1. Principals of Macroeconomics
BECO 2301
Research Paper
Done by:
Kholoud Yasser BinHassan
Naimah Ditta
Nour Khawajah
Ferdous Mohammed
Rola Mohammed
Unemployment in Egypt
2. Table of Content
Introduction…………………………………………………………………………..3
Back ground information:..............................................................................................3
Geographic characteristics:........................................................................................3
Demographic characters:............................................................................................4
Economic Resources and Sectors: .............................................................................4
Purpose………………………………………………………………………………..4
Unemployment in Egypt……………………………………………………………..5
Definition and Rate:.......................................................................................................5
Reasons, Causes and Effects on the Economy: .............................................................6
Solutions and Strategies:................................................................................................7
Recommendiations and Conclusion…………………………………………………7
Resources and References………………………………………………………….10
3. Introduction
Back ground information:
Geographic characteristics:
Area: approximately 1,001,450 sq. km
Geographically, Egypt is one of the rare countries that have an advantage and
opportunities than so many other countries from Continents, Coastline and Border.
Only few countries that have boundary between two continents, and Egypt are the
only country that connects Africa to Asia, it links these two regions from the North of
Africa with Southwest of Asia. This gave Egypt an amazing Coastline link it with
European countries through Mediterranean Sea from the North & from the East link
with Gulf of Aden that connect with the Indian Ocean through The Red Sea that also
connecting it with one of the biggest countries Saudi Arabia. Three (3) is the number
of cities the borders with Egypt Libya from the West, to the East Gaza from the south
Sudan.
Egypt is bordered by Libya to the west, Sudan to the south, and by the gaze strip and
Israel to the east. Egypt is a transcontinental country, meaning that is occupies two
continents, Asia and Africa.
Climate: dessert hot by summers with moderate winters.
Geographic coordinates:
of Egypt: 2700 N, 3000E
4. Demographic characters:
Egypt is the most populous country in the Middle East and the second most
populous on the African continent (after) Nigeria. The current population of Egypt 87
001 810 and the current growth population rate for year 2013 is Egypt is 409 705.
Economic Resources and Sectors:
Occupying the northeast corner of the African continent, Egypt is
bisected by the highly fertile Nile valley, where most economic activity takes
place. Egypt has a lot of natural resources such as Petroleum, natural gas, iron
ore, phosphates, manganese, limestone, gypsum, asbestos, lead, rare earth elements,
Zinc.
The business sectors in Egypt are banking, insurance, oil and gas,
telecommunication, tourism, research and development. Moreover, Egypt is also
known for its agricultural and industrial sectors. Its agricultural sectors mainly include
cotton, rice, corn, wheat, beans, fruit, vegetables, cattle, water buffalo, sheep, and
goats on the other hand the industrial include textile, food processing, tourism,
chemicals, pharmaceuticals, hydrocarbons, construction, cement, metals, light
manufactures. However, the unemployment rate increased to 13.4% in the year 2013,
from 12.7% in 2012. Egypt’s labor force (which includes the employed and
unemployed people) is 27.69 million according to a 2013 est. The labor force by
occupation is 29% agricultural, 24% industrial, and 47% services (2011 est).
Purpose
The purpose of this paper is to study and show the problem of unemployment in
Egypt by presenting its current rate in 2014 and how it changed from 2010 to 2014.
Firstly will be the rate then the causes of this major economic problem and its relation
to the change in GDP of the country. Furthermore, the effects of this problem on the
5. economy. Also, government policies obtained to treat this problem are introduced
with some recommendations to better overcome unemployment.
Unemployment in Egypt
Definition and Rate:
Unemployment is defined as the existence of people from the work force of a
country without jobs and yet looking for a job and have the want to work.
As for the unemployment rate, it can be defined as the number of people actively
looking for a job divided by the labor force.
Changes in unemployment rate can be cause by inflows made up of non-employed
people starting to look for jobs, of employed people who lose their jobs and look for
new ones, also by fresh graduates who are freshly entering the workforce, which will
increase the number of unemployed people. Furthermore, people who stop looking
for employment which will decrease the number of the workforce.
