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Lebanese job creation must match GDP growth

The World Bank’s highly critical report was released at the Socioeconomic Council.

BEIRUT: Lebanon needs to generate around 20,000 additional jobs per year over the next decade, transform its economy into a productive model and reform social protections, the World Bank said in a highly critical study released Thursday.

“Over the next 10 years, there will be an estimated average of 23,000 new entrants to the labor market each year.

“To absorb them, the economy would need to create more than six times the number of jobs it is currently creating,” World Bank economists David Robalino and Haneen Sayed wrote in “Good Jobs Needed: The Role of Macro, Investment, Education, Labor and Social Protection Policies.”

Between 2004 and 2007, the Lebanese economy only managed to create 3,400 new jobs a year on average, the report said, suggesting employment creation had been growing at a much slower pace than GDP, a trend unfamiliar in other medium-income countries.

“Between 1997 and 2009, the gross domestic product expanded at an average rate of 3.7 percent per year, yet employment grew by only 1.1 percent,” the report said.

In addition, unemployment rates are “worrisomely high” among women and youth, at 18 percent and 34 percent, respectively. Workers with postsecondary education suffer from a 14 percent unemployment rate, the report adds.

This is largely due to Lebanon’s unproductive economy and the dominance of the commerce and real estate sectors, experts and panelists said at a launching event held at the Socioeconomic Council in Downtown Beirut.

“Economic development, investments, and growth were concentrated in just a few sectors, mainly real estate, trade, and low-value-added or end-of-value-chain services.

“These sectors have little backward and forward linkages with the rest of the economy and provide little job opportunities,” the report said.

Adding to these economic structural woes, the report explained, are monetary and fiscal policies that amplify the distortive impact of foreign capital inflows on growth and employment.

“The ensuing appreciation of the real exchange rate is having a detrimental impact on all sectors exposed to international competition, despite the sterilization policy followed by the Central Bank,” the report said.

But Lebanon’s labor market problems do not end on the demand side.

Contrary to the widespread, popular belief that the Lebanese are among top-skilled populations, the study, which was based on a 2,000-household survey, revealed that the labor force desperately lacks relevant technical and nontechnical skills.

“The labor force has low levels of education and there are gaps in terms of technical, cognitive, and noncognitive skills that can compromise the expansion of high productivity sectors,” the report said.

A large share, around 44 percent of the labor force, is unskilled, with 6 percent uneducated, 36 percent with only primary education and 26 percent with only secondary education.

Educated employees, on the other hand, have skills that severely mismatch the needs of the economy, the World Bank added.

Thirty-five percent of employees and over 42 percent of the self-employed do not find skills acquired in formal education relevant to their jobs.

The high prevalence of informal employment and low rate of transition into formal employment pose another risk to Lebanese economy and social welfare, the report said

Twenty percent of the labor force is in informal wage employment, lacking access to social insurance or coverage by labor regulations.

Another 30 percent is self-employed in low productivity activities and not covered by the mandatory protection programs.

“These dynamics call into question the current design of the social insurance system and labor regulations, which fail to cover the majority of the labor force and provide incentives to work outside the formal sector,” the report said.

While 46 percent of the working age population participates in the labor market, women only account for 24 percent of the work force, the report said: “This is lower than most MENA countries, which already have some of the lowest women participation rates in the world.”

The report urges a proposed reform aiming to transform the end of service payments into a defined-contribution pension system.

The report argues that making contracts and dismissal procedures more flexible, while enforcing a reasonable advance notice, could help Lebanon reduce informal and illegal employment by making it less lucrative.

In a fiery discussion following the launching event, former Labor Minister Charbel Nahas said the World Bank had toned down its report from an earlier draft to appease the Lebanese government and private sector.

The World Bank was quick to dismiss Nahas’ accusations, arguing no amendments were made to the draft, which was a PowerPoint presentation mulled with the Lebanese government, before the report was authored.

 
A version of this article appeared in the print edition of The Daily Star on April 12, 2013, on page 5.

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