Challenges in the Syrian Labour Market: Managing Without Growth

1. Managing without growth: challenges confronting the Syrian labour marketIyanatul IslamEmail: i.islam@griffith.edu.auUNDP-IPC International Conference on employmentBrasilia, January 11-12, 2005

2. The context • Syria – low middle income [about US$1000 p.a.] and oil dependent economy • Expected to run out of oil reserves in about 10-12 years • Faces uncertain international climate • Seeking closer ties with EU and Arab states to offset frosty relationship with US • Struggling to recover from recession of 1999, with per capita growth in recent years less than 1 per cent p.a. • Yet, maintained respectable progress in human development and expected to reach most of the MDGs by 2015 • Labour market caught in a ‘double squeeze’, with rapid labour force growth and slow economic growth. • Labour market policies will have to be more astute than in the past.

3. Labour market-poverty linkage • The public sector-private sector divide is a defining feature of the Syrian labour market • 27 per cent work in the public sector, the rest in the private sector • Within the private sector, the relative size of the informal economy is 36 per cent • 66 per cent of employed university graduates and 82 per cent of all employed graduates from intermediate institutions work in the public sector • The proportions are even higher for female workers • Gender wage gap much higher in private than in public sector • The sectoral distribution of workers with higher educational qualifications lies at the core of the labour market-poverty nexus in Syria • The private sector accounts for 85 per cent of the share of poverty • Incidence of low paid workers are much higher in the private sector than in the public sector [53 per cent vs 26 per cent] • Public sector wages are 1.5 times private sector wages

4. Unemployment, underemployment and poverty • Unemployment rates for 2003 vary from 7 per cent to 16 per cent, with labour force survey [LFS] suggesting 12 per cent • Ministry of Social Affairs and Labour endorses LFS figure, but the State Planning Commission prefers to work with a ‘range’ of estimates. • Significant share of unemployment [47 per cent] may be attributed to those with elementary education • 75 per cent of the total stock of unemployed in the 15-29 age group • Female unemployment lower than males in the 15-19 age group as well as for cohorts with elementary education, but the converse is true for other groups • Duration of unemployment is high – 65 per cent of total experience a spell of unemployment lasting one year • Multiple job holdings reported to be widespread but not reflected in data • ‘Gross’ underemployment afflicts 52 per cent of the labour force

5. Unemployment, underemployment and poverty – con’td • Unemployment-poverty nexus quite close for those with elementary education, but not for other cohorts • At the regional level, only four governorates account for 50 per cent of total stock of unemployment • But these are not the regions with the highest poverty incidence • Also, areas with high underemployment rates are not synonymous with high poverty rates • In general, the correlation between poverty, unemployment and underemployment at the regional level is either statistically insignificant or of the ‘wrong’ sign • Hence, regional unemployment map constructed by the Syrian government in 2003 likely to be an unreliable guide for identifying impoverished regions.

6. Child labour and poverty • In recent years, child labour has become a prominent and contentious issue in Syria • Coincides with publication of a major report by UNICEF • Incidence of child labour around 18 per cent • Child labour much higher in poorer rural areas [64 per cent] than in urban areas [36 per cent]. • It is also higher in agriculture [56 per cent] than in manufacturing [18 per cent] • Child labour rates much higher in regions with an extensive rural and agricultural base • Girls represented disproportionately in urban based agriculture, but the gender gap is less conspicuous in rural based agriculture.

