March 2012
"If we start [looking at] the labor market [according to its] immediate challenges, I would say job creation is the [biggest]," says Magda Kandil, Director of the Egyptian Center for Economic Studies (ECES). She explains that although the economy had been growing at impressive rates prior to the revolution, it still has not been able to absorb Egypt's burgeoning labor force.
"Even during our best years -- when we were growing at 7% -- the sectors that were generating this growth were not creating a lot of jobs. Sectors such as financial services and IT are highly polarized where the structure of employment is either very high skill and high pay or very low skill and low pay," she says.
This dynamic left a large void in the job market that made it very difficult for college graduates in particular to enter the job market and find a hierarchy where they could progress along the career ladder.
Furthermore, what used to be guaranteed employment in the public sector is no longer the case. Currently, the government is the nation's largest employer. However ,there is no room for further employment; whether in the state itself or state-owned enterprises.
Kandil explains that elimination of government employment opportunities coupled with a continuing policy of free public education, has created a mismatch in the labor market.
"When government employment was eliminated, and rightly so, [the government] continued investing in free education with no return on this investment. Meanwhile the private sector has been very selective when it came to absorbing these college graduates," says Kandil.The private sector's reluctance can be partly explained by a lack of policies that promote the growth of labor intensive industries; however, it must also be noted that the skill level of these graduates is of concern.
Mohamed Hanno, a board member of the Alexandria Businessmen Association (ABA), explains that the number one problem voiced by the business community is the lack of skills and difficulty in recruiting.
"Here at the ABA we do surveys with our members about the problems that face them with labor. The most evident is always the difficulty in finding the right recruits, especially in the blue-collar market," he says.
Hanno also asserts that within the white-collar market, and especially among college graduates, there is very high unemployment due to lack of demand and low skill level. "A lot of the [college graduates] work in blue collar jobs. You find business graduates working in gas stations or engineers waiting tables.
At the same time when you post a [job announcement] looking for an accountant you'll get so many applicants yet you can't hire most of them due to their low skill level [which is the result of] a poor education system," says Hanno.
It is therefore evident that the two main problems facing the labor market in Egypt are economic growth that failed to target labor intensive industries, as well as a skill mismatch in the supply and demand of blue and white collar workers.
Kandil says that what is needed at this juncture is for the government to stimulate the economy through investing in public works or public private partnerships (PPPs) where they can embark on some off-the-shelf projects. Also, in the near term the government should work on stimulating the private sector with particular emphasis on small and medium enterprises (SMEs).
"The SME market is huge as they account for 70% of employment in Egypt. Many of them, however, were suffering prior to the revolution due to lack of support from the government and are now suffering after the revolution due to compounded problems such as strikes, slow demand, security problems and so forth," says Kandil.
She explains that SMEs are "necessity entrepreneurs" that can be stimulated through providing some access to credit as well as some organizational support. Several international institutions have already pledged support to SMEs and job creation in particular.
"If the government manages to capitalize on this support and stimulate SME activity through tax incentives, productive support or export subsidies, which could be finite in horizon and phased out in relation to performance, that would help immensely in the near term," Kandil says.
Fixing the mismatch
Stimulating the demand for labor through economic growth with particular emphasis on labor intensive industries as well as empowering SMEs is relatively a straight forward approach. On the other hand, ensuring that the supply of skilled labor matches demand requires a complete overhaul of our education policy.
"Jobs were being created, however not in the sectors that match the supply of labor," says Hanno. "For example in the services sector there were so many jobs created like in the restaurant business and in delivery services; these jobs, however, were not suitable for college graduates."
Hanno had alluded earlier to the fact that business owners find it difficult to recruit the required labor, especially in the blue collar market due to limited supply. On the other hand, a continued flow of college graduates has created an excess supply of white collar workers.
"The problem is that you have so many college graduates that are not really in demand. Some would argue that it's actually better for these students not to go to university to begin with; instead, they should go to vocational training or technical schools," he says.
Students opt to go to university for social status or as a result of parent and peer pressure. Most of them, however, will graduate to unemployment due to excess supply in labor. On the other hand, had they joined a vocational school, they would probably have a much easier time finding a job.
"The problem with vocational training is a social one. The kids go to these schools having in mind that they want to do something else afterwards and don't want to join the blue collar market," says Hanno.
Tying social status with education is a stigma that our society has created over the decades and, to a large extent, is the reason behind the huge imbalance in the labor market. Kandil explains that even if we agree that education buys social status, it may not buy economic status.
"I lived abroad for many years," says Kandil. "There, your social status is not based on your education but [rather] on your financial means. You can be a carpenter or a plumber [...] but, at the end of the day, you can afford to send your kids to a good school, live in a nice neighborhood and own a car. So it's the economic means that buy [...] social status."
She believes that it is high time for an overhaul of the Egyptian education strategy where more resources should be allocated to vocational training. At the same time, the government needs to limit its support for free public education at the university level."I would argue that there is no reason to continue with free public education at the university level; or at least it should be more selective. [...] Beyond that, we need to shift the resources toward vocational education and organize employment schemes to help align graduates with jobs in the private sector," she explains.
