Abstract
The educated unemployed youth of Tunisia have played a crucial role in the 2010 uprisings that have sparked revolutions across the entire Arab world (and beyond). It has been argued that the recent economic situation in Tunisia is the culmination of three decades of neoliberal economic policies that have contributed to the rise in income inequality, the lack of upward mobility for educated youth, and the removal of social safety nets for the working class. This paper argues that the economic success of post-Ben Ali Tunisia must do away with neoliberal economic policies and focus instead on direct job creation through public sector spending. A six-year full employment program is proposed for Tunisia in the Post Keynesian Institutionalist tradition of Hyman Minsky. The main purpose of this paper is to address the technical question of financial affordability of direct job creation, rather than focusing on the logistical aspects of the program. The paper demonstates that this program can create full employment, contribute an additional 4.8 percentage points to GDP growth, and cost 3.36 percent of GDP.
1. Introduction
There are several factors that have contributed to the Arab uprisings that began in Sidi Bouzid in Tunisia in December 2010 and swept through the Arab world bringing down the autocratic regimes in Tunisia, Egypt, Libya and Yemen. The people of Syria, and Bahrain are still protesting and demanding radical regime change. Several governments in the region including Morocco, Jordan, Algeria, and Saudi Arabia have taken significant steps towards political and economic reforms. While most of the public discourse has revolved around issues of rampant corruption, and lack of democracy and freedom of speech, not enough attention has been given to the significant role played by the lack of economic opportunities for unemployed youth in the Arab world, and more specifically in Tunisia’s case, long-term unemployed university graduates. It has been argued that the recent economic situation in Tunisia is the culmination of three decades of neoliberal economic policies that have contributed to the rise in income inequality, the lack of upward mobility for educated youth, and the removal of social safety nets for the working class (Bedoui and Gouia 1995; Pfeifer 1999; Murphy 1999; King 2003; Kaboub 2011a, 2011b). This paper argues that the economic success of post-Ben Ali Tunisia must do away with neoliberal economic policies and focus instead on direct job creation through public sector spending. A six-year full employment program is proposed for Tunisia in the Post Keynesian Institutionalist tradition of Hyman Minsky. The main purpose of this paper is to address the technical question of financial affordability of direct job creation in Tunisia, rather than focus on the logistical aspects of the program. The paper demonstates that such a program can create full employment, contribute an additional 4.8 percentage points to GDP growth, and cost 3.36 percent of GDP.
2. Youth Unemployment: A Challenge and an Opportunity
In 2010, the United Nations Population Division estimated that 52 percent of Tunisia’s population was under the age of 30. After the fall of the Ben Ali regime in January 2011, Tunisia spent nearly a year cleansing the country of the corrupt insiders of the former RCD ruling party who wanted to destabilize the country in an effort to regain power. As the country was moving towards its first free elections, the so-called “Arab Spring” was in full swing. Neighboring Libya was in all-out civil war, Tunisia’s European economic partners were experiencing the worst economic crisis in the history of the eurozone, and the Tunisian economy was heading south. The official unemployment rate jumped from 13 percent in May 2010 to 18.3 percent in May 2011 representing 704,900 unemployed individuals, 30 percent of whom are university graduates (INS 2011). A careful look at the unemployment statistics by educational level reveals that university graduates are the only subgroup that has experienced a steady increase in unemployment since 2005, reaching a depression level of 29.2 percent in 2011, compared with 20.6 percent for high school graduates, 12.4 percent for primary school graduates, and 8 percent for those with no education. It is noteworthy here to highlight a change in the unemployment rate calculation methodology. Starting in 2005, the Tunisian government stopped including certain underemployment categories such as discouraged workers and involuntary part-time workers as officially unemployed. This change in methodology created the illusion of improved employment performance, but in reality the youth unemployment time-bomb was ticking.
