Ishac Diwan Cairo, December 2019

1. Labor markets outcomes
bridging micro and macro
approaches
Ishac Diwan
Cairo, December 2019

2. Micro results
• Use surveys – labor, HHs, firms, to characterize
behavior (job transitions, return to education,
who is unemployed..)
• Use censuses to characterize distributions of
outcomes (wage inequality, labor productivity
and firm size ..)
• Meso analysis: Use of sector-wide data to
characterize structural change (or lack of)

3. Main question: Why the low return to education in
MENA countries? (in addition to low participation)
Tzannatos, Diwan, and Abd El Ahad (2016)

4. Macro analysis
• Hypotheses on forces that affect equilibria, but super-hard
to show causality from macro forces to micro observations
• When it comes to labor outcomes, main question is: what
causes the low return to education in MENA?
• Possibilities (on demand and supply side):
– Technological change (labor saving, hurts low and middle skills)
– Lack of global integration (hurts high skills in poor countries)
– Cronyism (hurts labor in favor of capital)
– Culture (esp. on female labor force participation)
– Quality of education (and relation to governance)
– Oil and rentierism (Dutch disease, governance effects).
• The answer has important implications for the type of
policies to raise the RtE (economic, political, social).

5. Bridging
• To formally bridge micro observations and macro
hypotheses, one needs to show that a particular
macro phenomenon causes what is observed at
the micro level.
• This requires complex identification techniques
such as:
– A convincing multi-evidence picture to show
coherence
– Event study
– Instrumental variable
– Experimental approaches (eg for culture).

6. Heterodox approaches
• Find that that several implications of a
macro hypothesis hold
• Can also look at mechanisms
• Argue that no other theory can
explain these findings
• Example :
– Politically connected sectors are
associated with less jobs creation than
unconnected sectors, and descriptions
of mechanisms of privilege (competition
effect, or rent filled sectors?)
– Educated women mainly employed in
skill-intensive sectors (less
discrimination or more emancipation?)
• Can lead to reasonable burden of
proof, but never fully convincing

7. Can go further
eg. Growth or rent-filled sectors?
Employment growth 1996-2006 Labor productivity growth 1996-2006
All
Countries Developing MENA ECA
All
Countries
All
Developing MENA ECA
Difference
PCF versus
NPC
sectors,
1996-2006
.714** 1.41** -.025 2.99 .728** .961 .331 2.71**
(2.08) (2.81) (-0.01) (1.35) (2.13) (1.39) (0.45) (3.56)
The issue: We observe that sectors with PCFs generate less jobs in Egypt. Did the
PCFs enter into low growth sectors, which would explain why these sector grow
less than those not entered, or did they enter into growth sectors?
Average annual employment and productivity growth rates (in percentage points) of
treatment and control group manufacturing sectors in all other countries from 1996-
2006
Source: ILO and authors computations, Diwan et al 2015

8. GENDER DIVERSITY, PRODUCTIVITY, AND WAGES IN EGYPTIAN
FIRMS. Mona Said, Galal, R., Joekes, S., & Sami, M. (2018)
• Reasonable evidence, but no proof of causality: low FLFP due to low
penetration of high-tech industries in MENA
• From Abstract:
• Women’s employment is not evenly distributed across sectors
• Using the newly available EC 2013 dataset, we explore the
relationship between gender diversity, productivity, and wages.
• Our first finding is that gender diversity is positively associated with
productivity and wages in the knowledge-intensive service sector.
This result is consistent with the notion that higher gender diversity
may be linked to greater critical thinking required in knowledge-
based industries.

9. Event studies
• Compare before/after micro behavior after the occurrence of a
random event
• Examples (among others)
– In Egypt, female labor force participation rose in cities where 2011
protests were more widespread (El-Mallakh et al)
– Value of connected firms goes down after displacement of a political
order (Chekir and Diwan 2013, on Egypt)
– Job creation weakens in a sector after the entry of a connected firm in
a previously unconnected sector (D, K, S 2019 on Egypt)
– FDI restrictions rise after entry of firm in sector (Rijkers et al 2019, on
Tunisia)
– Non-Tariff barriers rise in connected sectors after EU trade agreement
signed in Egypt and Morocco (Malik and Eibl, 2019)
– Job creation weakens in Lebanon in connected sectors around election
time (Diwan and Haidar 2019)

10. Arab spring protests and women's labor market outcomes:
Evidence from the Egyptian revolution
Nelly El-Mallakh, Mathilde Maurel, Biagio Speciale
• Event study, strong claim of causality that culture can be affected by emancipative
events.
• Abstract: We analyze the effects of the 2011 Egyptian protests on the relative labor
market conditions of women using panel information from the Egypt Labor Market
Panel Survey (ELMPS).
• We construct our measure of intensity of the protests – the governorate-level
number of “martyrs” (i.e., demonstrators who died during the protests) - using
unique information from the Statistical Database of the Egyptian Revolution.
• We find that the 2011 protests have reduced the gender gap in labor force
participation by increasing women’s unemployment and private sector
employment.
• This is especially the case among women in households at the bottom of the pre-
revolution income distribution.
• We link these findings to the literature showing how a relevant shock to the labor
division between women and men may have long run consequences on the role of
women in society.

