# A. **Unemployment Challenges in the Arab Countries**

The Arab region faces no greater challenge than employment generation. It has the lowest employment-to-population and labor force participation rates, as well as the highest levels of unemployment of any region in the world. Despite efforts made, the region has been unable to make substantial progress in reducing persistently high unemployment rates, especially among youth and women, and in several countries regional disparities remained if not widened. The lack of employment opportunities in the region is also reflected in relatively large informal sectors. There is also substantial heterogeneity across countries. There are several distortions that prevented a more productive use of human capital, which led to high unemployment rates that produced a sense of exclusion.

Unemployment in the Arab world is high at 10 percent. A critical challenge in the MENA region is high unemployment rates, which has been aggravated by the recent slowdown in economic growth and, calls for an increase in job creation. The demographic transformation of the region has led to an abundance of young working-age adults. MENA countries face a rising labor supply that has outstripped demand, leading to stubbornly high unemployment rates of 10 percent with even higher female unemployment rates of 16 percent. It is estimated that there is a need to add between 40 and 50 million jobs by 2020 (Freund and Rijkers, 2012) to address unemployment concerns given the projected demographics for this decade. Unemployment rates may be affected by changes in labor participation. If labor force participation rises, for example because of demographic trends, unemployment may increase, even if the number of employment opportunities rises. However, the demographic structure of a country’s population appears to have little bearing on the likelihood of a miracle happening ceteris paribus. Alternatively, decreases in unemployment may be driven by reductions in labor force participation. Yet, the qualitative results presented below are robust to ruling out cases where labor force participation declines.

Table (1): Youth Employment and Disparities in Selected MENA Countries*:

||Share of unemployed<br>(age 20 – 40) to total<br>unemployed|GINI index|Poverty<br>headcount ratio at<br>national poverty<br>line<br>(% ofpopulation)|Income share held by<br>highest 10%|Income share held<br>by lowest 10%|
|---|---|---|---|---|---|
|Egypt|79%|31|22%|27%|4%|
|Morocco|44%|41|9%|33%|3%|
|Syrian Arab Republic|49%|40|30%|32%|3%|
|Tunisia|71%|39|19%|30%|3%|
|West Bank and Gaza Strip|66%|37|27%|29%|3%|
|Yemen|65%|38|35%|31%|3%|

Source: World Development Indicators and ILO Statistics * Average 2001-2010 data.

Unemployment remains a chronic challenge for Arab countries – particularly those in transition. The core cohort in the productive age of 20-40 years old represents more than two thirds of the unemployed in Arab states in transition (see Table 1). It can also be seen that unemployment in these countries coupled with severe inequality and uneven distribution of resources that magnified poverty challenges. This is evident from the fact that the highest 10% of the population hold more than one third of these countries’ income, which is 10 folds of what the lowest 10% threshold are able to receive. This blend of youth unemployment and misallocation of resources held back productivity and congested economic growth triggering the social unrest.

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