Egypt’s unemployment woes are worse than official figures suggest, with youth unemployment woes a threat to the country’s democratic transition.

In a column ‘No jobs and bad jobs’ in The Cairo Review of Global Affairs in January, American University in Cairo (AUC) academic Ghada Barsoum wrote that Egypt’s shocking official unemployment figures do not show the dire situation.

Barsoum cited the fact that more than half of non-agricultural jobs are provided by the informal sector which leaves workers particularly vulnerable by offering poor pay and no benefits.

The official figures alone are startling.

Egypt’s official statistical agency, Central Agency for Public Mobilization and Statistics (CAPMAS), released 4Q2012 figures which showed an increase in unemployment by 0.5 percentage points, from 12.5% to 13% of the population. In 4Q2010, before the revolution, it was 8.9%.

The size of the workforce increased by 118,000 people from 3Q2012 to 4Q2012 to a little more than 27 million, of which approximately 3.5 million people are currently unemployed — 1.2 million more than in 4Q2010.

Globally the youth unemployment rate is 13%.

But as Barsoum, an assistant professor in the department of public administration at the School of Global Affairs and Public Policy, pointed out, recent International Labour Organization (ILO) research has shown that up to 60% of those aged between 15 and 29 were not working and had given up looking for a job, disqualifying this segment from showing up in official figures.

“This means that almost two-thirds of young people in this age group are not in school, or employed,” Barsoum wrote.

As Barsoum went on to say, not only is the problem the lack of jobs, it’s that many of those available are poor jobs. Most are provided by the country’s burgeoning informal sector which makes up 51.2% of all non-agricultural employment in Egypt, according to ILO research.

The problem is particularly acute in rural areas. These “bad jobs” offer low wages and no benefits but they are the only jobs available to much of the workforce.

Barsoum wrote that while unemployment is an immediate problem for the youth struggling with the transition into the workforce, “informality is an issue that will also affect their future”.

“In the current legal framework, informality eliminates the potential of young people’s access to social security in old age and at times of inability to work due to unemployment, illness or maternity for female workers. Informality also eliminates the possibility of access to health care insurance in Egypt.”

Many of those employed in this sector have few alternatives as Egypt’s workforce is heavily divided between low-skilled and highly-skilled workers “leaving a worrying gap for mid-skilled workers,” Oxford Business Group regional editor and Business Today monthly contributor, Robert Tashima, told bt.

“The gap hampers broader socioeconomic mobility, contributing to a rising Gini coefficient, and leads to lopsided growth, with a small, select group of highly skilled employees and a much larger pool of low-skilled and manual laborers,” Tashima says.

Yet those highly skilled workers don’t necessarily have the sorts of skills employers are looking for either.

While the current generation is Egypt’s best-educated — a reported 2.5 million students currently fill Egypt’s universities — Tashima says employers at the higher end in areas such as R&D and product innovation, are struggling to fill vacancies — a trend he labelled as surprising, given the potential for collaboration between universities and private enterprise.

The IMF estimates that more than 15% of Egypt’s unemployed are university graduates while CAPMAS figures show that more than 80% of Egypt’s unemployed are educated up to at least a secondary school level.

Will work for food

Tahrir Square is perhaps one of the most stark illustrations of the destabilizing effect of high youth unemployment with most of those involved in the fighting and unrest young men with little else to do and no place better to be.

High unemployment was one of the initial drivers of the January 25 Revolution in 2011 and the familiar catchphrase of protesters and activists remains “bread, freedom and social justice”.

The plight of the tanking economy has been well-covered.

The country has experienced a prolonged period of slow growth and faces a massive budget deficit and declining foreign currency reserves. The unrest has scared away tourists and foreign direct investors. More people are being forced to get by with less.

Economic growth is slow, at approximately 2.6% annually as not enough jobs are being created. Egypt registered the second largest growth in unemployment in the Middle East, increasing by 3.5 points in 2011, behind only Tunisia.

All this makes it hard to see where any employment growth will come from in the short term. “[This is] given that some of the most employment intensive sectors, such as tourism, are still trying to reach their pre-crisis levels,” Tashima said.

“In light of that, we expect a certain increase in informal employment, as people move to find other means of income.”

He does believe there is the means for improved prospects in some of the more resilient sectors such as textiles — one of the country’s biggest employers — in spite of the labor unrest and the broader global uncertainty.

Tashima said these sectors “still comprise a large stake of the working population and with continued positive growth rates — helped in part by the country’s price competitiveness — and a shift by some suppliers to move up the value chain into niche segments, there is a case to be made for an increase in hiring.”

Manufacturers have recently said however that even with the devaluation of the Egyptian pound improving exports, due to the rising costs of imports, high interest rates and a declining economy post-revolution, this has made it harder to do business. This has translated into plants reportedly being forced to shut down.

As Tashima wrote in bt previously, with some 750,000 people, including 200,000 new graduates entering the workforce each year, the system’s deficiencies and expanding labor force need to be addressed quickly.

Staff at the country’s universities say many students are reacting by looking overseas though it is not significant in determining what they are studying. AUC’s Career Center executive director Maha Guindi said graduates are applying for up to 10 jobs before they are successful.

The industries offering the most jobs for graduates last year were business, marketing and commercial services, computer and IT, customer support, engineering as well as sales and retail. This was followed by financial operations and investment, accounting and auditing and education and training. All of these corresponded with the university’s most popular courses led by business, marketing and commercial services.

Guindi said they were starting to see a growing interest in entrepreneurship compared with five years ago as well as in community service, development, consulting, social media marketing and communications and IT. This was not necessarily matched with an increase in similar job opportunities in the job market, she says.

While many graduates are reportedly refusing to accept more menial jobs, believing they are over-qualified, the fact remains that students are having to consider alternative options — location or career-path wise, inevitably joining the overwhelming number of unemployed in Egypt should they fail to act.

While the problem is obvious, however, creating jobs is not an easy task and will require intense collaboration between the government and wider society.

Pointing to international examples, Barsoum pointed to the need to train people with specific skills to fill existing needs and help them to find jobs through initiatives such as workplace training programs. It was also important to extend social protection to workers in the informal sector.

“This three-pronged approach places youth employment issues at the heart of economic and social policies,” she wrote.

Tashima argued that there are two key areas where the government could sustainably encourage greater job creation: First, introduce new labor market reforms to improve flexibility and second, by channeling capital into labor-intensive activities.

“Neither of those are particularly easy to accomplish no matter what country you’re in, but even incremental improvements to, say, wage flexibility or variable pay systems could lead to an uptick in hiring,” he said.

“Egypt has a number of mechanisms in place to boost investment in employment-intensive industries, such as the initiatives introduced by the Industrial Modernization Center, but there is certainly room for even greater efforts.”

Reforming the labor market is an inherently tricky task, however, especially given the vulnerability of the population amongst the lowest income levels.

“Any reforms that are adopted will need to balance the need for maintaining worker rights without negatively impacting business flexibility. As a result, wage reforms, for example, might have to be introduced in conjunction with unemployment insurance schemes, to ensure that changes are made with the long-term interests of both employers and employees in mind.”

Strengthening investor confidence and lending the imprimatur of approval to current policy strategies were important steps, potentially fostering a higher rate of fixed capital formation in key labor-intensive sectors, “and perhaps also give the government enough breathing space to tackle a handful of fundamental reforms,” he said.

It was also important to focus on increasing industrial and manufacturing activity, as well as reforming the labor market in order to foster a more sustainable rate of job creation. bt