By increasing investment in vocational training and creating awareness of the increased economic opportunities associated with it, we would be revisiting a culture that has stigmatized certain jobs which are actually in high demand.
Vocational schooling
Hanno explains that there are three stages of vocational training in Egypt. The first is vocational schooling which is at the same level as high school. After that, graduates can join a technical institute where they learn more advanced skills such as welding or carpentry, however these facilities are not very efficient.
"All the equipment and the level of teaching in these institutes are very weak," says Hanno. "The skill level of graduates does not differ much from those who only attend vocational high schools."
The government therefore needs to allocate more resources into upgrading these facilities. At the same time, the teachers need to actually have hands-on experience in their fields as opposed to being strictly theoretical.
The last stage of vocational schooling is field-specific training programs that could either be government sponsored or undertaken by the private sector as is the case in large factories, for example. Hanno says that there is a lot of effort and investment being directed to these training centers, but it is still not enough.
"Egypt is a big country that needs a huge amount of trained labor. These programs need to be expanded and the government has to play a bigger role in this; [it] cannot throw the burden on the private sector alone," he says.
A problem with the private sector investing in these training programs is that they would require a return on their investment and this is not always guaranteed. Hanno explains that the labor law does not provide any guarantee that, after a worker receives his training, he will stick to the job.
"The worker could receive his training and then [...] work for a multinational leaving no return for the investor that trained him," he explains.Another problem with these training programs is that they are not easily applied in smaller sectors of the economy. A lack of big players in an industry means that it is difficult to have a collaborative effort and it is sometimes not feasible for an individual company to take on such projects.
It is therefore vital for the government to step in and expand these training schemes in collaboration with the private sector. Training centers are currently administered by three different ministries, but there are efforts to establish a single umbrella institution that will oversee the centers and provide a unified accreditation program.
The FY2011/12 state budget shows $2 billion (LE 12.07 billion) earmarked for this unification process with a committee responsible for administering the fund. However, there is no doubt that training on its own will not solve the unemployment problem. Investors are needed to create employment opportunities and that of course hinges on the success of the political process.
A study of the Egyptian labor market reveals a massive mismatch in supply and demand
With a labor force of over 27 million people, Egypt's labor market is considered one of the largest in the region. However, it is a market that suffers from a huge imbalance in supply and demand. The economy has struggled to generate enough jobs while the education system has fallen short of supplying the right kind of labor.
Every year, there are 700,000 new entrants to the labor market. That, in addition to 3.3 million unemployed -- 12.4% of the labor force -- means that the Egyptian economy needs to generate approximately one million new jobs every year to absorb the new entrants and gradually curb unemployment."If we start [looking at] the labor market [according to its] immediate challenges, I would say job creation is the [biggest]," says Magda Kandil, Director of the Egyptian Center for Economic Studies (ECES). She explains that although the economy had been growing at impressive rates prior to the revolution, it still has not been able to absorb Egypt's burgeoning labor force.
"Even during our best years -- when we were growing at 7% -- the sectors that were generating this growth were not creating a lot of jobs. Sectors such as financial services and IT are highly polarized where the structure of employment is either very high skill and high pay or very low skill and low pay," she says.
This dynamic left a large void in the job market that made it very difficult for college graduates in particular to enter the job market and find a hierarchy where they could progress along the career ladder.
Furthermore, what used to be guaranteed employment in the public sector is no longer the case. Currently, the government is the nation's largest employer. However ,there is no room for further employment; whether in the state itself or state-owned enterprises.
Kandil explains that elimination of government employment opportunities coupled with a continuing policy of free public education, has created a mismatch in the labor market.
"When government employment was eliminated, and rightly so, [the government] continued investing in free education with no return on this investment. Meanwhile the private sector has been very selective when it came to absorbing these college graduates," says Kandil.The private sector's reluctance can be partly explained by a lack of policies that promote the growth of labor intensive industries; however, it must also be noted that the skill level of these graduates is of concern.
Mohamed Hanno, a board member of the Alexandria Businessmen Association (ABA), explains that the number one problem voiced by the business community is the lack of skills and difficulty in recruiting.
"Here at the ABA we do surveys with our members about the problems that face them with labor. The most evident is always the difficulty in finding the right recruits, especially in the blue-collar market," he says.
Hanno also asserts that within the white-collar market, and especially among college graduates, there is very high unemployment due to lack of demand and low skill level. "A lot of the [college graduates] work in blue collar jobs. You find business graduates working in gas stations or engineers waiting tables.
At the same time when you post a [job announcement] looking for an accountant you'll get so many applicants yet you can't hire most of them due to their low skill level [which is the result of] a poor education system," says Hanno.
It is therefore evident that the two main problems facing the labor market in Egypt are economic growth that failed to target labor intensive industries, as well as a skill mismatch in the supply and demand of blue and white collar workers.
