Why the Unemployment Rate is a Misleading Indicator of Labor Market Health in Egypt

Policy discussions about the health of the economy and the labor market in Egypt often focus almost exclusively on one indicator, namely the unemployment rate. This policy perspective argues that the unemployment rate is a poor indicator of the cyclical performance of the labor market and that it focuses attention on the plight of the well-off, not those who are the most vulnerable to poor labor market conditions. This policy perspective demonstrates that the unemployment rate is primarily driven by the age and education structure of the population, rather than by economic fluctuations. The unemployed are primarily educated, middle and upper class new entrants into the labor market, a relatively advantaged segment of society. There are a number of other measures of labor market health, such as underemployment, types of employment (especially irregular work), hours of work, and levels of earnings that are far better measures of labor market health and also more sensitive to the conditions facing the poor and less educated. The brief concludes with a discussion of the importance of using better measures in order to craft more effective and pro-poor labor market policies.