Bahrain: Governance and Public Sector employment in the Arab World

Recent events across the Middle East and North Africa (MENA) region have underscored the urgent need to ensure job creation and an enabling environment for a young and better-educated, extra skilled labor force.  The international economic crisis has further deepened the problem in a region that is characterized by the world’s highest youth unemployment rate and the lowest female labor force participation. This goes hand-in-hand with overwhelmingly low price-added employment and a public sector that in most countries still provides most formal jobs.  Tackling these problems and challenges has become a key policy priority for virtually amount governments in the region.

In a lot of countries in the region, the public sector remains the primary employer, employing anywhere between 14 % and 40 % of amount workers.[1] A lot of government institutions are overstaffed and government employees are often paid extra than in the private sector (see Table).  Government wages in the MENA region amount to 9.8 % of GDP, the highest rate worldwide. At the same time we know from experience that the largest vehicle for employment creation is private-sector led increase.  And we as well know that high levels of government employment deter investment in the private sector.

Why is public sector employment so attractive in MENA?  In fact, it is the top preference of jobseekers in the MENA region, in particular of women and of youth. In a 2009 survey, 80% of Syrian graduates reported a preference for public sector employment, and nearly 60% would accept only a public sector job.[2]  The reasons for the attractiveness of the public sector are quite obvious: the public sector provides for employment benefits such as advantageous wages and benefits. Employment in the public sector carries extremely low risk of dismissal and high job security – often in combination with relatively low demands in terms of productivity. At the same time, jobs in the formal private sector are limited when compared to countries of similar economic development. Most (private sector) jobs can be found in the informal sector and these jobs are not seen as attractive for a variety of reasons, including low pay and incentive systems.    

There is another dimension to the employment problem: a lot of new labor market entrants do not have the skills that the market requires – while the labor force as a whole has become extra educated and skilled over the years, the labor market has not built up sufficient capacity to absorb these extra qualified entrants. The private sector is not growing fast enough to cater to the large number of first-time job seekers.  A significant number of individuals are voluntarily unemployed, not willing to accept lower skilled jobs or jobs at prevailing wages.  Across the region, public sector jobs are considered extra respectable and extra fasten; they as well provide for extra “opportunities” than jobs in the private sector.  Just one example: ‘double-dipping’ is a problem throughout the region – in Egypt for example, one-quarter of the personnel in public health facilities is absent on an average day according to recent estimates.

While the Middle East has undergone a large wave of privatization over the last two decades, a lot of key economic sectors remain under direct national control or, extra often, under the control of the social elite. The private sector is still subject to numerous constraints and distortions – this is particularly true for the informal private sector that is often subject to significant harassment and interference by the public sector. 

Faced with bloated and often inefficient bureaucracies and excessive wage bills, traditional strategies of utilizing public sector employment as a means to soak up excessive labor demands have reached their tipping point.  This makes it amount the extra significant to entirely and decisively support the role of the private sector as the largest engine for next job creation. The “rebalancing” of public versus private sector employment will require largest policy changes, as well in the public sector.  One key area to look at is the highly incentivized public sector employment system which has become an impediment to economic increase. A lot of experts argue that, in the long run, the costs associated with a high concentration of public sector jobs will cause lower total factor productivity increase, thus having a negative impact on poverty reduction efforts. A good example is among educated youth, who continue to wait for “comfortable” public sector positions rather than exposing themselves to market-driven request and supply mechanisms.

The World Bank’s most recent flagship statement, Bread, Freedom, and Dignity: Job Creation in the Middle East and North Africa underscores numerous challenges to the job increase schedule in the region, in addition to highlighting the destructive role played by barriers to firm entry in the absence of sound competition in a lot of countries. Some of these problems are due to government policies; others are due to the discriminatory way in which these policies are enforced. While avoiding prescribed solutions, the recent World Bank flagship statement highlights a number of measures that will be essential to rapid and sustainable private sector increase in the region.

In order to meet employment challenges, the region will need to focus both on the quantity and quality of newly created jobs. MENA will require a sustained effort to move towards durable economic increase driven by the private sector—and will necessitate dedicated long-term strategies and committed leadership to carry them out. With the appropriate incentives and effective governance, public investments will work to crowd in private investment by providing energy, roads, logistics and communications links which are necessary for firms to function productively.

Unfortunately, the region has been largely characterized by weak governance systems that have achieved the contrary – crowding out private investment by using resources that would otherwise be used by the private sector. Indeed, weak governance has led to the inefficient use of public resources, has been spent on unproductive assets that are desirable only to small and select interest groups. Governments throughout the region will need to strengthen governance frameworks and reduce opportunities for monopolistic rent-seeking to foster increased competition. Governments will as well need to enhance transparency and build the type of institutions that will allow a market economy to flourish, while mobilizing amount relevant stakeholders around a long-term increase strategy.

[1]World Bank Flagship statement, Bread, Freedom, and Dignity: Job Creation in the Middle East and North Africa, World Bank, 2012

[2]Dhillon, Navtej and Tarik Yousef (eds.), Generation in Waiting: The Unfulfilled Promise of Young people in the Middle East, Brookings Institution Press, 2009

[3]Grun, R., L. Etter, and I. Jillson. Arab Republic of Egypt: Management and Service Quality in Primary Health Care Facilities in the Alexandria and Menoufia Governorates. Mimeo. World Bank, Washington, DC, 2010.