Assessing interactions among education, social insurance and labour market policies in Morocco

Abstract

This article develops a general equilibrium model to assess the impact that integrated reforms of macroeconomic, education and social protection policies can have on employment. The model presents three innovations. First, it formalizes the production of skills in the economy by following sex–age cohorts through the various levels of the education and training systems, given dropout and repetition rates. Second, it incorporates a module that projects social insurance expenditures as a function of the demographic structure of the country and the rules of the pension system. Finally, it develops a very detailed description of the labour market, where informality reflects strategic decisions by workers and not necessarily exclusion. The model is applied to Morocco. The results of various simulations illustrate the importance of coordinating macro, education and social protection policies in order to achieve meaningful effects on employment levels. In particular, we show that isolated interventions to improve the internal efficiency of the education system can aggravate the unemployment problem; that subsidies to investments are more efficient in sectors intensive in skilled labour; and that not controlling the growth of pension expenditures and the tax-wedge can depress employment in the formal sector.

Keywords:

• unemployment
• education
• social security
• general equilibrium models
• Morocco

JEL Classification::

• C68
• H55
• J24
• J68

Acknowledgements

The authors would like to acknowledge the help of the anonymous referee(s) who read the first draft of this article sent to Applied Economics. They also thank Carlos Silva, Milan Vodopevic, Mohamed Benrida, Michal Rutkowski, Robert Holzmann and David Steel for their comments on a preliminary version of the article. Special thanks go to Touhami Abdelkalek, Andras Bodor, Montserrat Pallares and Anca Mataoanu for their help in the realization of this study. The views expressed in this article are those of the authors and do not necessarily reflect those of the institutions they represent.

Notes

¹ See, for instance, World Bank (2007) for a discussion on framework that integrates these policies.

² The model has been named (SELMA) Social security, Education, Labour, and Macroeconomic policies. 'Selma' means secure in Arabic and is also the name of the Queen of Morocco, but this is only a coincidence.

³ See the analysis of Marouani (2009) on Tunisia.

⁴ Programme d'Emergence.

⁵ See Agénor et al. (2007) for a detailed presentation of the IMMPA framework.

⁶ For a description of the Human Capital (HC) accumulation model, the reader is referred to Bodor et al. (2007).

⁷ The basis of the template is the World Bank model Pensions Reform Options Simulation Tool (PROST) (World Bank, 2004).

⁸ Certificat d'apprentissage, Spécialisation, Qualification, Technicien and Technicien Spécialisé.

⁹ 10 specializations altogether: Médecine Dentaire; Médecine et Pharmacie; Enseignement Originel; Sciences Juridiques; Economiques et Sociales; Lettres et Sciences Humaines; Sciences et Techniques; Technologie; Sciences de I'Ingénieur; Commerce et Gestion.

¹⁰ See Blanchflower and Oswald (1994) for a comprehensive presentation on wage curves.

¹¹ Minimum wages are set as a binding constraint.

¹² A mathematical description of the model can be found in World Bank (2004).

¹³ Total pensions, for instance, are equal to: the total number of workers × the dependency ratio × the average wage × the replacement rate. Or, equivalently, equal to the wage bill × the dependency ratio × the replacement rate.

¹⁴ See Table Al in the Appendix

¹⁵ Fallon and Layard (1975) hypothesis.

¹⁶ By slowing growth rates in 2010–2011, the global crisis should induce a slight increase in unemployment.

¹⁷ For consistency reasons, labour data in the model are full-time equivalents, which means that the baseline unemployment rate is higher than the official one. Indeed, employment and unemployment figures are presented by the number of people mixing full-time and partial-time workers. In a general equilibrium model this transformation is necessary since one cannot add someone who works 1 month and someone who works 9 months. This means that our unemployment figures are also full-time equivalents and thus higher than official ones.

¹⁸ The pay-as-you-go asset is equal to the present value of future contributions net of the pension rights accruing from those new contributions.

¹⁹ These are not modelled within SELMA.

²⁰ In our application, skilled workers refer to individuals who have a diploma of Specialized Technician from the VT system. Highly skilled workers, on the other hand, refer to university graduates, which the model separates into technical and nontechnical diplomas.