This report addresses one of the most important challenges facing the Southern Mediterranean Countries (MPs) today, namely that of employment. Indeed, the region has to create sufficient decent and productive jobs at levels not achieved before to absorb the increasing number of new entrants into the labour market, a large number of unemployed youth, and a notable increase in women participation in economic activity. In addition, the region has to address the problem of informality, where a growing proportion of the population live and work under unfavourable conditions of low productivity, low incomes and low protection. Finally, the region needs to ensure that migration is a positive sum game for both exporting and hosting countries, rather than a source of brain drain.

Meeting this challenge is not easy. On the one hand, the population pyramid in the region is such that its base (young people) is much wider than the world average. Surely, the rate of population growth has been declining, but past high fertility rates are now making their impact felt. On the other hand, the region can no longer afford to deal with the employment problem through public hiring. The size of the public sector is already too large and globalization is making it difficult for countries to survive without being highly competitive by international standards.

However, we contend in this report that the challenge can be met, provided policymakers take whatever reforms needed capitalizing on the successful experiences of other countries after adjusting them to the initial conditions of the MPs. These reforms would involve making the transition, which has already begun, to a higher level of pro-job creating growth, along with improvements in the working conditions of labour. They also include aligning education systems with the demand for labour in the context of increasingly more diversified economies. And they could possibly involve mutually beneficial exchange of temporary labour migration between the MPs and the EU.

The purpose of this report is to contribute to the discussion of the nature and magnitude of the employment problem in the MPs, the root causes of the problem and possible remedies. To be sure, the report does not offer a blueprint for action in every country case; rather it sheds light on the above issues and proposes ideas for further discussion between the parties concerned.

The report is organized in four sections:

1. The employment challenge in the context of current and expected demographic trends.
2. The root causes of the problem.
3. Regional competitiveness, openness and the link between salary determination and productivity.
4. Meeting the challenges: basic ideas for consideration.