Public Sector Employment & Labor Markets in Arab Countries: Recent Developments & Policy Implications

This paper surveys recent trends in public sector labor practices in a group of seven Arab countries (Algeria, Bahrain, Egypt, Jordan, Kuwait, Morocco and Tunisia) in order to identify their implications for the operation of labor markets and public sector reform efforts. The evidence presented highlight that Arab economies are characterized by labor markets that are highly segmented along various lines-- yet all related to and influenced by the public/private one -- and by states that have previously conducted public sector employment and pay policy under conditions of 'soft' budget constraints. As the governments' financial constraints became harder and in the face of rapid increases in the number of new entrants to the labor force each year, problems associated with such policies started to become increasingly pressing in all of the countries under study. These problems include overstaffing coupled with declining real wages and wage compression in the public sector, constrained labor mobility between public and private and nontradable and tradable sectors and declining private sector demand for certain groups of workers. Current proposals to confront these problems center around initiating internal reform, especially of the civil service, where these problems are relatively more acute. In view of the present problems in the labor markets of Arab countries, particularly the high rates of unemployment among certain groups, the paper suggests some important considerations that should be addressed when designing civil service and public enterprise reform programs.