Fostering Private Sector Job Creation in Algeria1
Algeria’s labor market is characterized by a persistently high unemployment rate and a low employment ratio. With a growing working–age population, developing policies that will foster job creation In the private sector is both a necessity and a key to faster growth. Within a comprehensive policy agenda for strong and sustainable job creation, effective supply-side policies would improve the functioning of the labor market by boosting labor force participation, building a skilled workforce, and facilitating the reallocation of labor to productive uses.
1. Algeria’s key challenge is to create enough jobs for its growing working-age population. At current low labor force participation rates, Algeria will need to create 2.3 million jobs by 2030 to absorb new entrants to the labor force. Progressively bringing labor market participation from 40 percent to 60 percent will require the creation of 5 million new jobs by 2030.
2. This challenge presents a unique opportunity. Algeria is at a point in its demographic transition where the working-age population is large relative to nonworking age groups. This demographic “window of opportunity,” if met with policies geared toward the creation of high value-added jobs, can lead to faster growth and savings accumulation.
3. A comprehensive policy agenda, encompassing areas beyond the realm of labor market policies and regulations, is needed for strong and sustainable job creation that realizes Algeria’s unique opportunity. Experience in successful emerging markets shows that this agenda starts with a favorable and stable macroeconomic environment, and includes policies that level the playing field among enterprises; improve access to productive resources and financial services to all parts of the population; and encourage firms to take advantage of market opportunities and technological developments. In the case of Algeria, this agenda also includes policies to diversify the economy into sectors that are more labor intensive (see SIP on diversifying exports in Algeria); contain public sector employment, which crowds out private sector employment; and favor investment projects that create local employment.
4. A comprehensive policy agenda for strong and sustainable job creation also needs to include supply-side policies that lay the groundwork for a better functioning labor market. Appropriate education systems help prepare the future workforce for the needs of private sector employers; effective labor regulations and institutions, and social protection systems, facilitate the reallocation of labor to the most productive uses while protecting workers; and active labor market policies can foster job opportunities for vulnerable groups, such as youth and women.
5. This paper focuses on these supply-side policies. It provides an update on the performance of the labor market using recent data; analyzes current policies that influence the functioning of the labor market—education and training, labor market policies, and labor market regulations—and reflects on how they can be improved. It then provides a picture of what the performance of the labor market would look like in the near term under different assumptions of growth and reforms.
A. The Performance of the Labor Market
6. A growth decomposition shows that the increase in the share of working-age population and in employment were positive contributors to GDP growth between 2004 and 2013. At the same time, the contribution of output per worker was negative. Had productivity stayed the same over the period, per capita GDP growth would have been 17.7 percent instead of 11.3 percent. A change in the structure of the population alone would have generated 5.3 percent per capita GDP growth over the same period.
Aggregate Employment, Productivity, and Demographic Profile of Growth 2004-2013
Source: IMF staff estimates based on raw data from Algerian
7. Algeria is in the so-called “window of opportunity,” with a large share of its population being of working age. Youth aged 15 to 24 represent 30 percent of the working-age population. As fertility rates started declining in the 1990s, the ratio of nonworking age groups (under age 15 and 65 and older) relative to the working age groups (ages 15 to 64) has shrunk. As generations reach retirement age, the age dependency ratio will rise again and the demographic dividend will eventually decrease. This may happen soon: a recent upturn in fertility, if sustained, may also put greater pressure on the labor market. Algeria needs to choose the social and economic policies that will realize the gains in growth and productivity that the rise in the working-age population can generate (Assaad and Roudifahimi, 2007).
8. A large share of the working-age population remains outside of the labor force. The labor force participation rate—at 47 percent—is very low by international standards, mostly because female and youth labor force participation rates are low. However, the issue is not confined to these groups. As a result, without policy changes, Algeria’s labor force growth is projected to slow down from about 2 percent a year, to 1 percent a year within the next decade (ILOSTAT Database, 2014).
9. Unemployment is high and, after decreasing in the first half of the 2000’s, has now stalled. At 9.8 percent in April 2014, Algeria’s unemployment rate is slightly better than in the Middle East (11 percent) and North Africa (10 percent), with neighboring Tunisia and Morocco at 13 percent and 9 percent respectively. Long-term unemployment is also significant; about 64 percent of the unemployed had been looking for a job for more than a year as of April 2014.2 This is a particular concern, because long-term unemployment is associated with detachment from the labor force, de-skilling, and long-term negative career impact (ILO, 2013). Job seekers of both sexes have to be flexible in order to find a job, the majority of job seekers accept jobs that are below their competencies, that do not correspond to their profile, and that belong to any sector of activity. Women are less flexible than men; only about a third (compared with three-quarters of men) accept a job far from their home, and few accept a job in another wilaya (province) or a job that is considered arduous.
Source: Algerian authorities.
Unemployment rates by region
Sources: IMF staff Calculations and ILO
Labor Force Participation and Unemployment Rates in the World - 2013
Source: ILO estimates
Sources: Algerian authorities; and World Bank, World Development Indicators.
10. The unemployed tend to be young males. The unemployed tend to be young (43 percent were under 25 years old and 69 percent were aged below 30 years old in 2013) and male (68 percent); they are also mostly located in urban areas (73 percent). The vast majority of the unemployed have reached an education level above primary (job seekers with an education at the primary level or below represent less than 14 percent of the unemployed), and 22.3 percent of the unemployed have a higher education degree.
11. The significant decrease in unemployment between 2004 and 2008 was achieved through both modest private and public sector employment creation, accompanied by small net gains in the labor force. Between 2008 and 2013, employment creation picked up, especially in the public sector. Since net entry into the labor force also picked up, the employment-to-working-age-population ratio, which is low by international standards, started to improve, while unemployment remained stable at around 10 percent. However, data for the first trimester of 2014 show a slight decline in the employment-to-working-age-population ratio, caused by a decline in employment in both the public and private sectors. This did not affect the unemployment rate because labor force participation declined.