Kandil says that what is needed at this juncture is for the government to stimulate the economy through investing in public works or public private partnerships (PPPs) where they can embark on some off-the-shelf projects. Also, in the near term the government should work on stimulating the private sector with particular emphasis on small and medium enterprises (SMEs).
"The SME market is huge as they account for 70% of employment in Egypt. Many of them, however, were suffering prior to the revolution due to lack of support from the government and are now suffering after the revolution due to compounded problems such as strikes, slow demand, security problems and so forth," says Kandil.
She explains that SMEs are "necessity entrepreneurs" that can be stimulated through providing some access to credit as well as some organizational support. Several international institutions have already pledged support to SMEs and job creation in particular.
"If the government manages to capitalize on this support and stimulate SME activity through tax incentives, productive support or export subsidies, which could be finite in horizon and phased out in relation to performance, that would help immensely in the near term," Kandil says.
Fixing the mismatch
Stimulating the demand for labor through economic growth with particular emphasis on labor intensive industries as well as empowering SMEs is relatively a straight forward approach. On the other hand, ensuring that the supply of skilled labor matches demand requires a complete overhaul of our education policy.
"Jobs were being created, however not in the sectors that match the supply of labor," says Hanno. "For example in the services sector there were so many jobs created like in the restaurant business and in delivery services; these jobs, however, were not suitable for college graduates."
Hanno had alluded earlier to the fact that business owners find it difficult to recruit the required labor, especially in the blue collar market due to limited supply. On the other hand, a continued flow of college graduates has created an excess supply of white collar workers.
"The problem is that you have so many college graduates that are not really in demand. Some would argue that it's actually better for these students not to go to university to begin with; instead, they should go to vocational training or technical schools," he says.
Students opt to go to university for social status or as a result of parent and peer pressure. Most of them, however, will graduate to unemployment due to excess supply in labor. On the other hand, had they joined a vocational school, they would probably have a much easier time finding a job.
"The problem with vocational training is a social one. The kids go to these schools having in mind that they want to do something else afterwards and don't want to join the blue collar market," says Hanno.
Tying social status with education is a stigma that our society has created over the decades and, to a large extent, is the reason behind the huge imbalance in the labor market. Kandil explains that even if we agree that education buys social status, it may not buy economic status.
"I lived abroad for many years," says Kandil. "There, your social status is not based on your education but [rather] on your financial means. You can be a carpenter or a plumber [...] but, at the end of the day, you can afford to send your kids to a good school, live in a nice neighborhood and own a car. So it's the economic means that buy [...] social status."
She believes that it is high time for an overhaul of the Egyptian education strategy where more resources should be allocated to vocational training. At the same time, the government needs to limit its support for free public education at the university level."I would argue that there is no reason to continue with free public education at the university level; or at least it should be more selective. [...] Beyond that, we need to shift the resources toward vocational education and organize employment schemes to help align graduates with jobs in the private sector," she explains.
By increasing investment in vocational training and creating awareness of the increased economic opportunities associated with it, we would be revisiting a culture that has stigmatized certain jobs which are actually in high demand.
Vocational schooling
Hanno explains that there are three stages of vocational training in Egypt. The first is vocational schooling which is at the same level as high school. After that, graduates can join a technical institute where they learn more advanced skills such as welding or carpentry, however these facilities are not very efficient.
"All the equipment and the level of teaching in these institutes are very weak," says Hanno. "The skill level of graduates does not differ much from those who only attend vocational high schools."
The government therefore needs to allocate more resources into upgrading these facilities. At the same time, the teachers need to actually have hands-on experience in their fields as opposed to being strictly theoretical.
The last stage of vocational schooling is field-specific training programs that could either be government sponsored or undertaken by the private sector as is the case in large factories, for example. Hanno says that there is a lot of effort and investment being directed to these training centers, but it is still not enough.
"Egypt is a big country that needs a huge amount of trained labor. These programs need to be expanded and the government has to play a bigger role in this; [it] cannot throw the burden on the private sector alone," he says.
A problem with the private sector investing in these training programs is that they would require a return on their investment and this is not always guaranteed. Hanno explains that the labor law does not provide any guarantee that, after a worker receives his training, he will stick to the job.
"The worker could receive his training and then [...] work for a multinational leaving no return for the investor that trained him," he explains.Another problem with these training programs is that they are not easily applied in smaller sectors of the economy. A lack of big players in an industry means that it is difficult to have a collaborative effort and it is sometimes not feasible for an individual company to take on such projects.
It is therefore vital for the government to step in and expand these training schemes in collaboration with the private sector. Training centers are currently administered by three different ministries, but there are efforts to establish a single umbrella institution that will oversee the centers and provide a unified accreditation program.
The FY2011/12 state budget shows $2 billion (LE 12.07 billion) earmarked for this unification process with a committee responsible for administering the fund. However, there is no doubt that training on its own will not solve the unemployment problem. Investors are needed to create employment opportunities and that of course hinges on the success of the political process.
© Business Today Egypt 2012
