By Abdul Rahman Al Ageli – The Libyan Youth Forum
Tripoli, 16 December:
In part 1 of this talk we briefly introduced the notion . . .[restrict]that the youth employment problem like most other issues vital in Libya, is produced by larger, economy-wide distortions which are deep rooted in a structural imbalance of the Libyan State, part and parcel of an implicit Social Contract, exploited by the former regime for political legitimacy, stability and control.
Ladies and Gentlemen,
What are structural imbalances and distortions? How do they exist in practice in Libya?
The hidden implicit social contract between ruler and ruled… stability for patronage…That was the system of old Libya..Trapped in the resource curse
The CURSE of massive amounts of oil money flowing into one central government pocket, has perverted the proper social, economic, and political incentives required to promote and develop the institutions of a modern state, in both public and private sectors. It also altogether creates new incentives for a relationship between the economic and the political agencies of the Libyan people.
Entrapment (dependency) on this curse then creates an embedded STRUCTURAL IMBALANCE with the State as the largest PROVIDER of wealth, and the people as DEPENDENTS. And It is this structural imbalance that allows these serious economic, social and political DISTORTIONS to take place:
In modern productive economies, the ability to extract resources, by the state from the produce of its people, led to two complementary developments: 1) the birth of regulatory institutions (including fiscal, legal, information collection &processing mechanisms) and 2) Democracy: demand for representation in return for taxation.
In Libya this never happened. The wealth is monopolized by the state, and does not need to be (extracted) from its people and their economic productivity.
The gradual decay of institutional structures across the gamut of political & socioeconomic life ensued. Libya either felt no need, or proved unable, to make the right structural balance, or find the correct incentive structure to create the natural incentives for private sector growth, employment and entrepreneurship.
In such states, ruling elite face minimal pressures to specify property rights to maximize income. In fact, property was abolished as a right altogether and assets of the old commercial class were expropriated in the 70’s.
Nor is there a need to collect nor monitor internal taxes from citizens, or worry about transaction costs and need only relatively few agents to run their economies. Essentially the mammoth public sector doesn’t run the economy, it just feeds off it. Why worry when there’s $Billions of (free) money from the oil at your disposal.
In essence the rulers of rentier states feel less responsibility to the people and are thus not accountable to them, as the people are dependent. Since change, without the necessary transitional institutions is too risky for the rulers. The incentive is to forego reform, in favor of (stability).
A vicious cycle which if not broken, will see Libya adopt its old implicit social contract, as an explicit, social contract for the future.
Now that we have built our framework we will use it to analyze how this structural imbalance has distorted employment in the economy as a whole, and then specifically in the public, and private spheres of work.
Over the past four decades, Libya has relied on the government and on state enterprises for employment creation. If initially this approach was successful in creating ‘jobs’, in the last 10 to 15 years, rapid population growth and a youth ‘bulge’ in particular has made it impossible for the public sector to provide enough jobs to keep the unemployment rate under control.
What we do know is that under 25’s in Libya make up around 50% of the population, and under 35’s makeup closer to 70%. Before the revolution Libya was struggling with an unemployment rate of 30% overall most of which are youth, and now it is much higher.
But, unemployment defined by our framework is not only those who are not employed and looking for work in Libya: In fact lot of those IN employment in the public sector ARE either not going to work, actively looking for work, or working informally elsewhere at the same time. A huge factor of the inefficiency and decay plaguing public sector institutions.
If you include the inactive, unproductive employment in the public sector especially those who are receiving government salaries without actually doing anything or at least adding value then you’re looking at around 75% unemployment right now in the country.
The rise in youth unemployment has also resulted from the tendency of those who are well educated to pursue careers abroad. This ‘brain drain’ is a damaging since it creates negative returns on education investment while at the same time harming Libya’s ability to institutionalize knowledge and build productive industries.
In addition, many young Libyans are reluctant to take jobs that are not considered prestigious” or require intense labor. The stigma associated to labor intensive jobs, as well as high salary demands is the result of the entitlement that the public sector will be able to provide stable employment.
Rather than searching for alternatives many young Libyans are willing to remain unemployed until an opportunity in the STILL GROWING public sector became available depending who your patron is.
Given the decay of modern information collection bureaus in Libya (another indicator of the inefficiency and ambiguity incentive produced by the distortions), it is impossible to provide 100% accurate figures on youth employment.
Available data shows that the public sector now accounts for more than 60% of the country’s workforce. The informal economy absorbs most of the remainder given its flexibility, including the relatively low wages that employers can offer, as well as their ability to avoid labor laws such as working hours’ regulations, severance packages and other benefits.
At the same time, the private sector has not been able to fill the gap given the wider problems business faces in general in Libya. Additionally, corruption and a lack of transparency in both the public and private sectors has hindered competition and lowered efficiency, further complicating the ability of the formal private sector to create stable and modern employment opportunities.
Labor laws have discouraged job creation in the formal sector — specifically, their provisions on a minimum wage, working hours, night shift regulations, and dismissal procedures and training requirements. Laws governing dismissal are strict, favoring the employee. The 1980 Social Security Law requires employers to pay a severance benefit to laid-off employees equal to 100% of earnings for up to 6 months.
The rigidity and inefficiency of the private sector is certainly a source of the high level of unemployment in the country but the mismatch between the skills taught by the education system and those demanded in the market place has a large role to play, especially in youth unemployment.
Libya has invested a great amount in access to education, as demonstrated by high literacy and enrollment rates, but it has been less successful in improving the quality of education. The training of educators has been limited and in general the system focuses on memorizing facts rather than building problem-solving skills. As a result, employers prefer to hire those with work experience rather than those with advanced degrees.
In part 3 we will discuss these structural distortions and unemployment within the context of the February 17th revolution.
Abdul Rahman Al Ageli, is co-founder and vice president of the Libyan Youth Forum, a coalition founded during the revolution that seeks to provide a platform for the voice of the Libyan Youth, and to support the youth in empowering themselves.
A version of this article was first presented at the Libya Summit conference in Tripoli 20-22 November 2012.
See part 1 of this article: http://www.libyaherald.com/2012/12/12/youth-employment-in-libya-a-structural-solution-is-needed-part-13/ [/restrict]