More jobs for university graduates: some policy options for Tunisia

Abstract

The combination of demographic factors and an increase in education has caused a significant rise of university graduates' unemployment in the Middle-East and North Africa regions. This article provides a prospective cost-effectiveness analysis of the impact of alternative labour market policies using a dynamic general equilibrium model. The model allows for an endogenous determination of unemployment through a multisectoral efficiency wage setting mechanism. The main finding is that a wage subsidy targeted at highly skilled intensive sectors is more effective than tax reductions or investment subsidies. However, wage subsidies are not enough to reduce unemployment significantly. Other policy options need to be considered.

Acknowledgement

I would like to thank Christophe Nordman for his comments on an earlier draft of this article. The remaining errors are mine.

Notes

¹See, for example, Llop and Manresa (2004) who examined both cases for each simulation, which allowed them in reality to analyse the extreme results of the interval, whereas our specification captures a continuous link between wages and unemployment.

²The extension in the Harris–Todaro function consists in adding an elasticity of mobility for rural workers calibrated from the base year values.

³Excluding agricultural products and services.

⁴See Marouani (2009) for an assessment of the impact of these shocks.

⁵Rate observed in 2005 after the MFA phase out (World Bank, 2006).