12. There has been an increase in formal employment measured as the share of employment covered by social security. The share of jobs covered by social security benefits has risen from 48 percent of total employment in 2004 to 57.6 percent in 2013. This formalization of employment occurred in the context of the public sector being a large net employment creator, creating nearly 4 times as many jobs as the private sector between 2009 and 2013. The latter mostly created informal jobs—defined as not affiliated to social security.
13. There has been a significant increase in more precarious, fixed-term employment. The share of fixed-term employees/trainees increased from 23 percent to 33 percent of total employment between 2004 and 2013 (unchanged as of April 2014), leaving the share of permanent employment unchanged at about 36 percent. The increase in the share of fixed-term employment can be linked to the creation of fixed-term employment in the public sector. The share of fixed-term employees increased from 18.6 percent of public employment in 2010 to 23.3 percent in 2013.
14. The private sector is dominated by low-productivity activities. Private sector employment is characterized by a very small proportion of permanent employees (7.5 percent); this share remains largely unchanged in 2013 compared with 2010. The large majority of employment in the private sector is composed of self-employed and fixed-term employees/apprentices (respectively 42.1 percent and 39.8 percent of private employment). Just above 70 percent of private sector employment is in firms that have fewer than five employees. The private sector is also dominated by small firms in sectors that tend to have low productivity. In the nonagricultural sector, 99 percent of private enterprises have less than 10 employees. Just over half of total private sector employment is shared between the commerce and construction sectors; other sectors with more potential such as manufacturing or transport and telecommunications represent only 12.9 percent and 7.6 percent of employment respectively.
Size of enterprises by sector
Source: ONS 2012
15. Youth unemployment is very high. Like other countries in the MENA region, Algeria has very high youth unemployment, at about 23.2 percent for 20–24 year-olds and 30.1 percent for 15–19 years-olds in April 2014. In addition, 24.4 percent of youth in the 16–24 age range were not in the labor force or in school. Youth unemployment is usually higher than overall unemployment because the youth have higher job turnover, possess smaller social networks, lack labor market information, have less work experience, and are often targeted by “last in-first out” rules. It is of particular concern because youth who do not transition smoothly from school to work often see lower expected lifetime labor income and long-term impact on career paths. The high share of unemployment among the 15–24 age group means that many who leave school at the end of the compulsory stage of education become unemployed at a time when they should be building up skills. This is especially an issue in countries like Algeria where youth represent an important share of the population.
16. Young women are at a particular disadvantage. Only a small share of young women participate in the labor force (about 9 percent in April 2014), and they have a higher unemployment rate than young men (36.7 percent as against 22.4 percent in April 2014). Moreover, there is a dichotomy between the situation of a majority of young women who are in school (55.4 percent as against 45.9 percent for young men) and a significant share of young women who are neither in school nor in the labor force; 35.8 percent of young women were not in the labor force or in school, compared with only 13.3 percent of young men in April 2014.
17. More generally, women’s participation in the labor market is low and their unemployment is high. Women’s labor force participation has marginally improved in the past 10 years, but remains below 17 percent, largely below most other countries in MENA, the region with the lowest women’s labor force participation rate in the world. The unemployment rate of women who participate in the labor market has stagnated since 2007, leading to a situation where the gap between men and women has increased, because men’s unemployment rate has been steadily decreasing.
Female Labor Market Outcomes - International Perspective
Source: ILO (KILM 2014)
18. Employed women tend to be in relatively better-quality employment than men, but they work fewer hours. Women who do work are mostly employed in the public sector. This is consistent with the fact that women are more likely to be on permanent contract than men. They are also more likely to be affiliated with social security than men (72.3 percent of working women are affiliated with social security, as against 54.4 percent of working men).3 They are, however, more likely to work part-time than men. About 39 percent of women work less than 34 hours a week, compared with 17 percent of men (April 2014). A significant share of women are therefore underemployed, in the sense that they work less than 40 hours a week and are willing and available to work additional hours. Results for 2013 indicate that 29 percent of working women are underemployed against 18.6 percent of men. Underemployment decreases with educational attainment; from 24.5 percent of uneducated women to 17.5 percent of women educated at the tertiary level.
19. There is a dichotomy between young, educated women who are active in the labor market and older, uneducated women who remain inactive. Women who hold a tertiary-level degree are very likely to participate in the labor market (70 percent in April 2014) and to be employed (59 percent), while women with no education mostly stay out of the labor force (4.2 percent of uneducated women participate in the labor force). Looking at participation rates by age shows that participation peaks at about 25–29 years old (33 percent in April 2014). Women are most likely to participate between 25 and 34 years of age. They then seem to be dropping out of the labor force once they start families (the average age at the birth of the first child is 31.5 years old). This means that women are finding it hard to reconcile work and family life. This is confirmed in the 2012 time use survey, which shows that participation in remunerated work is strongly negatively correlated with the number of children and their age.
20. Moreover, women’s economic activities may not be recorded accurately, leading to a lack of understanding of women’s work. Recent surveys show a small increase in women’s labor force participation in all age groups. This may partly reflect a better account of their activities; an important share of women currently reported as “housewife” may actually be carrying out casual work, largely in the informal sector. The time use survey indeed suggests that women aged 12 and over who stay at home are working, according to the ILO definition,4 for an average of three hours. Moreover, women working in the private sector often work from home (this is the case for the 46.7 percent of women who worked in the private sector in 2013). Take-up of the ANGEM5 scheme illustrates this point: nearly 62 percent of beneficiaries are women, most notably for activities carried out from home. In contrast, about 10 percent of the financing distributed to create micro-enterprises through the ANSEJ6 goes to young unemployed women.
21. Employment tends to be more precarious in rural areas. Labor force participation rates are similar in urban and rural areas (April 2014), but urban areas have higher unemployment rates; the unemployment rate was 10.7 percent in urban areas in 2013, as against 8.0 percent in rural areas. Employment in rural areas is more precarious than in urban areas; in the latter 40 percent of jobs are permanent, versus 27 percent in rural areas. This may partly be because a higher share of employment is public in urban areas, and because a larger share of employment is in the agriculture sector in rural areas (23 percent of employment). The labor force is slightly younger in rural areas (22 percent of youth versus 16 percent in urban areas).
