Unemployment in Iraq

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At Kikuchiyo News, Simon notes the apparent economic malaise in Iraq by summing up Colin Powell's response to Tim Russert:

In other words, don't count on your fuel prices to drop, but count on Iraqis soon getting even more screwed at the pump than you. Also at the grocer and at the power meter. Before all the Iraqis had to suffer through getting cheap gas and free food an electricity, paid for by oil revenues. Now, they will fortunately have the subsidies drop and the prices rocket up.

Note that the unemployment rate in Iraq exceeds 50%. Note also that Powell said nothing about rising wages. (My economic training is limited, but I generally understand that they tend to rise slower than the market basket. And that that condition is generally best avoided.... Finally, note that 60% of Iraqis depend on food aid to survive.

It's impossible to say concisely what unemployment means now in Iraq, or what it meant before the invasion, and before the UN sanctions.

Unemployment at 50% seems to be a popular misconception. Actually, 25% seems more likely, although some neighborhoods can have rates of 50% to 60%. (See this February CPA brief). Also, this 25%--"28% late last year"--figure does not include the Kurdish areas, which have been better off for quite some time now.

I don't know what the unemployment rate was before the fall of Saddam; but one non-poll estimate put it at... take a guess... 50% , so you make up your own minds. We know the economy was a quasi-socialist basketcase before, and it is by no means clear that the Iraqi unemployment picture is worse now than in 2000 or 2002.

Although unemployment rates may be improving, and appear to be at or below pre-war levels (do you trust the data?), I'd argue that the unemployment picture should be seen as a part of a severe short-term adjustment to a long-term crisis.

Immediate employment by the American/Iraqi central government--in the form of a jobs program--is unlikely to generate a dynamic growing economy outside of the oil industry, which is the only long-term solution. A jobs program will retard short-term adjustment (although ease short-term pain), and could cause difficulty later on, as the Iraqi government fires people it cannot afford to employ indefinitely.

Sources agree that many of the current unemployed are former military and government officials, who could have better references (to put it mildly).

Such a high rate of unemployment as 50% is also extremely inconsistent with the building boom in major cities, and the enormous purchase of automobiles and the like. Why are unemployed people spending so damn much?

It's also unclear how those in outlying areas are affected economically by the collapse of the regime, and the new spending on reconstruction.

I can't estimate real wages very well, because many nominal wages are rapidly increasing, while prices and the consumer basket composition are rapidly changing. Price rises of some necessities must be balanced against the flooding of markets for previously widely unavailable goods (like cars and laptops) which I gather has driven down their prices immensely...

UPDATE: One myth is that a World Bank-UN survey pegged unemployment at 50% last October. "An October survey released by the United Nations and the World Bank put unemployment at around 50 percent."

It turns out that 50% was just a guess (see report here), "Exact unemployment is not known, but estimates are that 50 percent of the labor force is either unemployed or underemployed."

Presumably that 50% is half unemployment, half underemployment, which seems to imply that the 25% unemployment rate is the only data point we have. We should use it when things look bad, and when things look good.

Also, in this context underemployment may (likely) mean overqualified for the job, even if that job earns more than the alternative occupation one is trained for. Such is life in a transition economy...

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I would also add that, anecdotally, high inflation(well, moderate compared to some countries) and real wage growth can go hand-in-hand. It's what Ireland experienced for the nineties. I would be suprised if there wasn't a fairly high rate of inflation accompanying high GDP growth. These are people who were making less than $10 a month before and now makes several multiples of that.


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This page contains a single entry by Kevin published on June 15, 2004 5:44 PM.

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