Employment Fluctuations and Sectoral Shifts in Egypt

This Discussion Paper has been presented as a part of the workshop called The Social-Economic Situation of Middle East Youth on the Eve of the Arab Spring, hosted on December 8 - 9th, 2012 at the American University in Beirut. Job creation is the most important challenge facing Egypt today. Economic performance has been uneven over the last three decades, but even in periods of high growth, the job content of growth has not been strong enough to absorb new entrants. The 1990s and early 2000s saw the acceleration in the structural adjustments. The fast growing role of the private sector and the contraction of the public sector are considered the most important characteristics of this period, generating notable sectoral shifts. The findings of the paper support the view that sectoral shifts have been an important source of private employment fluctuations in Egypt. They also provide strong evidence of the stage of business-cycle effects. Moreover, one of the important findings of the paper shows that public sectoral shifts practice stronger effect on private employment growth than private sectoral shifts do. However, failure to align public sectoral shifts with growth in the private sector has had a negative effect on private employment growth, increasing unemployment. The findings also confirm the crowding-out effect of higher government expenditure on private employment, particularly during a boom. Finally, the findings show that changes in domestic credit going to the private sector as a ratio of private GDP, and higher exports ratio to GDP have statistically significant positive effects on private employment growth. Overall, the findings signify the importance of policies that aim at increasing the job content of private-led growth in Egypt.