22. Overall the picture suggests a large part of the working age population is not able to contribute fully to productive activities. Algeria’s labor market excludes an important part of the population—especially women but also males—and the stable unemployment rate hides a situation where the public sector has increasingly been taking on the role of employer. Public sector employment grew from 34 percent of total employment in 2004 to 41 percent in 2014, creating mostly fixed-term jobs, whereas the private sector has created few jobs, most of them informal.
B. The Supply of Labor
23. Educational attainment has improved over the past 15 years. As in other countries of the MENA region and elsewhere, the share of adults without education has been dropping for both men and women, and dropout rates from the primary level of education have been reduced significantly. For example, the dropout rate from primary education was 7 percent in 2011, down from 24 percent in 1990; adult literacy rates have been increasing significantly for both men and women, reaching 72.6 percent in 2006. The literacy rate is lower for women (63.9 percent) than for men (81.3 percent), but the gender gap has been steadily decreasing. Women have been catching up with men in several other measures of educational attainment. For example, average years of schooling for women have increased from 4.8 in 1995 to 7.5 in 2010, while average years of schooling for men increased from 7.7 to 9.1 over the same period. In universities the completion rate has been also improved from about 6 percent in the early 1970s to 23 percent in 2010/11.
24. These results have been brought about by a strategy to rapidly raise enrollment at all levels, including tertiary. Net enrollment rates in primary school for men and women reached near universality in recent years (2008–12, UNESCO) at 98.4 percent and 97 percent respectively for boys and girls, while the net attendance ratio in secondary schooling reached 57.4 percent for boys and 64.5 percent for girls. From very low levels, Algeria has steadily improved the number of students registered in tertiary education from about 12,000 students in the early 1970s to more than 1 million in 2010/11. The increase has been especially pronounced since the 1990s, mostly because of an important increase in the number of students in humanities and social science (65 percent of registered university students and 70 percents of graduates were in social science in 2010/11).
25. However, learning outcomes remain below par in the international context, and the quality of education is in question. Available data (TIMSS, 2007) show that Algeria was at the bottom of the range of test scores for countries with similar levels of GDP per capita. With a score of 387, Algeria was among the 25 percent of 49 countries surveyed with the lowest scores in eighth-grade mathematics and among the 25 percent of 36 countries surveyed with the lowest scores in fourth-grade mathematics with a score of 378. The large increase in capacity, for example through an important increase in the number of teachers, has not been accompanied by rigorous monitoring of quality.7 Moreover, drop-out rates are significantly higher in secondary education (after reaching the compulsory age of schooling), and even higher in tertiary education.
26. Secondary-level vocational studies carry negative stigma and are associated with worse outcomes in the labor market. Despite the progress in educational attainment outlined above, the share of workers with secondary-level education remained stable between 2004 (21 percent) and 2013 (22 percent), suggesting that higher educational attainment did not translate into greater access to employment. Moreover, in Algeria and other countries of the region, secondary level vocational studies are a second-best for students, and there is evidence that they are undersubscribed.8 This is partly explained by the fact that students who engage in vocational studies have little opportunities to transfer to other parts of the education system, and also by the course content, which are somewhat detached from the realities of the labor market. Because the courses are taken up mostly by students with weak academic results, they end up carrying a negative stigma for students. Labor force surveys show that unemployed workers who have technological diplomas are more likely than those with higher education diplomas to be long-term unemployed.
Average mathematics scores of eighth-grade students, by country: 2007
27. Secondary and tertiary education overwhelmingly trains students in the humanities and social science, lacking a focus on hard science. As most job opportunities have been created within the public sector, education systems have been geared towards producing graduates with the skills required for public sector employment or more simply with the skills to pass public sector employment entry exams. The large majority of tertiary-educated workers are in the public sector and this has been increasing (72 percent of tertiary-educated workers were in the public sector in 2004, this share rising to 78 percent in 2013). Tertiary-educated workers represent 31 percent of public sector workers, while they represent only 6 percent of private sector employment.
28. Consequently, higher educational attainment only partially translates into improvement in labor market outcomes. The increase in educational attainment has translated into a more highly educated workforce. Over the period 2004–13 the share of workers without any education decreased from 15 percent to 9 percent, while the share of workers with tertiary degrees increased from 10 percent to 16 percent. Better educated workers are more likely to participate in the labor market; while about 45 percent of working-age individuals with primary education participated in the labor force in 2013, 57 percent of those with higher degrees did. However, the latter are also more likely to be unemployed. In April 2014, women who have a tertiary level education face an unemployment rate of 15.9 percent against 4.4 percent among uneducated women. Similarly, tertiary-educated men face a 9.7 percent unemployment rate, against 2.9 among uneducated men. The share of highly educated workers in employment (16 percent) is slightly lower than the share of those workers in the labor force (17 percent), showing that, among the active, there is no education premium in terms of employment. Tertiary-educated job seekers are less likely to become long-term unemployed than job seekers with less education, but long-term unemployed still represented 47 percent of educated women and 64 percent of educated men in April 2014. This is partly because educated workers voluntarily extend their job search in order to secure employment in the public sector.
29. Public sector employment is more attractive. A recent survey of youth shows that 52 percent of surveyed youth would rather work in the public sector, a share that is high compared with other countries of the MENA region. Moreover, there is a wage premium to working in the public sector; on average public sector wages are above those offered in the private sector. This is true across sectors and most occupations, except for high-level occupations in sectors such as financial services, real estate, or personal services.