The urgency of addressing the youth unemployment problem in the Arab world cannot be exaggerated enough. This challenge, however, may be a blessing in disguise. When youth is endowed with education, training, access to information, and freedom of expression, it can be harnessed as a driving force for creativity and productivity to enhance economic growth. A 2004 World Bank report warned that the Middle East and North Africa (MENA) region must create 100 million jobs by the year 2020 to absorb a labor force that is expected to reach 185 million (World Bank 2004). While the World Bank analysis of the challenge ahead is commendable, the solution offered in the report fails to lay out an alternative model of economic growth. In fact, the proposed policy agenda focused on privatizing state owned enterprises (SOEs), promoting free trade, and diversifying economic activity. Only a few weeks before the uprisings began in Tunisia, the World Bank issued its 2010 Country Brief on Tunisia stating that “Tunisia has made remarkable progress on equitable growth, fighting poverty and achieving good social indicators.” The report went on to say that “Tunisia has consistently scored above its income category and the Middle East and North Africa average on most dimensions of comparative governance ranking and development indexes.” Finally, it concluded that “Tunisia is far ahead in terms of government effectiveness, rule of law, control of corruption and regulatory quality.”
This paper, however, rejects the neoliberal policy solutions that are still being offered after the 2011 uprisings. Instead, the analysis presented here draws from the Post Keynesian Institutionalist tradition to lay out a full employment proposal to demonstrate the feasibility of full employment in a country like Tunisia. The idea of government as the employer of last resort (ELR) is not new in economic theory. Under an ELR program, the government would offer to hire anyone who is ready, willing, and able to work at a socially established living wage. The government, therefore, introduces a buffer stock mechanism to absorb excess labor supply when the private sector is downsizing, and releases workers into the private sector when the economy is booming. The end result would be continuous full employment at all stages of the business cycle. The benefits of such a program are both economic and social. Several studies have demonstrated the significant negative effects of unemployment and underemployment on people’s physical and mental health, self-esteem, racial and gender equality, family relations, and overall social cohesion (Cook et al. 2008: 57-59; Tiffany 1970). All of these social costs represent a tremendous economic burden that is often ignored in the midst of short-sighted policy debates. This explains the often short-lived ELR policy experiments that are limited by budget deficit constraints (Kaboub 2007, 2008). Instead of reviewing the vast literature on the ELR program and its socioeconomic merits (Minsky 1965, 1966; Nell 1988; Wray 1998; Mosler 1997; Mitchell 1997; Forstater 1998) and analyzing its macroeconomic effects, the paper will focus exclusively on estimating the cost of an ELR program in Tunisia in order to debunk the myth of financial impossibility of full employment in developing countries.
It is important to think of youth unemployment as a great asset for Tunisia, as opposed to only being a problem to be dealt with. One has to rethink the concept of public works to be a much broader category of active labor market policies. Direct job creation does not have to be limited to building bridges and cleaning public parks. A successful ELR program must be decentralized and community based. Local non-profit organizations would develop a reserve-shelf of public service projects and would try to match projects with the available skills of the local unemployed population. Public service projects must focus on community needs that are not supplied by the private sector so as not to compete with private enterprises. Hence, the selection, implementation, and assessment of ELR projects are decentralized, while the financing is left to the national government to be managed in tandem with the appropriate fiscal and monetary policies. ELR projects may range in scope depending on local community needs and availability of skills. Examples of ELR jobs include: elderly care, daycare assistants, environmental cleanup and recycling consultants, community historians, community artists, and anti-deforestation and anti-desertification consultants. Additionally, ELR can be the springboard for solar panel industrial production, which will employ a vast number of skilled workers.
3. Estimating the Cost of Full Employment in Tunisia
The paper proposes a gradualist approach to full employment for Tunisia in the form of a six-year ELR plan to be implemented in three phases. Jobs in the ELR program are to be designed in the most flexible way possible. ELR workers will have the option of working either full time or part time, and may opt for training and educational programs to improve their skill level. However, the estimation procedure here will assume that all ELR employees are working full time, and, therefore, will tend to overestimate the cost of the program.
Phase One: Heads-of-Households ELR program (HH-ELR)
This is a relatively small population group; less than 2 percent of the active labor force participants are unemployed heads of households (approximately 14,098 people). Introducing ELR at this “small scale” level allows the government to master the logistical aspects of the program in a quasi-experimental level before the expansion of the program to benefit a larger group of job-seekers. It also serves the immediate goal of securing a basic income level for all households in Tunisia which would further reduce poverty and socio-economic exclusion. Even from a sound finance perspective, this phase will not disturb inflation expectations because of the low financial cost of the program and the positive demand side impact that it will have domestically. HH-ELR would be implemented for two years before moving the program into phase two.
