1. Labour Supply: Dragging Issues and Limited Policy Response 2. Job Creation in the Formal Private Sector 3. Employment Creation for Women: Promising Sectors Do Exist 4. Private-sector Development and Creation of Decent Jobs: The Way Forward.

Towards a Productive and Inclusive Path

Job Creation in the Arab Region

The working age population in Arab countries is characterized by stagnant labour force participation, high unemployment levels and limited sustainable and inclusive employment creation, and even before the COVID-19 pandemic, more than 14 million Arab individuals were jobless. It is expected that the pandemic will compound the issue of employment creation even further, putting additional pressure on policymakers to come up with more effective strategies in the short run and strengthen their structural transformation efforts in the medium and the long run.

Realizing the importance of ensuring more equitable and sustainable employment, the Economic and Social Commission for Western Asia (ESCWA) and the International Labour Organization (ILO) Regional Office for Arab States partnered to examine the underlying reasons behind the endemic failure of Arab economies to create sufficient jobs. This joint study focuses on the limited role of the formal private sector in job creation and highlights labour market deficits in the Arab region. Solidarity among countries of the region is indispensable if they want to recover from the effects of the pandemic, boost economic activity and create sufficient decent job opportunities.


Rola Dashti
Executive Secretary

Ruba Jaradat

Ruba Jaradat
ILO Regional Director for Arab States


By various measures, development performance in the Arab region during the four decades leading up to 2010 had been on the right track, with a steady rise in life expectancy and mean years of education, especially among youth and women.1 However, employment consistently lagged behind. In the past three decades, the share of the Arab region’s working-age population expanded by 17 per cent, while the employment-to-population ratio increased by less than 1 per cent, resulting in the lowest level of employment creation amongst all regions for the same period. At the same time, most of the employment creation happened in the informal private sector and the public sector. The gap between the working-age population and the generated jobs requires rethinking the developmental model that has reigned in the region since the 1990’s. Regional analyses including the first Arab Human Development Report of 20022 and the Arab Human Development Report of 20093 set out four cross-cutting stylized facts which form the basis for the main question of this report, namely, why the formal private sector in the Arab world is not creating enough decent and inclusive jobs. These four facts are as follows:

• The mainstream political economy narrative which claims that Arab States have systematically disbursed subsidies and rents to their constituencies in exchange for little or no public policy accountability: This authoritarian bargain, as it is often referred to, is associated with the formation of rentier and low-productivity economies with wide deficits in youth participation and gender equality, a large informal sector and a limited role of the formal private sector, particularly in employment creation.

• Major human development progress recorded in key health and education indicators, which has left the region with a more educated and youthful labour force: However, and despite relatively high growth rates of the gross domestic product (GDP) from 1990 to 2010, opportunities for aggregate productive and decent employment have fallen short. Jobs were mainly created in informal low valueadded production and the public sector, which also added to political polarization. Consequently, aggregate labour productivity and real wages stagnated or dropped in real terms. This has led to a disenfranchisement of large segments of Arab youth, especially those with higher educational qualifications. Predictably, a minority were drawn into extremism and conflict.

• The low inclusivity of women: As highlighted by the International Labour Organization (ILO) and the United Nations Development Programme (UNDP) in 2012,6 the main difference between the employment profile of the region and others is the extremely low women participation rate which, as the report argues, caused by not enough jobs being produced by Arab economies, structural constraints and gender dynamics that discriminate against women. Digging deeper into the root cause of this deficit, the report points to inclusive growth and structural transformation deficits associated with governance practices, social contracts and macroeconomic policies that resulted in poor inclusiveness outcomes.

• The regional discussion about the size of the public sector in employment which might crowd out formal private-sector employment: While acknowledging that there is no easy way to determine the optimal size for the public sector, the challenge facing Arab countries is not so much a bloated public sector (even though this may be the case in some countries), but rather the failure of publicsector policies leading to a more successful economic structural transformation and diversification. This failure pressures many Governments, especially in oil-rich economies, to create inclusive public employment opportunities with limited employment in the formal private sector. An enlarged public employment can thus be regarded as a plausible side effect of the social contract, especially as a reward for the politically well-connected elite.

1. Labour Supply: Dragging Issues and Limited Policy Response

The constantly growing working-age population of the Arab world calls for an equally growing number of jobs. According to these figures up until 2019, it is estimated that the region needs around 33 million jobs to ensure an unemployment rate of 5 per cent by 2030, without factoring in the impact of the COVID-19 pandemic. If the aim is to also increase the female labour force to match participation levels similar to those in middle income countries, the number of jobs needed could even reach 65 million.