7. Policy issues – growth, investment and employment • Government and other stakeholders agree that rapid, investment-led growth is key to durable employment creation and poverty reduction • State Planning Commission maintains that 185,000 jobs need to created to maintain ‘flow’ equilibrium in the labour market, but others [eg World Bank, CAIMED] suggest much higher figures • State Planning Commission maintains that growth of 6-7 per cent required to reach job creation target, but Damascus Chamber of Commerce and others maintain growth rate of 8 per cent required • State Planning Commission recommends investment ratio of 47 per cent of GDP to sustain growth rate of 7 per cent, but this threshold has historically never been reached • Less attention seems to have been paid to employment elasticity, although global evidence shows link between poverty reduction and high employment elasticity • Modest improvements in employment elasticity can reduce required growth to meet job creation targets from 8 per cent to 6 per cent

8. Policy issues – growth, investment and employment • Lack of a modern financial system that is able to tap new investment funds is a major institutional impediment • Legislative initiative in place for setting up a stock market • Trade liberalization is on the policy agenda, but privatization is not • Rigorous assessment required for monitoring employment consequences of liberalization-cum-privatization • Global evidence shows that such a reform agenda can engender negative employment consequences in the short run, but not in the long run • Hence, prudent management of policy reform required

9. Policy issues – The Agency for Combating Unemployment [ACU] • ACU set up as supra-ministerial agency to deal with unemployment • Granted mandate to disburse US$ 1 billion and create 440,000 jobs over five years [2001-2005] • Policy instruments include credit for business start-ups, microfinance and training and re-training, esp. self-employment • According to ACU’s own forecasts, at best 250,00 jobs will be created by end 2005. • Maintains that this is due to funding shortfall and acknowledges that ultimately job creation will depend on investment-led growth • Given heavy investment of human capital in ACU [more than 70 PhDs], the agency could be transformed into a policy advisory unit working on labour market-poverty linkages • Collaborative arrangements between, ACU, State Planning Commission and Ministry of Social Affairs and Labour need to be designed

10. Policy issues – child labour • Syria has ratified the ILO convention on eliminating the worst forms of child labour • Current approach is to penalize firms and families using child labour • Ministry of Social Affairs and Labour is arguing for an alternative incentive-driven approach • The aim is to design schemes that will provide financial incentives for poor families to invest in children’s education • A resolution of alternative policy approaches is required

11. Policy issues – employment security and social protection • About 19 per cent of Syrians are vulnerable to at least a transient spell of poverty. Also the incidence of both seasonal employment/intermittent work is quite high • Hence, employment security and social protection are high on the Syrian policy agenda • Need a combination of policy instruments – such as unemployment insurance, public works and microfinance • Syria does not have unemployment insurance, but uses stiff anti-firing legislation as a surrogate • Such legislation is both ineffective and a source of contention with investors • Cross-country evidence suggests that unemployment insurance can be fiscally affordable and designed to mitigate disincentive effects • Both public works and microfinance part of the ACU’s role, but they need to be a regular feature of labour market policy • Given that these initiatives are in their infancy, Syria can learn from best practice elsewhere

12. Policy issues – wage disparities and wage policy • In May, 2004 public sector wages increased by 20 per cent, private sector urged to adopt pay increases between 5 to 20 per cent, while minimum wages are poised to increase by more than 40 per cent • Given that the wage gap is currently in favour of the public sector, such wage policy will worsen wage disparities • It could help those employed in the formal sector, bypass those in the informal sector and hurt those seeking work • An effective solution to improving wages in the private sector is to improve its human capital endowment • This requires reform of education and training system to produce graduates with skills pertinent to private sector needs and by fostering in-firm training • Promising initiatives in place – reform of VET and conclusion of ‘EFA assessment’, industrial scholarship schemes and private sector-public sector collaboration in industrial training • Minimum wages should be indicative rather than mandatory and used to monitor conditions of ‘working poor’

13. Policy issues – labour market flexibility • Engendering labour market flexibility is now a major part of the policy agenda • There is a good deal of support among key stakeholders to reform labour laws that have remained largely unchanged over the last 40 years • At the same time, Syria has ratified the core ILO conventions on fundamental principles and rights at work • In pursuing an agenda of labour market flexibility, some issues need to be kept in perspective • Comparative data show that, apart from high firing costs, Syria is not too far out of line with international norms • More importantly, international evidence shows that the benefits of labour market flexibility have probably been oversold • The challenge for Syria is to combine reform of labour laws with its commitment to uphold labour rights