The Paradox of Employment: The Reality Behind Youth Labor Market Statistics in Egypt and the United States

Ragui Assaad and
Ragui Assaad Former Brookings Expert, Regional Director, West Asia and North Africa at Population Council
Samantha Constant
Samantha Constant Associate Director, Middle East Youth Initiative

March 9, 2010

As Vice President Biden travels to the Middle East this week, he does so at a time when average citizens of both the United States and the Middle East are more concerned with the economy than foreign policy. If there were ever a moment of convergence between the two sides, it is now with the struggle for a good job and a better livelihood being the top priority on everyone’s mind.

The U.S. Department of Labor’s Bureau of Labor Statistics released its latest employment report for February. It shows that youth unemployment hovered at 18.5 percent—compared to 9.9 percent the same month in 2008—while payroll saw an increase in temporary jobs and part-time services. Not surprisingly, this increase is due to employees experiencing a cut in hours or who have not been able to find full-time employment in a weakened job market.

Young people in the Middle East face similarly disappointing outcomes in the labor market, however they are due to different structural causes. In Egypt, for example, overall unemployment is also high but has been generally declining over the years. Youth unemployment rates stood at 16.7 percent in 2009, which is a significant drop from 25 percent in 1998. Research based on a recent labor market survey shows that this decline in unemployment is paradoxically associated with a deterioration of job quality rather than any major improvement in labor market conditions.[1]

While concerns about the job market are paramount in both settings, the two countries have reached this employment paradox through very different paths. The United States arrives at this juncture as a result of the worst economic recession in 70 years.  Underemployment in Egypt, on the other hand, stems from a rapidly growing youth population faced with the consequences of a partial and fragmented transformation of the economy from a state-led to a market-oriented development model.

For example, in Egypt, educated young people who spend years searching for formal employment, mostly in the public sector, are now forgoing this prospect as the supply of government jobs dries up. Formal private sector employment—quite limited in the first place—is not growing fast enough to make up for the decline in good public sector jobs. Hence, young people are left with either precarious informal wage employment or expected to simply create a job for themselves in Egypt’s vast informal economy.  As a result, they are not captured as being unemployed in labor statistics, which ultimately contributes to the declining rates.

Today, a similar trend can be found in the United States. The recession has destroyed a large number of good jobs and significantly reduced the rate at which new jobs are created.  Young new entrants to the labor market are therefore not only finding it hard to get their first job and are thus unemployed longer, but they are also finding it hard to get anything but temporary and precarious jobs of much lower quality than they had come to expect. While these temporary and part-time jobs are still within the confines of the formal economy, they have a lot in common with jobs in Egypt’s informal sector in their lack of benefits, health insurance, and even a modicum of security.

The similarities in the current situation of young people in both countries, but the divergent paths that brought them to this point, create new space for speculation about future job market trajectories.

In all likelihood, the U.S. economy will resume its growth and will eventually start creating new jobs, but the high cost of health care and continued economic uncertainty may significantly slow the creation of good jobs. Like young Egyptians, young Americans may have to reduce their expectations about the quality of jobs they expect to attain in this current market and hope to upgrade over time. Fortunately with the improvement of information and communication technology in both settings, it is increasingly possible to search for work while being employed.

Although Vice President Biden has had to postpone his scheduled visit with Egyptian President Hosni Mubarak, the U.S. and Egyptian governments can begin to take important steps to improve the situation for young people.  As a start, each can pursue policies that encourage employers to create and maintain good jobs.  In the case of Egypt, these include reducing the high costs of formality, including the burdens of regulations and taxation that force all but the largest employers into the informal economy.  Such costs not only force employers to hire workers informally but also restrict the growth of firms that often stay small deliberately to avoid becoming too visible to bureaucrats.  In the case of the United States, these include reducing the cost to employers of providing good jobs through curbing the growth in health care costs and encouraging investments in dynamic and high productivity industries like green energy.

[1] Assaad, R., C. Binzel and M. Gadallah. 2010.  “Transitions to Employment & Marriage among Young Men in Egypt.” Middle East Development Journal 2(1) (forthcoming).