Demographic structure of Arab States, by age, 1960, 1970 and 2019




Participation rates have generally remained stagnant since the 2000s, with only female participation rate increasing by just 1 per cent to remain the lowest in the world, at 21 per cent (compared with 74 per cent for men) in 2019. This was despite the fact that the Arab region’s income more than doubled between 2000 and 2019 in real terms, and the proportion of those aged 15-64 increased from 57.7 per cent to 62.3 per cent of the total population.

Over the past decade, the average youth unemployment rate has increased from some 22 per cent in 2010 to some 26 per cent in 2019, with female youth unemployment even approaching 40 per cent. Without concerted efforts to reduce unemployment in the region, the number of unemployed persons is expected to rise from 14.3 million in 2019 to 17.2 million in 2030.


● Reform educational programmes and develop effective active labour market policies, particularly for the youth.

● In response to the COVID-19 crisis, develop policies that support businesses and individuals to provide income to the most vulnerable and support the business continuity.

● Arab countries, to encourage additional formalization through pro-employment macroeconomic frameworks, well designed pro-poor tax systems, and inclusive social protection programmes.

2. Job Creation in the Formal Private Sector: High Capital-Labour Inequalities, Low Total Factor Productivity and Sluggish Employment Demand

In the Arab world, wage shares drop as firm size increases, with a somehow stable capital share. This relation between wage share and firm size is consistent over the years in countries having more than one data point. A similar pattern of decreasing wage share is also observed in all other countries with similar income brackets. It must be noted, however, that the drop in wage shares in upper-middle income in Arab countries is higher. The results presented can be justified as follows: Better technologies and higher market shares are usually concentrated among larger firms, which makes them more profitable and productive than SMEs.

For all estimated TFP, most firms have a TFP lower than the country’s average income group, with slightly more than 50 per cent of firms in Tunisia (2013) and Jordan (2019) having a TFP higher than their middle-income peers. In all other countries, TFP scores in Factor share by firm size: Arab States versus different income brackets Firms with TFP above the average of a country’s income group peers more than 50 per cent of the firms are lower than is the case for average firms in countries with similar income brackets. In 2016, almost 65 per cent of Egyptian firms had TFP lower than low-middle-income country averages. Morocco has experienced the largest increase in the number of firms performing above Morocco’s peer income bracket countries, but still more than 50 per cent of the firms perform below the country’s income bracket averages. Morocco’s outstanding performance is due to the recent structural transformation efforts to advance the manufacturing sector backed up by large European FDIs targeted towards manufacturing. Lebanon, however, regressed by almost 7 per cent due to its socioeconomic and political challenges.

Countries in conflict, except Iraq, and those in transition, such as Egypt and Tunisia, experienced, on average, lower growth than other countries. What is surprising is the recent regression facing Jordan and Lebanon. These two countries experienced a drop in private-sector employment growth, with Jordan regressing from above 10 per cent to below 7 per cent and Lebanon from 7 per cent to -2 per cent between 2013 and 2019. Both countries are experiencing an economic downturn and are surrounded by conflict- affected countries. Lebanon is experiencing the worst economic crisis since the end of its civil war in 1991.

Unlike the rest of the world, employment elasticity is significantly below the average income group for most Arab States, with Iraq experiencing a negative employment elasticity in all sectors. Only Morocco’s sales growth is generating more employment with elasticities in almost all sectors exceeding the average elasticities of lower-middle income countries in the same sectors. It can be concluded that an increase in sectoral output will drastically reduce unemployment in Morocco. Overall, most sectors in all countries, except Morocco, have an employment elasticity below one, and many below 0.5, indicating that an increase in output by 1 per cent increases employment by less than 5 per cent.

Political instability, access to finance, tax rates, electricity, and corruption are at the top of the biggest obstacles impairing firm performance as reported by the surveyed enterprises. It is important to note that most of these surveys were conducted during the years of the Arab uprisings, namely, 2011-2019, characterized by intensified political turmoil and violent conflicts in the region. Political instability may substantially impair firm performance by fostering uncertainty, increasing certain risks and invoking risk-averse behaviour. Reduced investor and consumer confidence subsequently limit investment and consumption.


