The World Bank’s new corporate scorecard sets a critical target: generating millions of well-paying jobs. This is vital for the Middle East and North Africa (MENA) region, where nearly 300 million youth are projected to enter the labor market in the next 25 years (Figure 1). Yet, MENA’s experience over the last 25 years shows that current efforts are unlikely to generate enough jobs for incoming generations. A new jobs agenda is urgently needed.
Figure 1: Demographic trends in MENA
Source: Authors’ calculations based on the United Nations World Population Prospects.
MENA’s record of demographic and economic growth
Since 2000, MENA’s real GDP has grown at an annual rate of 3.3 percent. To understand what this means in terms of jobs, we can decompose the GDP growth into three components: (i) Population growth, (ii) growth in economic participation rate, and (iii) growth in productivity per worker. Together, the first two components correspond to “more jobs”, and the third one “better jobs” that pay more.
Over the last 25 years, MENA’s population growth has contributed 1.9 percentage points to GDP growth, annually (Figure 2). By comparison, with working age population increasing faster than total population, the increase in economic participation rate has added 0.4 percentage points, and productivity gains 1 percentage point.
Figure 2: MENA’s growth target under different future scenarios
Source: Authors’ calculations based on World Development Indicators and United Nations World Population Prospects.
How does this performance compare to other economies? In 2000, MENA’s GDP per capita stood at just 26 percent of the world’s leading economy. Fast forward to 2023, it still hovers around that level. This is not good news as we, economists, typically expect poorer countries to grow faster, reflecting a convergence effect driven by greater returns to investments when capital-to-worker ratios are initially low. This clearly has not been the case for MENA in recent decades. Worse yet, with shifting demographic dynamics, the next 25 years are likely to be even more challenging for the region.
The case for a “Jobs Agenda” for MENA
What would it take for MENA to reach half of the frontier by 2050? The most recent MENA Economic Update estimates that MENA’s GDP needs to grow by 4.9 percent, annually, for this to happen. This is about 1.5-fold greater than the historical record. Moreover, a slowing demographic growth will only contribute 1.1 percentage points to this process. The remaining growth hinges on policies.
Consider first a “business as usual” scenario where labor force participation and unemployment rates remain constant, and the economic participation rate is driven only by demographic changes. Over the next 25 years, MENA’s working age population growth is projected to lag slightly behind population growth. Therefore, economic participation rate will not contribute much to growth–it has in fact a very small negative contribution that is negligible. So, where will growth come from? The only answer is productivity. To reach the target GDP per capita (half of the frontier), MENA’s productivity would need to grow by 3.8 percent annually in the coming decades. This is nearly four times the historical rate achieved over the last 25 years, placing a heavy burden on creating “better jobs” with higher productivity and pay. Fortunately, this daunting scenario is not the only option.
Next, consider an alternative scenario with a proactive “jobs agenda”. This comprises a dual objective: (i) boosting economic participation rate and (ii) boosting productivity. The MENA region has the lowest female labor force participation (LFP) rate, 16 percent, in the world. If the region’s female LFP gradually increases and catches up with the male LFP (74 percent) by 2050, the employment-to-population ratio would contribute 2 percentage points to MENA’s growth target of 4.9 percent. This approach would also reduce the burden on “better jobs” to a more manageable 1.8 percentage points. Thus, a combined “more jobs” and “better jobs” target, supported by a proactive jobs agenda, presents a more viable trajectory for MENA countries.
Tailoring the jobs agenda to country challenges
The MENA region is not homogenous. For example, distances to the frontier, demographic profiles, and economic participation rates, differ drastically across countries. Therefore, the jobs agendas should be configured at the country level.
Developing MENA countries can benefit from “more jobs” and “better jobs” at similar degrees. Closing the gender LFP gaps in these countries would boost employment-to-population ratio by 1.7 percent, annually. This alleviates the pressure on productivity, which would have to grow by 2.1 percent each year until 2050. Egypt, for instance, expects a population growth of 1.3 percent annually in coming decades. Closing the gender LFP gaps can increase the employment-to-population ratio by 2.1 percent, annually. Then, with only 1.7 percent productivity growth per year, Egypt can meet the MENA region’s growth target.
By comparison, with access to a large migrant labor force, boosting job quality presents the main challenge for GCC countries. To bridge the gap halfway to the frontier, job productivity in the GCC must grow by 3.2 percent annually, while gains from closing gender gaps would contribute an additional 0.6 percent annually. Consider Saudi Arabia, for example. With its population expected to grow by 1.3 percent over the next 25 years, the country must achieve a faster improvement in job productivity, aiming for a 2.8 percent annual increase, compared to a 1 percent annual rise in the employment-to-population ratio from further closing gender gaps.
A proactive jobs agenda is crucial for MENA’s future. Each country needs tailored policies for its unique economic and demographic context, some with emphasis on “more jobs” and others on “better jobs”. Together, a “more and better jobs” target is both desirable and attainable with the right policies.
Source: blogs.worldbank
