Industrial restructuring has serious and persistent implications for Algeria's labor market. Algeria's labor strategy should incorporate supply-side policies to create jobs and stimulate development of the private sector, so that it will have a more agile labor market in the long run.
To predict how Algeria's unemployment crisis will evolve, Ruppert evaluates the Algerian unemployment insurance system's ability to finance itself, to affect employment decisions (of both firms and workers), and to promote enterprise restructuring (with attention to long-term implications for the labor market).
Her main conclusion: Industrial restructuring has serious and persistent implications for the labor market. In an environment where many equilibria are possible, there is a real danger of reaching a high unemployment equilibrium.
The big-bang experience of structural adjustment in the transition economies of Central and Eastern Europe resulted in large-scale unemployment. Despite considerable progress in restructuring, structural rigidities still exist in the labor market there, and long-term unemployment has persisted. Boeri (1993) calls this "transitional unemployment" and argues that it is difficult to eliminate by reintegration into the labor force.
One advantage of the big-bang approach is the speed of adjustment, but the unemployment that results may be too costly for Algeria's economy, especially because it would be persistent. A more moderate "mixed bang" approach would incorporate active employment measures to mitigate entrenched unemployment. A crucial function of such policies is to maintain or enhance human capital through work (learning by doing), so idle workers don't lose their skills. Flex-time arrangements would help workers maintain a degree of attachment to the labor force. However minor, such work would help workers avoid the traps of long-term unemployment.
Two striking conclusions emerge from the Central and Eastern European experience:
Although active employment measures are costly and have relatively low rates of return in the short run, they can be marginally effective as part of a long-term strategy.
This paper — a product of the Country Operations Division, Middle East and North Africa, Country Department I — is part of a larger effort in the department to assess the characteristics and dynamics of labor markets in the region. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Huguette Osselyn, room H4-135, telephone 202-473-6039, fax 202-477-8528, Internet address hosselyn@worldbank.org. (22 pages)
The full report is available on our FTP server.