Assessment of Egypt's population and Labour Supply Policies - Results from a population Economy Interaction Model

The interrelationship and interactions between population policies and the economic performance of a country has been traditionally investigated by several researchers and scholars. Some of them used computational models to assess the impact of population on medium and long term behaviour of macroeconomic and economy wide variables. Nevertheless, there is no common agreement among them about the size or magnitude of this impact over time as well as the most appropriate analytical tool to apply, in this respect. Although Egypt is typically suffering from an increasing natural population growth rate, especially after the revolution of January 2011(with an annual growth rate of 2.58% in 2013/14 ), a significantly high unemployment rate among young population reaching 26.3% on the average in 2014 (20.2% for males, and 44.2% for females) and a growing poverty level accounting for 26% of the domestic population in 2012 , population economy interaction studies are limited to a great extent. Based on the above rationale, a major strategic concern facing Egypt is to develop appropriate analytical tool directed to assess the impact of alternative population policies on the performance of the whole economy. Economy wide models based on Computable General Equilibrium (CGE) tradition and social accounting matrix principles represent an efficient toolkit to achieve this analytical purpose. They are generally used to assess the impact of alternative policy measures and external conditions on medium term performance of the economy as a whole. In this paper, a dynamically adjusted population economy interaction model is constructed, implemented and used to assess the impact of population policies on the performance of the Egyptian economy. From an analytical point of view, the main contributions of this research work are delineated in the following points. (i) The paper adopts a specific disaggregation scheme of the social accounting matrix as well as the model, relevant to the economy population interaction context. To achieve this analytical goal, the production activities are classified into nine sectors. The industrial sectors are broken down according to labour intensity into low intensive, medium intensive and high intensive labour activities. Other production sectors include primary activities, infrastructure, construction, social services, and productive services. Furthermore, to allow for the disaggregated analysis of labour supply and demand policies, labour compensation is disaggregated by production activities (9 sectors), economic sector (private, public and government), household area (urban versus rural) and by educational level (4 education levels). (ii) With respect to the demographic variables, labour supply is classified by sex and education status in order to evaluate alternative labour participation policies. (iii) The inter-period dynamic module of the model includes five dynamic behavioural equations directed to capture the impact of population size on the economy. Per capita household final consumption depends on lagged values of per capita Gross Domestic Product (GDP). Government final consumption expenditure on education has two equations (one for pre-university spending and the second for the university & above levels). Government final consumption of pre-university education is determined as a function of the size of pre-university students, and government final consumption spending on the above education is determined from the size of the university & above students per 100000 population. Finally, government final consumption spending on health and social services is predicted as a function of the population size. The constructed model is used to test two alternative scenarios. These scenarios depends on population growth rates, the growth rate of labour by sex and the distribution of labour force by education level. The reference path (or constant fertility scenario) assumes that total fertility rate (TFR) will remain constant at 3.47 child per woman, over the planning period. Labour force participation rate of both males and females will also remain unchanged up to the target fiscal year (2024-2025). Concerning the distribution of labour force by education level, the proportion of illiterate and read and write persons is expected to decrease in favour of the higher educational categories but at slower pace during the scenario’s planning period. The second scenario (or the reduced Fertility scenario) assumes however, that there will be an effective effort of Egypt’s government to support and facilitate the implementation of the family planning program. As a result, women will be more likely to use family planning and spacing between born children. Based on this rationale, TFR is expected to decrease from 3.47 in the base year to 2.3 in 2024-2025. It is assumed also that labour force participation rate of males will follow a decreasing trend while females has an increasing trend during the planning period. This scenario is based on the idea that women become more likely to be more empowered and entering the labour force to support themself and their families. Furthermore, the share of illiterate and read and write labour force is expected to decrease rapidly compared with the reference path scenario. The key findings are shown in the following points. First, constant fertility scenario shows as expected higher real public and private consumption spending than the fertility reduced scenario. Given lower population size associated with the reduced fertility scenario, a decline is observed in the quantity of imports as well as an increase in export proceeds compared with the constant fertility scenario. In addition, aggregate national saving is observing an increase in light of the fertility reduced scenario over the same time period. Finally, most of the per-capita indicators are in favour of the reduced fertility scenario and the gap between the two scenarios is getting larger over time. Second, in case of the constant fertility scenario, population will increase by almost 25.3% during the period from 2014 to 2024, and it is expected to reach 108.7 million persons in 2024, with total labour force that increase by almost 22.6% during the planning period (2014-2024) to reach 33.8 million in 2024 (this corresponds to 7.7 million and 26.1 million for males and females, respectively). Under the reduced fertility scenario, population size increases by almost 20.1% during the same planning period to reach 104.2 million persons in 2024. Total labour force will increase similarly by almost 25.4% during the period (2014-2024) to attain 34.6 million in 2024 (10 million and 24.6 million for males and females respectively). With respect to the quantity demanded of labour, it is assumed that the high bulk of labour size is belong to the primary and higher education.