Private Sector Wages as a Share of Public Sector Wages
Where would youth prefer to work
Arab Youth Survey (2013)
30. Moreover, there are significant skills mismatches in the labor market. Skills mismatches are likely to exist in any labor market; however, they can impair productivity and competitivity gains if they are too wide. International evidence suggests that workers may be inadequately equipped for the demands of employers, not only in cases where they lack education, but also, when they do not possess the competencies that employers need. Opinion polls show that Algerian employers are constrained by a lack of skills in the labor force; nearly 60 percent of public sector employers and 35 percent of private sector employers report that skills are lacking. Moreover, more than 65 percent of public sector employers and 56 percent of private sector employers report having difficulties in filling vacancies, especially at the professional and managerial level. Among the 13 main constraints that firms generally face in the business environment, an inadequately educated workforce comes sixth (Enterprise Surveys, World Bank). The recent economic census, which covers public and private sector enterprises, suggests that only 14.4 percent of enterprises report difficulties in finding new recruits. The proportion of enterprises reporting such difficulties is higher in the private sector, especially among manufacturing firms, where 22.3 percent of respondents reported difficulties. Looking further into disaggregated responses would probably help identify which firms and sectors are the most constrained in terms of their access to qualified work force.
C. Labor Market Institutions and Social Protection
Labor market institutions
31. Uneven enforcement of regulations, rather than labor regulation per se, is among the most important constraints of the environment in which Algerian businesses operate. The Enterprise Survey of 2007 reveals that, as in other middle- and low-income countries, labor market regulations are the least reported as a major obstacle by firms in Algeria. This is not surprising because other obstacles are more pressing. In particular, Algerian businesses point to corruption, informality, and lack of access to finance as important constraints. The first two reported constraints suggest that a more pressing issue may be that regulations, including labor regulations, are enforced inconsistently. Interestingly, the survey results also show that Algerian businesses tend to be more likely than the MENA average to report business climate elements (except electricity and crime, theft and disorder) as major constraints to doing business.
Investment Climate Constraints
Sources: Enterprise Surveys (World Bank)
Share of firms that report labor regulation as a major obstacle (%)
Sources: Enterprise Surveys (World Bank)
32. However, inadequate labor regulations can have several negative effects on the labor market. First, labor regulations may affect different types of firms or in different sectors to varying degrees. For example, more dynamic firms, which may be looking to recruit, would be more affected than other firms. Similarly, medium-sized firms, which are not able to remain under the radar like small firms, or have fewer resources for dealing with regulations than large firms, may be the most likely to complain of labor regulations. Second, as the country reforms the other aspects of its business environment, labor regulations that are too stringent can prevent the reallocation of labor to most productive uses. The impact of excessive labor regulations on the reallocation of labor has been recognized in the international literature (e.g. Haltiwanger and others, 2014). Third, labor regulations may simply be avoided through employing workers informally, which is symptomatic of a more general issue of weak enforcement of regulations. The latter can be particularly damaging, because it is often associated with generally inconsistent enforcement of regulations, which keeps the playing field uneven.
33. In the law, hiring and firing regulations are particularly stringent for workers with short tenure; hiring new workers in Algeria is costlier than in most countries of the world. The most striking feature of labor regulations in Algeria is that they do not allow more flexibility for workers with short tenure.9 In particular, while in other countries severance pay and dismissal notice periods tend to increase with tenure, in Algeria they are the same for all workers. Similarly, the number of paid annual leave days is the same for all workers, while, on average, other countries increase the number of paid leave days as tenure increases. Moreover, the minimum wage for a trainee or first-time employee represents about 42 percent of value-added per worker, which is 10 percentage points higher than the median ratio among the countries that have a minimum wage. When the impossibility of hiring workers under fixed-term contracts for permanent tasks is added to the picture, hiring new workers in Algeria is costlier than in most countries of the world. In addition, Algeria has some restrictions on dismissals that are applied in less than half of countries included in the World Bank’s Doing Business database: it requires notifying a third party before dismissing one redundant worker; retraining or reassignment obligation before an employer can make a worker redundant; and priority rules applying to redundancy dismissals or layoffs.
Severance Pay for Redundancy Dismissal
Sources: Doing Business (World Bank)
34. Moreover, several work regulations are stringent compared with world practices. In particular, there is no flexibility in adjusting working hours in periods of high demand, something which has become recently more popular among many countries, especially after the 2008 crisis, and is now applied in 93 percent of the countries of the world included in the Doing Business database.
Social Security Contribution for Algeria and middle-income countries with same types of programs
Source: Social Security Programs throughout the World
35. The social protection system strives to be comprehensive. Algeria’s social protection system includes programs that cover all types of risks: old age, sickness, and unemployment, as well as social assistance directed at low-wage earners. The total contribution rates for all those programs tend to be on the high side compared with other middle-income countries that also provide all these types of programs. Moreover, it has among the highest share of employers’ contribution. Beyond the actual level of contributions, it is important that the services provided under these programs meet worker’s expectations. As long as workers are ready to pay for the services, social contributions do not by themselves distort the labor market.
36. Unemployment insurance benefits few job seekers. The unemployment insurance system imposes stringent eligibility criteria. Job seekers have to follow a number of requirements to be able to register to receive unemployment benefits, and their previous employer is required to make a payment and register them on a list beforehand (see Box 1). Given the cost to employers, who are already likely to be in a difficult financial position, there is a high probability that employers will not register their workers. These issues, as well as the difficulty of firing workers in practice, and the fact that the implementing agency (CNAC) has been refocusing on entrepreneurship schemes in recent years, mean that very few unemployed individuals actually receive unemployment benefits. The number of job seekers receiving unemployment insurance is 120 in 2014.10 The job seekers who continue receiving unemployment benefits are mostly long-term unemployed who are reaching the end of their benefits. Current beneficiaries include job seekers who have been able to continue receiving benefits between periods of short-term employment.
37. The unemployment benefits system does not currently fulfill its insurance role. Apart from the fact that few job seekers actually receive benefits, the design of the unemployment does not currently permit its full use as an insurance mechanism. The requirement that employers make a large provision at the time of dismissal means that the system runs into some of the disadvantages of severance pay. In particular, as with severance payments, there may be a high risk of noncompliance, especially because firms are likely to already be in financial difficulties when they are trying to fire some of their workers. In practice in Algeria, the unemployment insurance requirements, combined with stringent firing regulations and significant severance pay requirements, lead to a situation where firing is extremely difficult.
