World Bank – MENA Economic Update

The Middle East and North Africa (MENA) region is facing significant challenges in its labor markets, which have been a long-standing concern. However, the current situation has added even more importance to discussions about labor market adjustments due to the impact of the COVID-19 pandemic and other global events. As the region recovers from these shocks and deals with the volatility in trade terms caused by Russia's invasion of Ukraine, the population is also dealing with the consequences on their livelihoods, such as higher interest rates, currency depreciation, and inflationary pressures. The World Bank has provided macroeconomic forecasts and conducted an analysis of labor market adjustments in the MENA region, highlighting the human side of the macroeconomic shocks. This report is one of the first systematic analyses in the region. Given the future prospects for the MENA region's macroeconomy, the response of labor markets to shocks is of paramount importance. Labor markets can respond to shocks through various mechanisms, including changes in real wages, employment margins (such as labor force participation, unemployment, informality, and hours worked), and reallocation across firms, occupations, or industries. The extent to which these adjustments occur depends on the flexibility of real wages. In economic downturns, if real wages are rigid, adjustments mainly occur through changes in employment margins. However, if real wages are flexible, adjustments in unemployment, informality, and labor force participation are less significant. It is worth noting that while nominal wages tend to be resistant to downward adjustments, real wages can still adapt in certain circumstances.