of GDP per Physical Capital Human Capital Region Decade Laborer per Laborer per Laborer TFP Growth East Asia and the Pacific 1960s s s s MENA1960s s s s World1960s s s s

7 Change in Composition of Growth between the 1980s and 1990s Change in Change in Average Average GDPCapital AccumulationChange in Countrygrowth per laborer per laborerTFP Growth Syria Jordan Saudi Arabia Kuwait Egypt Tunisia Iran Algeria Morocco Oman

8 GDP Growth Consistent With Desired Employment Creation Rates Needed GDP growth Needed employment consistent Observed Increase growth (=labor with employment GDP in Country force growth) growth growth GDP Growth Algeria Egypt Iran Jordan Kuwait Morocco Oman Saudi Arabia Syria Tunisia

9 Interpreting the Decline in Investment Private sector factor accumulation improving, but not sufficiently to counter-act the considerable declines in public investment Private investment not increasing, but promising compositional changes in private investment occurring: Large decline in private sector investments directed toward domestic markets, but increased private sector investments into the tradable goods sectors. In addition to decreased public investment, private sector investments in externally demand-driven sectors have failed to materialize despite structural reform.

10 Policy Implications · Exchange rate management · Size of public sector · Governance · Trade reform · Banking sector reform · Property rights, legal systems, and improved contract enforcement mechanisms