Box 1.Unemployment Benefits Scheme
Unemployment benefits were created in 1994 to alleviate the negative impacts of structural adjustment policies. The implementing agency (CNAC) was created and put in charge of ensuring that job seekers received financial compensation while looking for new jobs. Since its inception the unemployment insurance system has registered around 200,000 job seekers.
The eligibility criteria for unemployment benefits include: having an open-ended contract, having been registered to social security for a total time of at least three years, being registered and having paid contributions to unemployment insurance scheme for at least six months before the end of employment, being on the list of salaried workers who have been made redundant for economic reasons, not having refused a job or retraining opportunity, not having income from another economic activity, having been registered with ANEM for at least two months, and residing in Algeria. Once they receive the unemployment benefits, recipients must present themselves every month to the CNAC to attest that they are still unemployed.
In addition to the social security contribution, employers have to pay to the CNAS an amount of 80 percent the average monthly salary received in the latest year of employment for each year worked by redundant workers who have been employed three years or more, up to a maximum of 12 months. Employers must also file a number of administrative documents, including a list of the names of the workers who have been made redundant.
The duration of unemployment benefits is calculated based on the tenure of job seekers in their last job, with a minimum of 12 months and a maximum of 36 months. Benefits amount to two months of benefits for each year of tenure with the latest employer (one month every six months). The benefit itself is calculated according to a reference wage (actual wage + minimum wage divided by 2). The benefit period is then divided into four periods, during which the benefit decreases from 100 percent of reference wage in the first period, to 50 percent of the reference wage in the last period. The actual duration of benefits has averaged 23 months, out of a maximum duration of 36 months.
D. Active Labor Market Policies
38. Active labor market policies (ALMPs) can help foster job opportunities for groups who are vulnerable in the labor market. They have become a policy of choice in many countries for policymakers who want to address unemployment, but they require careful implementation, because they can be costly and their benefits may be limited. To be successful, ALMPs have to adapt international best practices to the country circumstances and goals of the government. Moreover, it is essential to note that ALMPs do not increase aggregate employment levels in the short term; they mostly affect the structure and dynamics of the labor market. In the long term, by reintegrating groups that were essentially out of the labor force, ALMPs can increase the effective labor supply, thereby putting downwards pressures on wages and easing recruitment. They tend to be more efficient in the context of general employment creation in the economy.
39. ALMPs are a major component of Algeria’s national employment strategy. Five agencies in charge of implementing labor market policies provide job intermediation, employment subsidies, and support to entrepreneurship (see Box 2). They cover the entire Algerian territory: each is organized around central departments (ANEM) or a head office (all others), regional centers, wilaya offices, and local offices for the ADS and ANEM. Algeria has devoted 1.4 percent of GDP to active labor market policies in 2014 (1.5 percent in 2013). This represents a high number by international standards; the average spending on active labor market programs in OECD countries was 0.6 percent of GDP in 2011, ranging from 0.01 percent in Mexico to 2.3 percent in Denmark (OECD, 2013).
Box 2.Active Labor Market Policies—Five Employment Agencies
The provision of labor market policies and workfare is organized through five agencies: the national employment agency (ANEM); the social development agency (ADS); the national youth employment support agency (ANSEJ); the national unemployment insurance fund (CNAC); and the national agency for the management of microcredit (ANGEM). The ANEM, ANSEJ and CNAC are administered by the Ministry of Labor, while the other two are administered by the Ministry of National Solidarity.
The ANEM’s core mission is job intermediation; as part of this mission, it initiated a youth employment program (DAIP) in 2008. The aim of the ADS, created in 1996, is to reduce poverty through pro-poor employment programs and social inclusion programs. ANSEJ was created in 1996 to support youth employment through the creation and expansion of microenterprises. The CNAC’s initial goal was to organize the payout of unemployment benefits, especially during the structural adjustment program in the 1990s. In recent years, it has been providing active support for the creation of microenterprises among 30–50 year-olds. The ANGEM was created in 2014 to provide microcredit to poor people to finance small-scale activities, in order to reduce poverty, social exclusion, informality and unemployment.
40. The public employment agency (Agence Nationale de l’Emploi (ANEM)) is solely responsible for job intermediation. The agency has been providing job intermediation services since the 1990s. The law requires employers to publish vacancies and hire workers through the ANEM, and penalties for noncompliance have been introduced since the early 2000s.11 In recent years, the ANEM has extended its local network from around 150 agencies in 2006 to 263 in 2014. This expansion has been accompanied by an increase in the staffing of these agencies, from one agent for 2,814 job seekers in 2006 and one agent for 210 job seekers in 2013. The Labor Ministry reports that the ANEM has increased its coverage, first by increasing the number of job vacancies recorded from about 86,100 in 2005 to about 349,200 in 2013, and 263,200 in the first eight months of 2014. This represents about 23 percent of the stock of job seekers as of April 2014. The ANEM increased its coverage of the private sector market, with 71 percent of job offers coming from this sector in 2013, as against 65 percent in 2008. Within the same period, the number of placements done through ANEM increased from about 64,100 in 2005 to 309,200 in 2013, and 220,200 in the first eight months of 2014.12 The ANEM has also improved its services to employers, especially in reducing the number of days it takes to provide candidates for a vacancy from 21 to 5.
41. Private provision of job intermediation is limited but is expanding thanks to information and communication technology. The ANEM officially recognizes 20 private employment agencies, including several websites. The reach of private providers is very limited; they place about 6,000 job seekers per year. But there is evidence that, together with the increased use of the internet in Algeria, an increasing number of job seekers use websites to find jobs; in 2012, more than 65 percent of published job vacancies were online.
