Growing without changing: A tale of Egypt's weak productivity growth

Abstract

Despite fast growth during 2000-2010, Egypt saw limited productivity gains from sectoral labor reallocation over the past three decades. Using a novel data set and updated measures of productivity growth induced by structural change in employment patterns across a large set of countries, we explain why Egypt failed to significantly reduce unemployment, lower poverty, or raise productivity. We use crosscountry comparisons, counterfactual scenarios, and regression analysis to demonstrate that limited openness to trade, weak export diversification, and low access to finance prevented Egypt from tapping the growth potential of a structural shift in labor towards skilled manufacturing and private services, locking Egypt instead into a "low value trap." The paper suggests policy implications on how to overcome impediments to efficient sectoral reallocation of workers. 1 | INTRODUCTION Egypt's 2011 revolution highlighted unmet public demands for social justice, poverty alleviation, and improved job quality among Arab countries in transition. Despite improved growth, demands for higher living standards for the middle class-who drove the revolution-erupted just as Egypt's economy appeared to be taking off. Why? A closer look at Egypt's pre-revolution growth reveals that output per worker increased much more slowly than real gross domestic product (GDP). Most of its growth was driven by an increase in the labor force, while labor productivity's contribution was relatively limited and unemployment remained above 8%. The share of wages in GDP declined persistently (Figure 1) and output growth accrued mostly to domestic and foreign capital holders, not the middle class (Fadel, 2011). A lack of good jobs in high-productivity industries explains both the high unemployment, even among educated workers, and the low labor share in GDP, as those workers were concentrated in low-productivity industries, depressing wages. This accords with another striking element of Egypt's pre-revolution economic growth. Growth in emerging markets often sees excess labor reallocated from traditional industries to more productive sectors, but Egypt's GDP composition remained broadly unchanged. This paper proposes an explanation for Egypt's "lost decade of productivity," using a sectoral approach to show growth was mostly the product of an expanding labor force and within-sector productivity rather than a labor reallocation. Understanding Egypt's constraints on structural change is especially important now, with stagnating income per capita and close to 12% unemployment. Egypt's ability to deliver jobs in high-productivity industries is a matter of economic efficiency, social justice, and socio-political stability.

Impact assessment of job reallocation on unemployment in Morocco: An ARDL approach

“…Nevertheless, like in several developing countries (Grabowski, 2012;Morsy & Levy, 2020), the sectoral structure of employment in Morocco has remained relatively stable over the long run. Although the share of agriculture is gradually declining, the pace of transformation is slow as the agricultural sector still accounts for almost 40% of jobs.…”