Striving for Better Jobs : The Challenge of Informality in the Middle East and North Africa

While economic growth has been sustained for a number of years in many countries in the Middle East and North Africa (MENA) region, this has not resulted in the creation of an adequate number of jobs and has succeeded, at best, in generating low-quality, informal jobs. While there is a great deal of heterogeneity across countries, informality in MENA is widespread, and some countries in the region are amongst the most informal economies in the world. The book looks at informality through a human development angle and focuses specifically on informal employment. In line with this approach, the working definition for informality adopted in the book is “lack of social security coverage” (usually understood as pensions, or if a pension system does not exist, as health insurance), which captures well the vulnerability associated with informal employment. Informal workers in MENA are generally engaged in low productivity jobs - more so than in comparator countries -, are paid less for otherwise similar work in the formal sector, and self-report low levels of satisfaction at work. Also, informal workers in MENA face important mobility barriers into formal employment and thus lack of social security coverage against health, unemployment, and old-age risks. Formal employment in the MENA region is strongly associated with public sector employment. Opportunities for formal employment in the private sector in the region remain very limited. The book identifies 5 strategic directions to promote long-term inclusive growth and formality, namely: (i) fostering competition; (ii) realigning incentives in the public sector; (iii) moving towards labor regulations that promote labor mobility and provide support to workers in periods of transition; (iv) enhancing the productivity of informal workers through training and skills upgrading; and (v) reforming existing social insurance systems and introduce new instruments for coverage extension. This book is addressed to policy makers, academics, and practitioners who wish to understand the phenomenon of informal employment, and policy options for promoting more inclusive and productive labor market opportunities. Front Cover -- Title Page -- Copyright Page -- Contents -- Preface -- Acknowledgments -- Contributors -- Abbreviations -- Overview -- Background -- Understanding Informality -- Informality in MENA: Levels and Trends -- Who Are Informal Workers? -- Informality among Firms -- Informality in MENA: Exclusion or Choice? -- Barriers to Coverage and Policy Options -- Notes -- References -- Chapter 1 How Large Is Informality and Why Do We Care? -- What Is Informality? -- How to Measure Informality -- Why Does Informality Matter? -- Informality in MENA -- What Causes Informality? -- Conclusions -- Annex -- Notes -- References -- Chapter 2 Profile and Micro-Determinants of Informality -- Introduction -- Macroeconomic Context -- Informality Profile -- Determinants of Informality -- Conclusions -- Annex -- Notes -- References -- Chapter 3 Informality and the Firm -- Introduction -- Description of Informality among Firms -- Main Costs and Benefits of Informality for Firms -- Stylized Facts on Informality among Firms in MENA -- Conclusions -- Annex -- Notes -- References -- Chapter 4 Informality: Choice or Exclusion? -- Introduction -- Informality and Wages -- Job (Im) Mobility -- What Are Informal Jobs Like? -- Self-Employment: A Choice? -- How Much Are Workers Willing to Contribute to Social Security? -- Networks and Intergenerational Persistence -- Conclusions -- Annex -- Notes -- References -- Chapter 5 Barriers to Coverage and Policy Options -- Part 1. Addressing Institutional Barriers and the Low Productivity Trap -- Part 2. Extending Social Insurance Coverage -- Extending Social Insurance Beyond the Existing Mandatory System: Guiding Tree with Application to MENA -- Extending Coverage beyond an Existing Mandatory Social Insurance System -- Annex -- Notes -- References -- Boxes -- Figures -- Tables -- Back Cover

Economic growth has been sustained for many years pre-crisis in the region, but this has not resulted in the creation of an adequate number of jobs and has succeeded, at best, in generating low-quality, informal jobs. The report addresses one margin of exclusion: informal employment and the vulnerabilities and lack of opportunities associated with it. The report analyzes the constraints that prevent informal workers from becoming formal and discusses policy options to effectively address these constraints. This report looks at informality through a human development angle and focuses particularly on informal employment. Informality is a complex phenomenon, comprising unpaid workers and workers without social security or health insurance coverage, small or micro-firms that operate outside the regulatory framework and large registered firms that may partially evade corporate taxes and social security contributions. The first section provides a detailed profile of informal workers in the region. The second section describes the characteristics of informality in micro-firms that operate outside the regulatory framework and in larger firms that do not fully comply with social security contribution requirements and tax obligations. The third section presents informality and the firm. The fourth section focuses on informality: choice or exclusion? The fifth section discusses policy options for effectively expanding coverage of health insurance and pension systems and promoting the creation of better quality jobs.