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.