Phase Two
This phase guarantees employment for persons unemployed for more than 12 months (12+ELR). This group represents about 50 percent of the unemployment pool in Tunisia, which is approximately 352,450 people. This figure includes the 14,098 people from HH-ELR, so the estimates for phase two would be inflated, which could be justifiable since we can expect the program to draw discouraged workers as well as many people from the informal sector into the labor force given the improved working conditions and social benefits offered by HH-ELR. After two years of logistical implementation of HH-ELR, the ELR administration should be ready to make a smooth transition into 12+ELR. Under this program, several other government programs formerly designed to deal with unemployment will be relieved both financially and logistically which should make 12+ELR an even less significant “financial burden.”
Phase Three
This is the full-fledged ELR program to employ anyone who is ready, willing, and able to work, which is approximately 704,900 people. This figure includes the 352,450 people from HH-ELR and 12+ELR, so the total estimates would be inflated as well. 1 This is the final stage of implementation which will also be a crucial phase for the ELR administration and will test its ability to manage the program both logistically at the local implementation level and macroeconomically in terms of policy coordination between fiscal and monetary policy.
Next, we estimate the financial cost of each one of the three phases (HH-ELR, 12+ELR, and ELR). The estimation is based on the 2011 unemployment rate of 18.3 percent (704,900 unemployed persons), and assumes that the number of people unable to find work in the non-ELR sector will remain constant throughout the six years of implementation. This assumption will exaggerate the true cost of ELR but we are willing to use it for the sake of the argument. For eachone of the three phases listed above, we calculate the annual ELR wage bill, the annual value added tax (VAT) collected by the government from ELR workers through their induced consumption, the net ELR wage bill, the multiplier effect of the ELR wage bill, and its impact on GDP growth. The results of the ELR cost estimations are summarized in Table 1 based on national income accounting data as well as the following data (author’s calculations):
ELR Impact Summary Table (numbers in parenthesis are percentage of GDP)
Marginal propensity to consume = 0.789
Marginal propensity to import = 0.502
Tax rate = 0.1
Keynesian multiplier = 1.263
Annual GDP growth rate = 5%
Base year GDP level = TND 65.5 billion (2010 data)
We also assume the following ELR wage structure:
W1: skilled workers earn 3 times the monthly minimum wage = TND 569.4
W2: semi-skilled workers earn twice the monthly minimum wage = TND 379.6
W3: unskilled workers earn the monthly minimum wage = TND 189.8
The results shown in Table 1 may change if the number of participants in the program fluctuates. If, for instance, some of the ELR workers included in the calculations above are hired by the private sector during an economic boom, the net ELR wage bill would decline, the budget deficit will improve, but the multiplier effect and its impact on GDP would remain the same because the calculations are based on a skill-specific wage structure. Hence, the net annual cost of 3.36 percent of GDP (2.9 billion TND) would be the maximum cost that the program would require. Figure 1 above shows the difference between the non-ELR GDP growth and the six-year ELR plan that we proposed. While the contribution to GDP of the HH-ELR program is very modest, the 12+ELR phase adds 3.01 percentage points to GDP growth in Year 3, and the full ELR program adds 4.8 percentage points to GDP growth in Year 6.
DGP with and without ELR (billions of TND)
Thus, we can conclude that the obstacles to full employment cannot be financial. The issue here is not one of government deficits and national debt, but rather an issue of deficit of ideas, and obedience to the conventional wisdom as dictated by the Washington Consensus. Having established the financial feasibility of full employment in Tunisia, let us now turn to the broader policy agenda that must accompany ELR in order to ensure long-term improvement of Tunisia’s economic conditions in the context of an open economy system.
ELR is not a silver bullet for Tunisia’s economic malaise; therefore, it must be accompanied by a set of post-neoliberal economic policies that not only ensure full employment and price stability, but also social justice and sustainable economic growth. Of the utmost importance is for the Tunisian government to reclaim its full financial sovereignty by never issuing any bonds denominated in foreign currencies or relying on external borrowing. Tunisia’s trade deficit reached 8.2 billion TND in 2010, and has been growing at an average rate of about 10 percent annually. State guarantees for external borrowing by the private sector must be restricted to competitive export oriented industries that have the capacity to leverage their debt to increase productivity and export market share. This should be done under a flexible exchange rate regime with full convertibility of the Tunisian dinar (TND).