42. Such broad responsibility may force the ANEM to spread its resources too thin. A large share of unemployed workers is registered with an employment agency. About 60 percent of all job seekers register through employment agencies, and the proportion increases with educational attainment: while 51 percent of unemployed with no diploma were registered with employment agencies in April 2014, 90 percent of those with tertiary degrees were. The fact that the ANEM is the main agency responsible for placing all job seekers and responding to all vacancies places enormous demands on the agency, and at the same time places constraints on employers who may then be reluctant to post any vacancies at all. Despite recent improvements, the ratio of staff to job seekers remains far from the recommended 1 for 100 that the ILO recommends (Kuddo, 2012). Moreover, by serving all workers, the staff of the ANEM is spread thin over a wide range of needs and qualifications, for which it may not be fully trained. At the same time, a significant number of job seekers would probably require only limited help, being the best placed to know where to look for a job, and being able to use resources made available through media such as the internet. By refocusing on the job seekers who have the greatest difficulties in the labor market, the ANEM could improve its service.
Subsidies and tax exemptions
43. Algeria has favored wage subsidies and tax exemptions to employers, especially for the hiring of first-time job seekers. The ANEM proposes three types of subsidized employment for first-time job seekers under the DAIP program (Dispositif d’Aide à l’Insertion Professionnelle) depending on their level of education: the CID (Contrat d’Insertion des Diplômés) for general and professional tertiary-level graduates, the CIP (Contrat d’Insertion Professionnelle) for youth who have completed secondary education or equivalent vocational level, and the CFI (Contrat Formation-Insertion) for youth with no education. Under each contract, the state contributes to the salary of the worker for a period of two to three years, and for an amount that depends on the contract. In addition, under the CTA (Contrat de Travail Aidé) employers receive social security tax exemptions and further contribution from the state to the salary for three years for any job created after the end of the scheme or for any young job seekers.
44. These programs cover a large number of workers and represent an important investment. The number of beneficiaries of these programs has varied significantly over recent years, reaching a peak of 660,810 youths placed in a contract under the DAIP in 2011, down to about 139,000 in 2013. In 2014, the number of placements in August was 75,300; this suggests a further decrease in placements. Since its inception, the program placed about 1,800,000 individuals. These placements cost 400 billion Dinars during the period June 2008 to August 2014, and were financed directly from the government budget. This represents roughly 198,500 Dinars per placement per year. Spending on DAIP represented about 10 percent of the spending on transfers from the 2013 budget in June of that year, down to 9 percent in June 2014. The placements were spread roughly equally across the three types of contracts, but the CID represented 55 percent of the spending since the start of the program.
45. Their long-term impact remains unclear. Some evidence that the DAIP scheme leads to limited permanent employment creation is in the number of CTAs financed. Since 2009, the total number of CTAs is 170,800, which represents only about 9 percent of all placements under the DAIP. Most of the CTAs (54 percent) were made for beneficiaries of the CID, which suggests that the other contracts are less successful in making beneficiaries sufficiently attractive to employers. This could be because youth do not gain enough skills and experience over the duration of the contract or because the jobs performed are temporary. Despite the large numbers of jobs created under the DAIP, most jobs are likely to be temporary, and the long-term impact of these programs remains unclear because there is limited monitoring and no evaluation.13
46. Entrepreneurship schemes are the centerpiece of active labor market policy in Algeria. They are implemented by three agencies. Young entrepreneurs (19-35 years old) are covered under the ANSEJ, while older entrepreneur (30 to 50 years old) are covered under the CNAC. The third agency (ANGEM) provides microcredit to poor individuals, mostly for small-scale activities. The loans of these agencies are built around the same financing models (see Box 3); they differ mostly in the groups of individuals that they cover. This means there is overlap across those agencies, responsibilities are spread over agencies that do not necessarily communicate well, and there is likely duplication of work and scattering of financial resources.14 In practice, there may be few checks to prevent individuals from switching from one scheme to the next.
47. Despite the large number of funded projects and subsidized jobs created, there is little evidence as to the long-term impact of these schemes. A large number of projects are financed through these schemes. For example, the ANSEJ reports that during the January 2010–August 2014 period, about 200,000 projects were funded, with an estimated 436,500 jobs potentially created. However, this estimation is based on projected job creation; there is no information regarding either the actual number of jobs created or the survival rate of micro-enterprises. In the meantime, over the period 2010–13, the operating and equipment budgets spent on the ANSEJ amounted to 8,365 million Dinars, representing a cost of about 22,114 Dinars per potentially created jobs, while the cost of financing amounted to 579 billion Dinars (i.e., about 3,380 thousand Dinars per project). Both the CNAC and ANSEJ have plans to improve the monitoring of the projects by surveying the beneficiaries of these schemes. Preliminary results15 from the CNAC scheme suggest that about 1.8 jobs were created per firm on average over the entire period of the project (2004–14), lower than the previously expected number of jobs. The survival rate currently estimated for enterprises created under the CNAC scheme is high.16 These preliminary numbers, as well as qualitative evidence, suggest that the enterprises benefit from protracted help by the agency.
Survival rate of firms created under CNAC scheme
Source: Algerian Authorities (Preliminary results of follow-up survey)
48. Moreover, there is growing evidence that a large number of loans are nonperforming. The terms of the loans tend to be favorable, with long grace periods, which make it difficult to gauge the extent of non-repayments. Evidence provided under the CNAC suggest a rate of default rate of 2.35 percent over the period 2004–14.
Box 3.Entrepreneurship Schemes for the Unemployed
The entrepreneurship schemes targeted at job seekers registered with the ANEM offer the possibility of financing microenterprise projects for qualified job seekers. The ANSEJ is designed to help job seekers aged 19 to 35 years old, while the scheme financed under the CNAC is targeted at 30- to 50-year-olds. The schemes are the same in both cases. Financing is for a maximum of 10 million Dinars. They both propose “triangular” financing, whereby bank financing amounts to 70 percent of the loan (subsidized), 29 percent a no-interest loan by the ANSEJ/CNAC, and a 1 percent personal contribution by the beneficiary. For loans above 5 million Dinars, the personal contribution is increased to 2 percent, and the agency contribution is decreased to 28 percent of the amount of the loan. In the case of the ANSEJ, there is also the possibility of having loans financed by the agency (29 percent for less than 5 million Dinars or 28 percent for more than 5 million Dinars), and the beneficiary.
