Will the Current Oil Boom Solve the Employment Crisis in the Middle East?

Abstract

Several reports published at the turn of the new century emphasized the looming employment crisis facing the Middle East and North Africa Region (MENA). These studies described an unprecedented job creation challenge facing the region which requires average annual economic growth rates of 6 to 8 percent between 2000 and 2020, far higher than the average 3.6 percent growth witnessed over the 1990s. Much has changed recently, however, in the region's economic outlook. Oil prices - which had been forecast in 2002 to stay at or below $25 a barrel for the foreseeable future - rose to $29 a barrel in 2003, $53 a barrel in 2005 and even higher in the last two years. This unexpected and dramatic rise in oil prices has been reflected in rising personal incomes and government revenues. Thus, regional GDP growth improved from 2.9 percent in 2002 to an estimated 6.0 percent in 2005 and 2006 and is projected to remain high for the foreseeable future. In turn, the region has seen higher rates of job creation and declining rates of unemployment for the first time in almost two decades. Given these changes, the relevant question becomes whether MENA's labor market pressures have suddenly become manageable. More precisely, has the current oil boom solved the unemployment crisis facing the region? This paper reviews recent developments in MENA's labor markets, focusing on job creation, unemployment and government policies aimed at improving labor market outcomes.

Keywords: Arab countries, Middle East, labor markets, unemployment

JEL Classification: J21, O53