In 2010, Tunisia’s external debt stood at 20 billion TND (75 percent of it is government debt). After the fall of the Ben Ali regime and the revelation of a massive amount of extortion by the Trabelsi-Ben Ali business clan, a good share of the government’s external debt may be legally repudiated under the odious debt doctrine, which states that a sovereign debt is deemed odious if the following three conditions are met:
The debt was acquired without the consent of the citizens of the country.
The debt was not used to benefit the citizens of the country.
The lenders knew about 1 and 2.
It is reasonable to say that a significant part of Tunisia’s external debt qualifies for cancellation in the same way that the odious debts of Iraq, Ecuador, and Costa Rica were canceled. The Trabelsi-Ben Ali business empire was built through extortion from state-owned enterprises that had their external debt guaranteed by the Tunisian government. In addition to odious debt cancellation, the new democratically elected Tunisian government can renegotiate some of its external debt for partial payment in TND to lower the external debt burden.
With the implementation of ELR, Tunisia should gradually increase the role of active labor market policies with a significant increase in the role played by public works in direct job creation, and transform the concept of “public works” to incorporate “community service works” in order to match the skills of the unemployed. ELR public works can improve environmental conditions in Tunisia, and enhance investment in indigenous technologies (especially environmental technology). On the educational front, Tunisia could reintegrate high school drop-outs back into the educational/vocational training system through G.E.D. programs and community college programs. Agricultural land reform must favor small and medium size farmers and encourage labor intensive production processes that are less dependent on imports. Finally, on the industrial front, Tunisia must favor vertical and horizontal integration within the country and with its trade partners, and it must also reduce its dependency on EU markets and improve trade relations with the MENA region, Africa, Latin America, and South East Asia.
In short, many of the neoliberal programs that have been implemented since the late 1980s in Tunisia have to be undone. The austerity measures must be reversed to allow for more aggressive, active labor market policies and direct job creation. Tunisia’s most vital assets are the energy, creativity, and productivity of its young labor force. The decentralized nature of ELR allows for more enhanced participatory democracy and grassroots initiatives, which is the best way to capitalize on the achievements of the 2011 revolution. As shown above, the financial costs of the ELR program are relatively insignificant, but the benefits are tremendous.
4. Concluding Remarks
This paper has argued that one of the most important challenges facing the Arab world today is youth unemployment. The urgency of the situation is undeniable, and the continued reliance on neoliberal economic policies will lead the region to socio-economic and political collapse. The paper also argued that the most effective way to undo the neoliberal model is to promote direct job creation through an ELR program. A successful ELR program must be tailor-designed to fit the institutional structure of the economy in question. A case study was presented here to demonstrate that the financial cost of ELR is relatively insignificant for Tunisia. The program provides useful and productive work for 704,900 people, and contributes an additional 4.8 percentage points to GDP growth, while only having a net cost of 3.36 percent of GPD. The paper demonstrates that the objections to ELR are mainly ideological and cannot be justified on “sound finance” grounds.
The lesson that can be drawn for the Arab world is that youth unemployment can be addressed with little financial cost, and can be turned into a tremendous asset for the region. ELR can be a great engine for democratic reform given its decentralized and grassroots implementation nature. The main obstacle to economic prosperity for the vast majority of people in the Arab world is access to employment opportunities. The 1980s’ neoliberal policies have plunged the region into its worst economic decades since colonialism. ELR shows that there is an alternative to neoliberalism, but it must be accompanied by a wide range of political, judicial, educational, environmental, agricultural, industrial, and trade reforms. ELR can be the overarching mechanism that promotes those reforms while providing gainful employment to the millions of young people who are ready, willing, and able to work. The calls of the protesters across the Arab world were loud and clear; they demanded jobs, freedom, and dignity. This study shows that full employment is possible, desirable, and affordable.
Footnotes
Acknowledgements
The author wishes to thank Firat Demir, Mehrene Larudee, Bassam Yousif, Cyrus Bina, Rana Odeh and the panel audience at the ASSAs for their thoughtful comments. The usual disclaimer applies.
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
1
Here we are making the implicit assumption that the ELR program and its multiplier effect do not create new private sector jobs, and that private sector jobs simply grow along with the number of new entrants into the labor force. In reality, however, we do expect ELR to have a positive multiplier effect on private sector growth that would absorb new entrants into the labor force and may in fact hire some workers from the ELR program.