Since 2011, complementary no-interest loans have been granted for up to 1 million Dinars to finance renting business premises for beneficiaries with higher education, for activities in some sectors such as medical, actuarial, or design. Loans are also granted for beneficiaries with vocational degrees, up to 500,000 Dinars for the purchase of a business vehicle, or for financing a production unit. In addition, entrepreneurs under these schemes benefit from tax exemptions for the first two to three years and start paying taxes progressively over a three-year period.
The training provided under these schemes is limited to a one-week, training in entrepreneurship skills. The agencies are in charge of helping applicants to formulate their project, and of evaluating the feasibility of the project. They provide advice on potential sector activities. Applicants who have no qualification are directed to vocational training institutions. In cases where applicants do not have formal diplomas or qualifications, the CNAC also requests a “validation” of skills to make sure applicants have the skills required for the activity they want to pursue.
49. A number of training courses are provided to beneficiaries of subsidized employment and entrepreneurship schemes. The courses provided to beneficiaries of the DAIP aim to refresh and reinforce the skills acquired during formal education or previous training, with the goal of making the youth more employable. Such training is provided by public or private providers. The ANEM also subsidizes up to 60 percent of the cost of training through employment for up to six months, in the case where the employer commits to hiring the youth for at least one year. The CNAC also provides training courses to registered unemployed.
50. Qualitative evidence suggests that the quality of these training schemes may be deficient. Training schemes provided under the entrepreneurship schemes could benefit from important improvements.17 In particular, potential beneficiaries—owners and employees of micro-and small enterprises—are not always aware of the tools and training available. They would need to be coached to access the funds and schemes set up by the government; to plan their skills and training needs; and to share the skills acquired by previous beneficiaries. The quality of the training that is provided is not always adapted, and is not evaluated (there is no quality assurance system in place). As in the case of formal education and training, there is insufficient cooperation between education and the private sector, in particular in the development of adapted curricula.
E. Employment Prospects
51. The employment creation rate barely covers the projected increase in the labor force. Given current growth projections and estimated elasticity of employment to growth,18 the projections of formal employment growth in the next four years suggest that employment creation would barely keep up with the projected growth in the labor force. Moreover, such estimates are based on a period where a large number of temporary jobs were created through entrepreneurship schemes and wage subsidies. Such policies may be unsustainable, and many of the created jobs may disappear once they reach their term, which suggests that either significantly higher growth or structural reforms that improve the elasticity of employment to growth are needed.
Annual Percent Employment Growth Under Various Employment Elasticities
Source: IMF staff estimates based on raw data from ILO and Algerian authorities
Unemployment Rate Projections
Source: IMF staff estimates based on raw data from ILO and Algerian authorities
52. Unemployment rates are therefore projected to remain relatively stable, bar any significant change in policy. Unemployment rates can only be reduced significantly by introducing reforms and policies that will foster growth in labor-intensive sectors, or provide incentives for productive businesses to expand employment further for a given growth. To reduce unemployment to a rate of 6 percent by 2017, the model predicts that a real GDP growth rate of 6 percent per year would be necessary over the period 2013–17. Under these predictions, only a major change in policy can significantly reduce unemployment. It should be noted that in recent years (since 2006) nonhydrocarbon GDP growth has been the main driver of total growth and that employment in the hydrocarbon sector is modest (representing less than 2 percent of total employment in 2013). The elasticity of employment to nonhydrocarbon growth is therefore even smaller than the elasticity of employment to total growth, and the policy reforms are even more important.19 The unemployment rate has been stabilized in recent years through modest growth of the labor force, and slightly higher employment growth, sustained by fixed-term employment. Over the period 2004–13, the average annual growth rate of self-employment was 2.3 percent, against 2.9 percent for wage employment and 7.2 percent for fixed-term employment, while the labor force grew at an average annual growth rate of 2.4 percent.
53. Important structural reforms are needed to improve the elasticity of employment to growth. International experience shows that structural policies that increase labor flexibility, in the sense that they facilitate the reallocation of resources to more productive uses, improve the elasticity of employment to growth. In the same way, increasing competition in the product market, by lowering the cost of entry, may reduce incumbents’ market power and rents, thereby reducing the gap between productivity and wages. Reducing the differential in pay between certain sectors of activity, or between the public and private sector, can reduce behaviors such as “wait unemployment” and prolonged job search, helping firms to recruit more easily. Reducing the public sector’s intervention in the economy would also leave room for private sector investment. Estimates based on data from a sample of countries suggest that such policies can change elasticities by as much as 0.3, which is the scenario illustrated above (Crivelli and others 2012).
F. Policy Recommendations
54. A comprehensive approach to fostering job creation will need to be implemented. This is an underlying principle for a strategy of job creation that has long-ranging ramifications in the way policies are designed. In particular, it suggests that different ministries that do not necessarily interact start working together and with other stakeholders. Policies of various sectors can thereby be coordinated and complemented with the ultimate goal of greater private sector job creation. The national employment policy launched in 2008 by the Algerian authorities incorporates the principles of such a strategy; however, the implementation of the policy has not been systematic and efficient, and has so far not translated into significant improvements in private sector job creation or productivity.
55. Fostering job creation starts with addressing the lack of labor demand in the private sector. In particular, a number of policies that are beyond the realm of labor markets play a major role in spurring job creation. These include addressing business climate constraints, diversifying the economy, and containing public sector employment (see accompanying selected issues papers).
56. Stepping up reform of the education system to form future generations that are adaptable to private sector future needs. The government has already started a reform of the education system, but further efforts are needed in several areas:
- The effectiveness of spending on education needs to be improved. The available evidence shows that increases in staffing and other resources have not translated into tangible improvements in the quality of education. A cost-benefit analysis of current spending could be carried out, for example, through a public expenditure review.