Unemployment Rate in Egypt remained unchanged at 13.40 percent in the fourth
quarter of 2013 from 13.40 percent in the third quarter of 2013. Unemployment Rate
in Egypt is reported by the CAPMAS, Egypt. Unemployment Rate in Egypt averaged
10.44 Percent from 1993 until 2013, reaching an all-time high of 13.40 Percent in the
fourth quarter of 2013 and a record low of 8.10 Percent in the second quarter of 1999.
In Egypt, the unemployment rate measures the number of people actively looking for
a job as a percentage of the labor force. This page provides - Egypt Unemployment
Rate - actual values, historical data chart, and statistics.
6. Reasons, Causes and Effects on the Economy:
Previously, the massive amount of jobs was offered by Direct Foreign Investment
(DFI). Unfortunately, after the revolution in 2010 tourism was hit and Foreign
Investment has been discouraged, thus, excess supply of labor existing, DFI either
shuts down or in best scenarios it lays off part of its labor and as a result
unemployment rate increases tremendously; adding up to Structural Unemployment
that is caused by the changes in market structure.
In addition to that, the revolution has caused instability among Egyptian's life
aspects. Egyptians became pessimistic and less willing to go out and spend on
consumption; instead, they are more willing to save for their unknown future. As for
the demand on all goods and services suffered from a decline, aggregate demand is
decreasing leading to a decrease in the Gross Domestic Product ( GDP) of the country
which directly causes an increase in unemployment leaving Egypt in a what
economists call Recession; adding up to Cyclical Unemployment.
Another reason is the decrease in the quality of jobs available; which indicates a lower
salary that cannot cover the cost of living for an average person and also inability to
have social security that is needed even in the absence of a salary. These two factors
lead to people quitting their current "low-quality, low-pay" jobs and looking for new
jobs; adding up to Frictional Unemployment that is leaving their job by their own well
looking for a new job.
A third reason for unemployment is that the growth of the demand on labor is barley
increasing in comparison to the huge increase in the labor force. As Dina Al-Mofty,
executive director of INJAZ Egypt states, yearly, about hundreds of thousands jobs
need to be available to meet the intake of schools, universities and vocational schools
graduates (2013). Fresh graduates and the population are both increasing very fast
while job opportunities are in a much slower increase relatively . On average, a
graduate waits more than 5 years in order to find a job. That explains why 90% of
unemployed Egyptians are under 30 years old; adding up to Frictional Unemployment
as they are considered newly entering the labor force.
Socially, discrimination and sexist have affected the rate of unemployment.
Employers tend to favor a certain group of people to hire or favor males over females.
This led to have educated but jobless people in Egypt.
7. In short, unemployment is caused by several factors that are a combination of social,
political and economic reasons; socially, the nature of the relationship between
employees and the employers, discrimination and racism; politically, revolutions
being held against the governmental leadership which affects the stability of the
country and lack of communication in between Egyptians and the government;
economically, global recessions and rapid technological changes.
Solutions and Strategies:
One of the applied strategies took place on October, 2012. Decreasing unemployment
rate to become 6% by 2022 was the goal set by the government. Therefore, a training
program for the unemployed people was set nationally by the Cabinet in corporate
with the private sector. (State Information Service). This initiative aims on reducing
Fractional Employment through offering public training to qualify labor in order to
meet market requirements.
Another applied solution to solve unemployment issue is giving the chance for fresh
graduates to buy a cheap farming land and then pay it back over 30 years. In
addressing the lack of knowledge and skills in agriculture field, The International
Fund for Agricultural Development (IFAD) helped in training the unskilled
graduates. Fortunately, graduates were open to new ideas. That solution
contributed not only in decreasing unemployment rate but also in expanding
exports of vegetables and fruits produced locally in Egyptian farms. This
contribution rises exports which in turn rises Net Exports which is one of the
components of the GDP. Any increase in GDP will lead to a decrease in
Unemployment rate in the country.
Recommendations and Conclusion:
Theoretically, there are two approaches to solve unemployment issue, indirect and
direct. The indirect approach is working first on increasing the GDP or in other words
increasing Aggregate Demand through boosting its components, Consumption,
Investment, Government Spending and Net exports. Because GDP has a direct,
negative relationship with unemployment rate. On the other hand, the direct approach
8. is by applying public policies to reduce unemployment such as facilitating job-search,
unemployment insurance programs and minimum-wage laws.
