Middle East’s Economic Paradox: Lost in the Wash

June 26, 2008

The Middle East is experiencing its best economic performance in three decades, with the price of oil hovering at more than $130 a barrel. Even non-oil producing countries are powering record GDP growth. Yet even in today’s expanding economy, millions of young men and women are largely excluded from productive employment, imposing serious economic costs to society.

Our new research – the first of its kind in the Middle East – attempts to quantify the economic costs of youth exclusion. Our calculations show that the combined costs of youth unemployment for 11 countries reaches $25 billion a year, or 2.3% of the region’s GDP. Countries bearing the most costs include Morocco ($7.7 billon), Algeria ($5.6 billon), Egypt ($4.6 billon) and Saudi Arabia ($3.2 billion).

The research reports significant differences across countries on male versus female costs of unemployment. In Egypt, female costs of unemployment ($2.6 billion) are higher than male ($1.9 billion) costs of unemployment. This is because female youth unemployment rate is almost six times higher than the male one. In other countries such as Algeria, Saudi Arabia, West Bank and Gaza, female costs of unemployment are considerably lower to male costs of unemployment. This is because in some countries females have a much lower rate of labor force participation. The female costs of unemployment highlight the different gender challenges facing the Middle East. In some countries where more and more women want to work, the labor markets need to absorb an expanding pool of female workers. In other countries, where female labor force participation rates remain very low, economic, social and cultural barriers continue to inhibit women from considering employment.

The study also quantifies several costs related to joblessness, school dropouts, adolescent pregnancies and migration, which when added show staggering annual losses. From these areas, Egypt loses $53 billion or 17.4% of its GDP – this is equivalent to the total value-added of the country’s agricultural sector. Jordan loses $1.5 billion or 7.3% of its GDP annually to youth exclusion. These calculated costs are purely economic, measuring the depletion of human and social capital and lost productivity because of limited work opportunities. As such, they do not capture the wide-ranging social costs or psychological costs associated with exclusion. Thus the true costs of youth exclusion in the Middle East may be much higher.

These costs represent a call to action since delaying reforms in institutions and programs which tackle youth concerns is no longer sustainable. While the costs of youth exclusion may paint a somewhat gloomy picture for the Middle East, in fact they show what the region could gain – not lose – if the full power of young persons is incorporated into their societies. By quantifying the costs of their exclusion, this study makes the case for investing in youth as an economically sound approach for Middle Eastern governments to take. In order to build lasting economic success, Middle Eastern policymakers should act now to capitalize on the opportunities inherent in their young populations.

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