● Introduce stimulus packages especially targeted at micro enterprises and SMEs in order to secure liquidity for vulnerable firms.
● Update policies supporting SMEs to sustain and grow.
● Offer additional incentives for private-sector innovation with a focus on more labour-augmented technologies in production.
● Lessen the rigidity in labour laws and regulations, have a more skilled workforce, and ensure a stronger and more competitive business environment to increase employment elasticities.
● Focus on better quality education, deep skilling and reskilling, especially among the mid-skills bracket.
● Develop sector-specific policies that tackle the impact of technology on employment creation, whereby no policies should be mainstreamed among all sectors.
●Ensure that, during the post conflict reconstruction stage, especially in countries such as Iraq and Yemen, the construction sector plays a key role in employment creation and represents a fruitful entry point for reconciliation.

3.Employment Creation for Women: Promising Sectors Do Exist

Women around the world continue to face disadvantages in the labour market of the formal private sector; yet, the gender gap in full-time employment is substantially wider in the Arab region, with the average male share being roughly 4.5 times larger than that of women. The average female share of total full-time employment in the formal private sector for the examined sectors stands at 18 per cent in the Arab region, about half of the world average.

Large and medium-sized firms have higher average female shares than small firms. Several studies have also found a positive wage-size relationship. The higher wages and benefits offered by large firms may increase the opportunity cost of not joining the labour market and incentivize women’s participation. In addition to the higher benefits they offer, large firms can be associated with less gender-discriminatory practices and a lower risk of sexual harassment, as they are more likely to have a clear legal and regulatory framework, including rules of personal conduct.

The Arab region considerably lags behind the world when it comes to the representation of women in management and leadership positions across the selected sectors. Less than 5 per cent of examined enterprises in the region reported having a female top manager compared to more than 15 per cent in the world. In the Arab region, the gender gap in top management widens by almost fourfold relative to the gender gap in full-time employment shares, which may signal the existence of glass ceilings across the region.

In the Arab region, personal status laws and customary practices, in terms of discriminatory property rights, put women at a greater financial disadvantage, restricting their ability to collateralize loans and access credit. Approximately 49 per cent of male- owned firms perceive access to finance as either no or minor obstacle relative to 47 per cent of female-owned firms. Among the surveyed female-owned firms, 53 per cent perceive access to finance at least a moderate obstacle, while nearly 23 per cent perceived it as a major or very severe obstacle.


● Improve women’s labour market prospects.
● Challenge gender-discriminatory perceptions in labour markets and capitalize on the increased level of education of women in all sectors.
● Support female entrepreneurs by providing access to credit to promote growth- oriented entrepreneurship for females.
● Adopt more remote working arrangements as a viable solution to improve women’s capabilities post the COVID-19 crisis.

4. Private-sector Development and Creation of Decent Jobs: The Way Forward

The Way Forward

● A four-pillar policy response should be implemented to address the COVID-19 challenges.
● Support actions for the most vulnerable groups, including informal economy worker and enterprises, are needed.
● National employment policies must be developed, macroeconomic policies must be rethought, and private-sector development must be promoted.
● Labour and social policies supporting the private sector should respond to the dual challenge of creating jobs and reducing deficits in decent work.
● Education and training should be reformed and effective active labour market policies should be developed, particularly for youth.
● Gender equality and women empowerment need to be promoted.

Only by revisiting the development model followed by Arab countries in a way that allows for enhanced productivity and increased decent work will the region be better positioned to achieve its development goals. Such efforts need to take into account the additional challenges brought by the future of work and the new emerging forms of employment, including, for example, the gig economy, which the COVID-19 pandemic has only accelerated.

Women are twice as likely to be illiterate as men, making up two thirds of the region’s illiterate adults. Gender gaps decreased as more girls were enrolled in primary education; however, gender gaps widened as the level of education rose. Girls in rural areas and from the poorest households have lower attendance rates in primary and secondary school. Those in conflict-affected countries are much more likely to never to go to school than boys.

Out-of-school rate for children of primary education by location and wealth quintile, latest available data (percentage)

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The type of education and specialization is still highly correlated with a person’s gender: women tend to favour science majors over engineering, and a lack ICT and Internet skills continues to be a major barrier keeping women from fully benefitting from the potential of ICT.