Increasing Aggregate Demand and GDP can happen by applying Fiscal Policy tool.
Either by increasing government spending (G) of decreasing taxes (T). If G increases,
Aggregate Demand (AD) as well as GDP will increase resulting in a decrease in
unemployment. The other tool of Fiscal Policy which is T, government can decrease
taxes on income, when T decreases people are left with more money to spend so
Disposable Income increases (DI), when DI increases, both Consumption (C) and
Private Savings (PS) will increase. An increase in C will lead to an increase in AD
and GDP, hence, a decrease in unemployment. An increase in PS will lead to more
money deposited in banks, hence interest rate tend to decrease in order to encourage
Loans and Investment (L&I). As interest rate decreases, cost of borrowing decreases
and L&I increases. As I increases, AD increases and GDP increases resulting in a
decrease in unemployment. Or government can simply pass a law of tax reduction to
new factories and companies opening inside Egypt in order to encourage Investment.
However, applying Fiscal Policy needs stability economically and politically which is
missed in Egypt nowadays.
An increase in AD and GDP can be achieved through Monetary Policy as well. By
using one or more of Monetary Policy tools, which are Open Market Operation
(OMO), Discount Rate and Reserve Requirement. The central bank, who is the
creator and applier of Monetary Policy can work on an intermediate goal which is
Money Supply (M-SS), and M-SS by its turn will affect AD as desired. Since the aim
is increasing AD to increase GDP and decrease unemployment. Central bank should
work on increasing M-SS inside the country through Expansionary or Easing
Monetary Policy. That can be achieved through Open Market Operation tool by
issuing and selling government securities (bonds) or as called Treasury Bills (TBs); or
through Discount Rate Policy by decreasing the discount rate for commercial banks so
they will be more encouraged to take loans from the central bank; or through Reserve
Requirements by decreasing the Legal Reserve Ratio on commercial banks. All
previous implementations will lead to an increase in M-SS, as M-SS increases people
will have more money to spend, therefore C increases leading to an increase in AD;
also, money in commercial banks increases, therefore, interest rate tend to decrease to
9. encourage more L&I. As I increases, AD increases and GDP increases leading to a
decrease in unemployment.
Facilitating job-search can be implemented in many different ways. One way is by
acting as an intermediate between employers and job seekers to identify common
requirements and qualifications. Also to take under consideration job seekers wants
and needs, which have a huge role in maintaining their jobs for a long period of time,
reducing Frictional Unemployment in return. Another way is by offering training
programs, but this solution might have a negative result because out of the
unemployed workforce, a large portion is educated, so training and shaping skills
might lead to an increase to unemployed skilled people adding up to the educated
ones. Since the case in Egypt is the low quality and unavailability of jobs. That's why
when the government trained fresh graduates on agricultural skills, it provided them
with farming lands first, which is considered as jobs creation, then, it offered trainings
in order to fill those available jobs.
Unemployment insurance program and minimum-wage laws are two less effective
policies. Because when providing temporal payments for jobless people who were
laid off from their jobs not by choice, they might tend to become less likely to
actually start looking for a new job. And minimum-wage laws, which indicates the
minimum of a salary that an employer can pay for a worker leads to a decrease in the
quantity demanded of labor in comparison of quantity supplied of labor, leaving the
market of labor worse off in a surplus of labor; unemployment increases immediately.
Egyptian government can reduce unemployment by applying a creative solution, that
is, stop being the job creators, and instead, provide a fertile environment and attractive
policies for the private sector in order for it to grow. When the private sector expands,
it will demand more labor and also it will increase the level of Investment inside the
country. This solution will help in both, decreasing unemployment by offering variety
of adequate and fair jobs, also, increasing the GDP of Egypt. The key of this solution
that it requires stability, economically and politically.
Lastly, Egyptians, as noticed since the first revolution in 2010, need to be heard.
Therefore, issues facing unemployed people, especially young ones, need to be
addressed. Being a decision maker should help in the process of decreasing
unemployment problem among Egyptians.
