Thursday, August 22, 2013

Structural Problems With Iraq’s Economy Creating Job Crisis

Iraq’s economy is producing fewer jobs today than it did in the recent past. At the same time, the population is growing and becoming younger. This creates a huge dilemma for the country to meet the expectations of its populace. The government has tried to step in using its growing oil revenues to produce more work, but it can’t meet demand. Luckily private sector employment is picking up, but many Iraqis turn down that opportunity for the civil service, because it offers better pay and pensions. There’s the added issue of Iraq importing large numbers of foreign workers. These mirror historical trends, and highlight the structural problems Iraq faces in trying to develop.

After 2003, Iraq witnessed a large growth in employment, which then contracted. From 2003-2007 an average of 793,000 new jobs were created per year. That fell to only 222,000 jobs per annum from 2005-2010. That fails to meet the expanding population. For example, around 250,000 new people entered the labor market from 2007-2011, and that’s supposed to increase to 290,000 from 2012-2016. Iraq needs to develop its private sector to meet this growing demand. That’s happening to an extent after a large drop, but the government still dominates jobs. In 2005, 241,000 new government workers were added compared to 646,000 private ones. That reflected the large number of reconstruction contracts, and work offered to service the Americans. The next year that was reversed when 759,000 new public jobs were offered, while the private sector lost 613,000. The cause was a surge in migration from rural to urban areas, which cut agricultural work, along with electrical shortages that hindered businesses, and led to layoffs. The civil war also took off that year closing down large sections of cities due to violence. It wasn’t until after 2008 that private sector opportunities really began growing again going from 31,000 to 316,000 by 2010. No new government jobs were offered that last year, because it took so long to form a new ruling coalition after parliamentary elections. The result is that the percentage of workers in the private sector is finally growing, going from 16% in 2004 to 31% in 2010. Some of these issues continue to this day with large numbers of people moving to the cities. Many head for Baghdad or Irbil only to find disappointment. As Labor Minister Nassar Rubaie warned in 2012, the economy cannot generate enough employment, because the private sector is too small, and the large government presence is distorting the market. Ironically, he advocated for the public sector to employ more people as the immediate solution. Even with soaring oil revenues, Baghdad and Irbil have failed to provide enough work to meet demand.

Job Creation In Iraq 2005-2010 Public vs. Private Sector
2005 241,000 public, 646,000 private
2006 759,000 public, -613,000 private
2007 148,000 public, 31,000 private
2008 81,000 public, 98,000 private
2009 179,000 public, 130,000 private
2010 0 public, 316,000 private.

% Of Iraqis In Public And Private Sector
2004 5.5 mil jobs total, 84% public, 16% private
2010 7.5 mil jobs total, 69% public, 31% private

The situation is made worse by the fact that many Iraqis are not skilled, and employers are turning towards foreign laborers to pick up the slack. Many workers don’t have the education or experience to work in the private sector. That leads them to look for employment with the government, which pays better, and offers pensions. Many positions don’t require real work either, and can be acquired in return for votes. Workers from other countries are being imported to fill this gap. (1) There are no exact figures for how many foreign laborers are in Iraq, but they are believed to number in the tens of thousands. There are large amounts of illegal ones as well. Countries like the Philippines, India, Bangladesh, Sri Lanka, Nepal, Egypt, and Sudan have all sent people to Iraq. In 2011, the Kurdistan Regional Government (KRG) brought in 3,000 foreigners, (2) and had over 17,000 registered in total. Foreign workers not only bring down wages, but take away opportunities for Iraqis. Since so many people look towards the government for jobs, because of the incentives it offers, many businesses have turned towards foreigners. At the same time, the lack of an educated workforce is leading even the government to bring in non-Iraqi workers for things like nursing. Once again, the negative effects of the large public sector are being felt.

Iraq has suffered through similar problems for decades. When oil profits began to take over, so did government jobs. The number of public workers went from approximately 20,000 in 1958 to 580,000 in 1977 to 821,000 in 1993. That didn’t include the military, which also saw a major expansion under Saddam Hussein. The migration to the cities has been a long-term trend as well. In 1947 66% of the population was rural, but by 1977 it had switched to 64% urban as people moved to the cities where there were greater opportunities. Starting around the same time, Iraq began bringing in foreign workers as the economy began expanding, and there were labor shortages during the Iran-Iraq War. Egyptians became a major part of the workforce from the 1970s until the Gulf War when they left.

Iraq is projected to be one of the fastest growing economies in the next few years. This is based upon the development of the country’s oil and gas industries. Those aggregate numbers hide the major structural problems that it faces. While all the development plans call for diversification and promoting a market economy, in practice Iraq has become more oil dependent, and the state has expanded its influence. To add to the oil curse, Iraq has suffered from decades of wars and sanctions, which have devastated its social services such as education, which has left many Iraqis unprepared for the work place. As a recent United States Agency for International Development study pointed out, Iraq is at a crossroads. It has the potential to invest its vast oil wealth into reforming the economy, and promoting the private sector or it could continue on its current state-run path, which will perpetuate its structural inequalities. Shot sighted decisions by the nation’s leaders who are more concerned about holding onto power through their vast patronage networks than the health of the economy will likely mean that Iraq remains an incredibly rich country in resources, with a relatively poor and unemployed populace.


1. Saadi, Salam, “Erbil’s Development Not All Positive,” Rudaw, 1/12/12

2. Hussein, Nabard, “Conflicting Unemployment Rates in Kurdistan,” Rudaw, 3/7/12


Agence France Presse, “Iraq pledges curbs on foreign labour,” 2/25/12

Ali, Arkan, “In Kurdistan Region, Plenty of Jobs That No One Wants,” Rudaw, 5/15/13

Booz & Company, “Iraq Integrated National Energy Strategy, Appendix Part D – Socio-Economic and Environmental Baseline,” 9/25/12

Fattah, Zeiki, “Iraq’s Faltering Economy,” Sada, 2/2/12

Hussein, Nabard, “Conflicting Unemployment Rates in Kurdistan,” Rudaw, 3/7/12

Kadhem, Adel, “Iraq to reduce unemployment by half by 2014,” Azzaman, 2/18/12
- “Thousands of foreigners in Iraq without proper documents,” Azzaman, 3/4/12

Al Khafaji, Isam, “Iraq: Mixed Opportunities, Messy Outlook? (Part I: The Road To Entrapment),” Economy Watch, 2/8/12

Mahmoud, Nawzad, “Growing Demand for Foreign Domestic Workers in Kurdistan,” Rudaw, 9/30/12

Ning, Zhang, Sabah, Mustafa, “Feature: Foreign laborers’ sweet, bitter dream in Iraq,” Xinhua, 7/12/12

Niqash, “iraq’s unemployed youth: dream jobs turn to nightmares in Baghdad,” 3/8/12

Saadi, Salam, “Erbil’s Development Not All Positive,” Rudaw, 1/12/12

Sassoon, Joseph, Saddam Hussein Ba’th Party, Inside an Authoritarian Regime, Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, Sao Paulo, Delhi, Tokyo, Mexico City: Cambridge University Press, 2012

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