Gender Parity Index of graduates by specialization in science majors, latest available data

Gender Parity Index of graduates by specialization in engineering, manufacturing and construction majors, latest available data


● Promote gender-equitable education systems and social protection measures, including cash transfers, to improve girls’ transition to and retention in secondary school.
● Address discriminatory gender norms and harmful practices that deny girls access to school and quality learning. Remove gender stereotyping from school curriculums and promote diversified curriculums.
● Increase girls’ access to vocational training in engineering fields and to specializations that are highly demanded in the labour market.
● Ensure women benefit fully from ICT, including equal access to ICT-related education, training and entrepreneurship opportunities.

Women are more likely to be in vulnerable jobs. There are more contributing family workers than men, and more men employers than women. Women’s highest labour force participation rate is the lowest rate recorded for men.

Status in employment, Arab States 2019, Women

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Status in employment, Arab States 2019, Men

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Women tend to be employed in lower wage jobs, resulting in gender inequalities in pay despite numerous changes in women’s economic behaviour and educational attainment.

Gender pay gap by sectors in selected countries, latest year (local currency)

in advantage of women (left), in advantage of men (right)

Moreover, there are more young women than young men who are potentially disengaged and at risk of disaffection with society, suffering from long-term unemployment and risking forced early marriage.

NEET rate for youth aged 15-24 years, latest available data (percentage)


● Remove obstacles to young women’s participation in decent work.
● Support women’s transition into formal employment, and reform national laws to promote equal treatment of men and women in the labour market, including equal pay for equal work.
● Provide maternity and paternity leave to increase female participation in the labour force and reduce employers’ reluctance to hire, retain or promote pregnant workers.
● Tackle the burden of unpaid care work through the provision of affordable care services.
● Launch public campaigns to challenge gender stereotypes and effectively implement legislation for equal pay and against discrimination.
● Implement comprehensive youth programmes to re-engage disengaged young people, especially females, in employment, education or training.

7. Public life and decision-making

Women’s representation in political decision-making continues to rise, but is far from achieving equality. Women’s share in parliament has more than quadrupled since 2000; however, it is still below 20 per cent in the Arab region. Similarly, the proportion of women ministers does not exceed 20 per cent.

Proportion of seats held by women in national parliaments, latest year (percentage)
Share of women in government ministerial positions, 2019 (percentage)

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Having a bank account is an important starting point for people to access financial services. Women’s economic empowerment is still low given that the Arab region has the highest gender gap in globally in terms of holding a bank account.

Proportion of adults, aged 15 years and older, with an account at a financial institution or mobile-money-service provider (percentage)


● Include quotas for women’s participation in leadership and decision-making positions, and enforce merit-based recruitment and promotion to ensure equal access for women to leadership positions.
● Adopt an integrated and multiple-entry-points approach, mainstream gender and women’s financial inclusion into national policy agendas, and support financial and digital literacy programmes for women and girls.
● Implement women’s entrepreneurship programmes to improve women’s access to finance and economic empowerment.

8. Human rights of women and girls

Violence against women and girls continues to be an issue, and child marriage remains a widely ignored form of violence. Pregnancy and childbirth complications are the leading cause of death among 15 to 19 year-old girls. In all countries, adolescent birth rates were higher among uneducated and poorest girls.

Adolescent birth rate (births per 1,000 women) by education and wealth, latest available data

The harmful practice of FGM impacts women and girls’ health and wellbeing, and can result in death. FGM remains a significant problem in some countries, with the poorest girls and those living in rural areas at higher risk.

Proportion of women and girls who have undergone female genital mutilation by wealth quintile, latest available data (percentage)

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● Enact, implement and monitor legislation addressing all forms of violence against women, including child marriage and female genital mutilation.
● Institutionalize gender-sensitive planning and budgeting to ensure adequate allocation of resources.
● Establish human-rights based standards and procedures for the provision of services to survivors of violence.

Lack of access to basic and improved water and sanitation services remains a challenge in many Arab countries, especially for poor households and those living in rural areas. Women and girls’ death attributed to unsafe water, unsafe sanitation and lack of hygiene is higher than men’s.

Population living in households using an improved water source by location and wealth, latest year (percentage)

Many still do not have full access to clean fuels and technology, and only a handful of countries have full access to electricity. The burden of not having access to those services falls more on women, because they are mostly responsible for cooking and domestic chores.

Gap between rural and urban areas of population with access to electricity, 2017 (percentage)


● Incorporate water, sanitation, clean fuels and electricity programmes explicitly in national development strategies, and ensure that a gender perspective is mainstreamed in them.
● Prioritize clean-cooking fuels and technologies.

Annex, Acronyms, Bibliography

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