Officially, Iraq’s government has committed itself to diversifying its economy away from being dependent upon oil, and wants to create a vibrant private sector. In practice however, Iraq’s politicians always turn to the state to solve any problems. That is seen in how the central and regional governments have dealt with the high unemployment rate in the country. With Iraq having one of the youngest populations in the Middle East and North Africa there is constant pressure to create new jobs. The authorities have responded to this dilemma by creating more and more government positions each year. The fact that many of these workers do little to nothing is not a concern, because politicians are more worried that they may lose votes if they don’t give their followers part of the ever-expanding state pie, and that the public may turn against the government if the jobless rate were to increase. This has an adverse affect upon Iraq’s future, because not only does it draw away workers from private companies, but takes away money that needs to be invested into infrastructure and diversification.
One of the main goals of the 2013 draft budget is to create more jobs. A government official said in February that the bill includes100,000 new positions. He said these would mostly be offered to university graduates, and families that had lost loved ones to terrorism. Deputy Premier Saleh al-Mutlaq complained that since so many ministries and government offices lacked trained staff, and around 500,000 university graduates were unemployed, the budget should offer even more chances to work. He suggested 130,000 jobs in the second half of the year. Overall, Baghdad has plans to create 5 million new jobs by 2017 as part of its development plan. This is supposed to come from a combination of public and private sources, along with foreign companies. In practice, almost all new work opportunities have come from the state. As Labor Minister Nassar Rubaie pointed out last year, the private sector is too small in Iraq to solve the labor problem. He said that only the government had the means to address the issue. That’s exactly what it has done in every budget since 2005. In 2012, for example, Baghdad wanted to create 100,000 new jobs. In Kurdistan, the government hired 25,000 people in 2011, and was supposed to add an additional 40,000 in 2012. This was supposed to help with the 16% unemployment rate, which Labor Minister Rubaie said the government wanted to cut in half.
The government is already the largest employer in Iraq. There are around 5 million public workers, half of which are in the security forces. The state provides 60% of full time work. The number of public employees has more than doubled since 2003. State workers as a percentage of overall employment went from 28% in 2005 to 43% in 2008, which is one of the highest rates per capita in the world. This huge increase in positions has been paid for by oil revenue. (1) At the same time, the growth in pay and pensions for all these workers has become the largest expenditure in the budget. A parliamentarian pointed out that the 2013 draft budget is for 138 trillion dinars, 83 trillion of which would go to past and present public employees. This cuts into spending for more important things like diversifying the economy. The problem is Iraqi politicians are worried about the political repercussions if they don’t hire more people. 64% of the country is younger than 24 years old, and they are the fast growing part of the population. They have the highest unemployment rate, at 30% according to the United Nations. Around 250,000 new people entered the labor market each year from 2007-2011, and that’s expected to increase to 290,000 each year from 2012-2016. The leadership is afraid that if they don’t get all these young people jobs it could lead to instability. They also want their votes. The result is that the government ends up hiring far more people than it actually needs, and many do little to nothing as a consequence. This ends up hurting the long-term health of the economy in two ways. First, every new public employee, pay increase, and pension takes money away from investment in infrastructure and other needed capital outlays. Second, it distorts the labor market. Since government jobs are more secure and pay higher, they attract people away from the private sector, and retard its growth. That contradicts the stated goals of the National Development Plan, which is to create a healthy market economy. The problem is that Iraq’s elite thinks short-term too often, and makes political rather than economic decisions.
Iraq’s leaders have all grown up under command economies, and have maintained that system since 2003. They give lip service to developing the private sector, but in practice they think about what might happen politically if they don’t create more jobs each year, and turn to the government as a result. With such vast oil wealth, they think the easiest solution is to simply create more public positions each year in the budget. They don’t think what Iraq’s economy needs long-term, which is to move away from the state-centric model. Instead, their policies distort the economy, and make it harder for reforms to be implemented. Politicians’ short-term thinking is leading to long-term development problems. There appears to be little political will to break this pattern, and the result will be a continued reliance upon oil to fund a state-run economy.
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