Is job growth alone good enough?

Photo: Crozet/International Labor Organization

High levels of unemployment, particularly among the youth, has been a thorny issue in Egypt for decades. Much has been said and done on job creation to tackle chronic unemployment.

While most of the talk and employment initiatives have been about improving the number of jobs, little attention has been paid to the quality of these jobs.

A recently published paper by the policy think tank Alternative Policy Solutions (APS) of the American University in Cairo (AUC) revealed some key statistics on the quality of work in Egypt over the last two decades, stating that it “has declined significantly during the 12-year period” the paper studied.

According to the policy brief, titled “Quality of Employment in Egypt and a Multidimensional Approach to Labor Market Policy”, the number of workers suffering from severe deprivations increased from 71 percent in 2006 to 90 percent in 2018.

APS calculated these deprivations by using a Quality of Employment (QoE) index they formulated based on the established Alkire/Foster (AF) method. This methodology has been used to create other multidimensional indices such as the Multidimensional Poverty Index (MPI), which has been used in 104 countries.

They developed the QoE index using data from the Egyptian Labour Market Panel Survey (ELMPS), which itself collected data in the years 2006, 2012 and 2018, providing a 12-year period for comparison and identifying trends.

The variables that were used to make up the index were earnings from work, occupational status, social security coverage, excessive working hours and working in a precarious establishment.

The ELMPS data also included the informal sector, but APS found that the rates of deprivation exceeded “the proportion of informal work in Egypt, which illustrates that many formal jobs are also precarious”. The variables which scored the highest rates of deterioration were income levels, social security coverage and occupational status in that order.

The number of informal workers in Egypt has been increasing since 2006, according to findings cited by the policy brief. The lack of good quality and well-paid jobs in the formal sector has been one of the major reasons behind this trend. Job seekers have instead turned to the informal sector where wages and working conditions are still very poor, contributing to overall low quality of employment across the economy. Many just opt to drop out of the job market altogether.

So what do APS propose to improve the quality of working life in Egypt? In their policy brief, they have recommended four proposals which take a multidimensional approach to reflect the multidimensional nature of the problems facing job quality.

Minimum wage

Firstly, APS propose raising the minimum wage alongside establishing an effective minimum wage regime. The problem with the current minimum wage is that its implementation “has not yet been effective [as] it does not apply uniformly across all sectors”, including the private sector.

The Ministry of Planning previously stated that it is working on a legal framework for enforcement and intends to set it on an hourly basis at EGP12/hour.

Resistance to the minimum wage from business owners rests on the common misconception that raising the minimum wage raises costs for businesses and hence will reduce employment opportunities. On the contrary, the literature and the evidence shows that raising the minimum wage does not have a negative impact on job creation, as long as the increases are gradual.

With low levels of wages, low-income households consume less which contributes to overall low consumer confidence. When wages are raised, employers feel obligated to raise the skillset of their employees by investing in training and human capital.

What APS propose is that the National Council for Wages revise the minimum wage on an annual basis through a process which involves civil society organizations that represent workers and their interests. This should be coupled with awareness campaigns that inform workers of their rights and entitlements.

Regulation of occupational status

Currently, Egypt lacks a comprehensive and standardized regime that regulates contract conditions in the formal sector. This has resulted in a labor market that is lacking in consistent working conditions, contributing to their deterioration.

The brief says: “Every country that has flexibilized their labor market following advice from international institutions has ended up with deteriorating employment conditions in the formal sector, while the size of the informal sector does not decrease. These deteriorating formal employment conditions are a result of the increased use of short-term or other forms of precarious contracts.”

This proposal entails two things: formalizing informal workers and regulating formal contracts. Combined, they should work together to improve overall working conditions across all sectors and regions.

The former would, of course, prove to be a massive undertaking in reigning in the country’s huge informal sector, however, the effort would be gradual and worth it in end. With the right legislation governing the relationship between employers and workers, formalization would increase the welfare of the latter.

To encourage this, the brief proposes that formalizing be a requirement for cash transfer programs. Workers, especially the most vulnerable in the labor market, will be more incentivized to formalize if it is a prerequisite for gaining access to subsidies.

Establishing generous Earned Income Tax Credits (EITCs) is also suggested, where workers can receive sums larger than their social insurance contributions.

The brief makes a specific point on the regulating of formal employment by restricting the use of short-term contracts to only where it is necessary and justified. Currently, short-term contracts that are constantly renewed are used as a means of keeping workers stuck in low-quality jobs.

Social insurance

The brief further reveals that social insurance coverage in Egypt declined from 52 percent in 1998 to 30 percent in 2018. Many categories of workers are not covered by social insurance including the self-employed, rural workers and seasonal workers, a further sign of informality.

APS proposes that with increased formalization, social protection would also increase thanks to workers making more social insurance contributions. This should be supported by informing workers of their obligations, their rights and entitlements. Trust and confidence in public services has to be built up as well to encourage workers to pay their contributions.

A new law was issued to create an irregular workers’ fund, which the brief emphasizes a greater focus on to reign in the informal sector.

The improvement in quality of formal contracts would also go far in boosting insurance contributions and relieving fiscal pressures on the state in providing social protections.

Enforcement

The sustainability of all the aforementioned proposals all depends on their institutionalization and enforcement. Such regimes need to be organized along regional and sectoral lines.

One way of achieving this is through lifting restrictions on the formation of trade unions and rolling back the government’s financial and administrative control over current trade unions. Current regulations should become consistent with the conventions set out by the International Labour Organization (ILO).

Additionally, the institutional capacities of inspection and regulatory bodies need to be strengthened to ensure businesses and organizations are compliant with labor laws. The brief further emphasizes informing workers of their rights and duties which helps to ensure their employers are complying.

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