Labor market search frictions in developing countries : evidence from the MENA region : Egypt and Jordan.

Summary In developing countries, policies aim to increase employment opportunities in order to raise people's incomes and living standards. Among these countries, the Arab countries of the MENA region have recently experienced a wave of popular uprisings, following increases in poverty, inequality, and exclusion as a result of poor labor market performance. As flow analysis has become the basic tool of modern labor economics, this thesis proposes to explain the functioning of these rather specific labor markets, particularly those of Egypt and Jordan, using job search theory. It focuses on the analysis of job creation and destruction as well as job mobility. She shows that these markets are very rigid. The impact of the introduction of structural reforms, aiming at making employment more flexible, is then discussed both empirically and theoretically. The results show that the reduction of firing costs in Egypt significantly increased job destruction, but had no impact on job creation. This partial failure of the reform is an empirical paradox, which is theoretically interpreted by a crowding out effect due to the increase in the cost of corruption and/or the increase in public sector wages. An original extension of the Mortensen-Pissarides theoretical model is then developed, allowing for the existence of three sectors, public, private formal and private informal. This framework takes into account the particular nature of developing countries. In order to examine the quality of jobs and to study the progress in the wage scale, a structural estimation of the Burdett-Mortensen model is then proposed. It allows us to study and measure the matching frictions in the Egyptian and Jordanian labor markets. The estimated parameters are extremely low, underlining the strong rigidity of these markets. The Jordanian labor market, on the other hand, is found to be more flexible than the Egyptian one. Given the unavailability of annual panel data in these countries, it is shown that retrospective panel data can be used to study short-term transitions in these labor markets. However, these panel data are subject to a memory bias. An original method for correcting the memory bias is therefore proposed and developed. It aims at correcting transitions both at a macro level, using a method of simulated moments, and at a micro level, by constructing weight matrices.