11. Value of political connections
0
200
400
600
800
1000
1200
1400
1600
1800
Connected
Non Connected
Chekir and Diwan, JGD-2015
Stock market
prices of PCFs
drop by 23.4%
more than NCFs
in early 2011
• Robustness: PCFs’
values do not
drop more than
non-PCFs during
2008 global crisis

12. Employment distribution before and after the entry of
crony firms into previously unconnected sectors
:
In Egypt, sectors
where PCFs
entered become
more skewed,
with less medium
firms, and more
small firms,
compared to
sectors where
they did not enter
Diwan et al 2019

13. Lebanon: PCFs create more jobs in election year,
but overall, job creation falls
Diwan and Haidar 2017
Net job creation
0
10000
20000
30000
40000
50000
60000
0
2000
4000
6000
8000
10000
12000
14000
16000
2006 2007 2008 2009 2010
Totalnetjobscreated
NetjobscreatedinPCsectors
PCFs in PCSs Total NJC

14. Research avenues (1)
• Macro hypotheses related to cronyism
– Increased dualism and missing middle: sectors wt
more cronyism end up wt more dualism –
consistent with observations in Egypt on size
distribution (DKS 2018), innovation behavior
(Schiffbauer 2019)

15. As close to government, or as far, as possible
Entry of a PCF in a sector -> polarization of the distribution among
small/large firms -> lower growth: with more competition, 25% more
formal jobs could have been created during 1996-2006.
Missing Middle
Egypt TurkeyIn Egypt
Diwan, Keefer, Schiffbauer, 2015

16. Research avenue 2
Education and the labor market
• Is inequality of opportunity in labor market
caused by networks of privilege or the other
way around?
• Low quality education or high inequality in access to
quality education?
• What explains governance of education system:
politics, inequality, culture?

17. The Yacoubian Building syndrome
High inequality of income among the educated
Asaad 2017

18. Inequality of wages within education
groups on the rise
ESCWA: Diwan and Salehi-Isfahani 2916

19. Education: low average quality, and
high inequality in quality
ESCAW Diwan and Esfahani 2016

20. Low socio-economic returns to education
Diwan and Vartanova 2018
Does Education indoctrinates, or are educated students self selection under an elite
education system? (i.e, students that achieve high level of education selected from
conservative (and richer) families?)

21. Research avenues 3
• Relating to technical change
– In poorer countries, or countries with more
corruption, there is less substitution between
labor and capital?
– Why?
• Capital intensity of favored firms
• Fear of unionisation
• Labor market rigidities…

22. Labor shares low in MENA

23. This is also, surprisingly, a
characteristic of low income countries
Salim Araji, forthcoming

24. Avenues 4
Women in the labor market
• Patriarchy and FLFP
– Culture causes low LFFP, or patriarchy rises when
jobs are scarce?
• Technology and FLFP
– Does the demand for female labor force vary
according to technological content of sector (Said
et al 2017), or is the supply of labor by educated
women more?

25. Variation in FLFP falls at higher levels of
education in all regions
Diwan and Vartanova 2014

26. 5. Rentier theory and the private
sector
• Autocrats uneasy with an autonomous private
sector
• Does higher oil revenue allow for a
governance system less open to private sector
activity?
• Or does higher oil revenue make (a richer)
private sector less threatening, allowing for
more of it?

27. Rule of law as a policy variable
Cammett, Diwan, and Leber 2019

28. challenges
• Thanks to past effort, plenty of descriptive factoids on
labor, firms, gender, education..
• New Research must go beyond correlations and focus
on causality, using creative identification methods
• Burden of proof does not have to be too tight
– Within country requires an exogenous shock (or time
series and convincing instrumental variables)
– Across-country comparisons weaker, due to unobservable
factors
• Need to look at whole world to test if subsamples of countries are
different (and not just look at behavior of Arab countries)
• Can look at subsets of countries
• Can look at effects of culture, politics, oil…