# **I. INTRODUCTION**

Morocco has extensive untapped human resources. According to the most recent official data, more than half of the country’s working age population (15-64) is currently not participating in the country’s economic activity, making Morocco one of the countries with the lowest employment rates worldwide and in the Middle East and North Africa (MENA) region (World Bank, 2012).<sup>2</sup> Beyond low participation rates, the unemployment rate in the country remains globally high, especially among youth and women.<sup>3</sup> At the same time, the labor market in Morocco remains largely informal, with 80 percent of all workers not contributing to social security in 2014 according to official estimates.

Available research (Agénor and El Aynaoui, 2003; Gatti et al., 2013) indicates that labor markets in Morocco are quite segmented. There is a formal labor market, mainly composed of public servants and wage earners with access to social security. There is also a large residual informal labor market composed of agricultural workers, wage earners that do not contribute to social security, and self-employed. The informal labor market in Morocco is characterized by the prevalence of jobs that are low-pay/low-productive and largely unprotected against risks such as aging, income loss, and health (Gatti et al., 2013; Agénor and El Aynaoui, 2003). Moreover, previous studies indicate that the mobility between the informal and the formal sectors is quite limited and not competitive, especially for youth and for women (Agénor and El Aynaoui, 2003, Verme et al. 2013, and World Bank, 2012). Such low mobility of human capital is a definite symptom of labor market inefficiency – as human capital cannot be allocated where it could yield the highest returns (Gatti et al., 2013 and World Bank, 2012).

Previous comparative analysis of labor regulation in the MENA region (see Angel-Urdinola and Kuddo, 2010 and World Bank, 2013) indicate that some features of labor regulation in Morocco, notably minimum wage policy and payroll taxes, may contribute to elevating the cost of formal labor in the country and to constrain the demand and mobility of formal labor, especially among youth (Betcherman 2012 and World Bank 2012).

In particular, the level of the non-agricultural minimum wage (SMIG) in Morocco is high relative to the average worker’s productivity and well enforced in the formal private sector, especially in urban areas (Benhayoun et al. 2001 and Agénor and El Aynaoui, 2003). Compared to international benchmarks, this ratio is the highest in the MENA region, even by OECD standards (AngelUrdinola and Kuddo, 2010).<sup>4</sup> Moreover, between 2007 and 2013, the SMIG increased by 27 percent while average consumer prices increased by only 13 percent.<sup>5</sup> Also, payroll taxes (paid by employers) and social security contributions (paid by employees) in Morocco approach 25 percent

> 2 Latest available office data from Morocco’s High Planning Commissariat (for year 2015) indicate that overall employment rates in the country (population 15-64) are at 42.8 percent (64.8% for men vs. 22.1% for women) (data are available at http://www.hcp.ma)

> 3 Latest available office data from Morocco’s High Planning Commissariat (for year 2015) indicates that the country unemployment rate was at 9.7% (20.8% for youth 15-24 and 10.5% among women). In urban area, the figures of unemployment are even worst for youth (39%) and for women (21.7%).

> 4 According to the Doing Business Dataset this ratio was at 0.77 in year 2013 (www.doingbussines.org)

> 5 International evidence indicates that a 10 percent increase in the level of minimum wage is estimated to reduce youth employment by a range of 1 to 4 percent in an average labor market (Angel-Urdinola and Kuddo, 2010).

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