- Revisions to the curriculum have not always been made with the ultimate goal of improving the labor market skills of future graduates. There should be a greater focus on the quality of education, as well as a review of the skills and competencies provided. A broader strategy of education for employment should be adopted. In particular, essential skills such as hard science, and foreign languages, as well as soft skills such as communication and problem-solving skills should be part of the curriculum. Students should be made aware of the realities of the private sector at a much earlier stage in their studies and private sector speakers should be invited and included in courses. The private sector should be part of the design of the curricula and supply, especially in the case of vocational courses, and even provide hands on experience to students. Such programs already exist in Algeria, but they should be made more systematically available to all students.
- Finally, the performance of the Algerian education system could be better assessed by more systematically participating in internationally recognized assessments such as PISA or TIMSS. The available test scores are outdated by now and it would be valuable to participate in such surveys, in order to assess improvements in the competitiveness of the country. Improving rankings would then attract foreign investors who seek a skilled labor force.
57. Labor market regulations should be better adapted to facilitate the reallocation of labor to productive uses.
- Labor regulations are necessary to restore balance between the power of employers and limited leverage of workers; however, unduly stringent regulations that overprotect workers may have unintended consequences. This seems to be the case in Algeria, where a combination of labor regulations, job intermediation rules, high payroll taxes, and inconsistent enforcement impose great costs on employers and partly explain their reluctance to hire permanent workers.
- International evidence suggests that liberalizing fixed-term contracts alone would lead to large increases in precarious employment;20 a review of regulations on all types of contracts is therefore necessary. In particular, employers should be allowed to hire new workers, especially inexperienced ones, under less stringent conditions than others until they reach a higher level of productivity and have the full set of skills required to do their job. Moreover, firing regulations should be reviewed so that they do not absolutely prevent employers from firing redundant or underperforming workers. Facilitating the reallocation of labor is necessary to the working of the labor market, and fosters further employment creation. In addition, regulations of working hours should be reviewed in order to allow more flexibility, enhance labor force participation of women, and help employers face seasonal variations in production. Finally, payroll taxation should be rationalized.
- The cost and negative impact of stringent labor regulations can be higher in the context of uneven enforcement. Labor regulations should be set at a level that is fully enforceable by the existing administration and removes room for discretionary enforcement, which increases uncertainty for firms. There is international evidence that improving enforcement of regulations can lead to formalization and expansion of business, because firms can better plan their development and have increased trust in the public service. There is also evidence that enforcement works better when it is implemented in a consensual and informative way rather than in a punitive way. The foremost role of labor inspectors should be to inform firms and workers of their duties and rights.
58. Facilitating labor mobility also requires protecting workers better against the risk of unemployment.
- Individuals are ill-equipped to insure themselves against the risk of job loss: although they can plan for it by building up savings, this strategy is inefficient for dealing with shocks that have low probability but high costs. Moreover, moral hazard and adverse selection problems prevent private provision of unemployment insurance. The risk of unemployment is therefore better insured through public provision, where public mandating or public provision and financing are required.
- The current unemployment benefit scheme does not do its job. It has extremely low coverage, and does not apply international best practices. In particular, the rules governing eligibility are particularly constraining, placing great responsibility and costs on employers, who therefore have little incentive to register unemployed workers.
- If unemployment insurance is to be used fully, it will need to be reformed. In particular, the payment made upfront by the employer could be transformed into prepaid payments made to individual savings accounts, which could be transferable to new jobs and be used as unemployment benefits, if needed, or kept for retirement. Such costs could be shifted to workers in the form of lower wages (Kugler, 2005).
- The implementing agency, CNAC, will need to refocus on its main business of providing unemployment benefits. In doing so, it will need to work closely with the ANEM to link unemployment benefits with job search requirements and help and participation in active labor market policies, as relevant. The entrepreneurship scheme that it is currently financing can be merged into the ANSEJ because it has basically the same structure.
59. Active labor market policies need to be targeted to the most vulnerable groups, e.g. unskilled women and youth.
- Wage subsidies in Algeria offset the bias against first-time job seekers in labor regulations by providing important financial incentives to employers to hire them. Such policies can be successful in the short term but they are not sustainable in the long term. In particular, it is crucial that workers hired under such subsidies improve their skills and, thereby, their productivity so that they can eventually be hired in permanent jobs. As with other benefits, it is important to plan and encourage the “graduation” of beneficiaries and their eventual exit from such programs.
- The international evidence regarding the success of entrepreneurship schemes is mixed.21 Moreover, it is questionable to expect a large share of the young labor force to become entrepreneurs since wage work remains an employment of choice. In the case of Algeria, the sustainability of the jobs created under those schemes is unclear.
- To improve ALMPs and their impact, it is necessary to carry out proper monitoring and some evaluation of the schemes. Monitoring and evaluation can help fine tune policies. Quantitative and qualitative monitoring enables the rapid identification of issues in the implementation of the policies. Impact evaluations are more complex, but they enable a true cost-benefit analysis of the programs. They are particularly effective when embedded in the initial design of new programs (Khandker and others, 2010).
- International best practice suggests that ALMPs should be targeted to specific groups. Although such policies can be quite costly and do not necessarily benefit all, they bring the best results when targeted at vulnerable groups whose needs have been clearly identified. For example, there is evidence in Latin America that training programs for vulnerable youth can help them secure employment. In specific circumstances, public works programs can be used as active labor market policies. In particular, there is evidence that when they are carefully targeted, and combined with strong coaching and training components, they can be effective in improving the employability of vulnerable groups. For example, addressing the particular needs of youth is crucial to ensuring the quality of future labor supply.
60. Economic and social policies should be designed to provide a level playing field for groups that face specific hurdles in the labor market.
- Beyond ALMPs, other economic and social policies can help include vulnerable groups participate fully in the labor market. For example, women are at a particular disadvantage, being essentially excluded from productive work. The informal work of women in sectors such as agriculture, textiles, or domestic services remains largely unmeasured by current survey methodologies. Social policies can be designed specifically to give the opportunity to women who choose to participate in the labor market to contribute to the economy at their full potential. In particular, issues such as the availability of child or elderly care, safe travel to work and greater flexibility in working arrangements and hours are of particular importance for women.
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