Skill demand polarization in Egypt

Abstract

By tracking changes in the employment and wage structure of nine high-, middle-, and low-skilled occupations in 18 economic activities over the period 2000–2009, this paper provides evidence that skill demand polarization is growing in Egypt and wage disparity is widening. Our analysis indicates that the demand for middle-skilled workers has declined in 2009, compared to 2000. Almost all of the polarization effect came from product demand shifts across activities that have increased the relative demand for high- and low-skilled workers at the expense of middle-skilled workers, reinforcing polarization of the employment and wage structures in Egypt. While increased competition from imports had an adverse impact for middle-skilled workers, growth of the private sector has provided room to increase demand for all skills particularly those of the middle skills, mitigating the rate of polarization over time. Demand-driven polarization in Egypt has three policy implications. First, investing in human capital by enhancing the quality of education and training systems would allow workers to acquire the sorts of skills that are in greater demand in the labor market, increase their productivity and enhance their future earnings. Second, increasing private sector participation in economic activity by availing a transparent business environment and a more flexible labor market would mobilize demand for all skills, particularly those of the middle skills. Finally, upgrading products in underdeveloped activities and investing in activities with high job content of growth would help stimulate the demand for their products and mobilize employment, thereby narrowing wage disparities across activities.

Keywords:

• earnings inequality
• Egypt
• polarization
• technological change
• skill demand
• wage differentials

Notes

1. The unemployment rate in Egypt reached 9% in 2010 (CAPMAS, 2010a, 2011a).

2. Autor (2010); Goos, Manning, and Salomons (2009a, 2009b, 2011); Oesch and Rodriguez (2010); Dustmann et al. (2009); Michaels et al. (2010); Autor, Katz, and Kearney (2006, 2008); Lueth (2007); Hur et al. (2005); Wright and Dwyer (2003).

3. Manufacturing activities absorbed 52% and 47% of the middle-skilled workers in 2000 and 2009, respectively (author's calculations based on CAPMAS (2000, 2010b, 2010c)).

4. It is worth mentioning that 40% of the unemployed in Egypt in 2010 are university graduates (CAPMAS, 2011a). This mismatch between education and the needs of the labor market casts doubt on the economic returns from investment in education.