size of employment in infrastructure services in oil importing and GCC countries where infrastructure’s employment share is below world norms.

# **5. Assessing the employment effects of infrastructure investment in MENA**

<mark>This section distinguishes between direct and indirect jobs as well as between short term and long term effects. These differences have important policy and political dimensions as discussed</mark> below.

_<mark>Short-term employment effects</mark>_ The short-term employment generated by infrastructure spending is typically assessed in two steps. First, direct employment is estimated using information on the nature of infrastructure spending and the amount of different types of labor required by financed projects. Second, indirect and induced employment effects are estimated using multipliers from past experience that link these types of employment to direct employment. In order to estimate how much direct employment a given investment project would create, it is necessary to start with actual data from an infrastructure project that is similar to the project in question. This is typically done by using country-specific Input-Output (IO) tables. This direct employment effect understates, in some instances significantly, the total employment generated by infrastructure spending. A survey of the literature<sup>6</sup> indicates an actual employment multiplier effects in the range of 1.2 to 3.5.

The availability of non-OECD countries’ IO tables with employment and multiplier data is limited, restricting the use of this methodology in the case of the countries in the Middle East and North Africa region. Hybrid methods, such as those pioneered by Schwartz, Andres, and Dragoiu (2009) and by LECG (2009), can be adapted to address transferability across countries at different times and stages of development. The hybrid approaches work best in those cases when economies have similar structures and are at similar levels of development. A study on Egypt (ILO 2010) provides information from the most recent Egyptian IO table which includes 22 sectors based on ILO data for 2007/08 and the calculation of multipliers for all sectors. This information is relevant to the oil importing MENA countries whose IO structures are similar to Egypt’s. However, the GCC and developing oil exporters were judged to be too different in terms of economic structure and GDP per capita levels to make extrapolation from the Egyptian case reliable. For this reason we follow Schwartz et al. (2009) and employ an alternative method for assessing the employment effects of investment spending in MENA.

Schwartz et al. (2009) investigated the employment effects of a stimulus package of spending in various infrastructure sectors in the Latin America and Caribbean (LAC). They used project data from a number of World Bank studies to derive the share of investment expenditure on labor, and the share going to imports, in the main infrastructure sectors. Combining the expenditure share on labor with data on region-wide average wages (plus benefits) allowed them to compute the direct employment per US$ billion. The authors used data from the US highway sector to derive type I and type II multipliers and calculate indirect and induced employment. Taking a weighted average portfolio of infrastructure sectors allowed them to estimate the employment created by a representative basket of infrastructure investments.

> 6 Studies include Tregenna (2007), Bekhet (2011), DIT (2007), SEME (2010), Vesin (2011), Ishihara and Bennett (2010), and Schwartz et al. (2009).

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