Working Paper 158 - Tackling Graduate Unemployment through Employment Subsidies an Assessment of the SIVP Programme in Tunisia
Description It is widely agreed that the level of unemployment among university graduates in Tunisia contributed to the rise of social unrest that culminated in what is popularly dubbed as ‘the Arab Spring’. While the number of university graduates in Tunisia increased fivefold, so did the graduate unemployment rate. In 2009/10, one year prior to the Tunisian revolution, nearly one is four university graduates were unemployed. High levels of unemployment are not unique to Tunisia. Countries in the MENA region including Egypt, Morocco and Algeria faced unemployment rates in excess of 18 percent, 19 percent and 21 percent, respectively. Although the causes of graduate unemployment in Tunisia are likely to be more frictional and solving the problem will require long-term interventions and structural change to the economy, active labor market policies were thought to alleviate some of the pressure in the short to medium term. Until recently, the main policy intervention aimed at promoting paid employment for graduates was the Stage d’ Initiation à la Vie Professionelle (SIVP). The program provided a wage subsidy ranging between TND equivalents of (€50 - €125) depending on qualifications. Firms receive exemption from taxes and national insurance contributions and can top up the graduate’s salary with tax free supplements. Eligibility for support requires registration with the national employment agency (ANETI) and actively seeking employment. Similarly, eligible firms should be part of the social security system and have intern-to permanent staff ratio not exceeding 40 percent. This paper assesses the impact of SIVP by addressing the non-random nature of selection into the program. The paper uses a variety of matching methods to estimate the welfare effect of the program. The dataset considered is a graduate tracer survey of over 4000 graduates who qualified for the program in 2004 and were interviewed in both 2005 and 2007. In spite of the non-random nature of selection into the program, graduate who benefited from the program are expected to have better labor market outcome that those that did not. The data show that women were slightly less likely than men to have benefited from SIVP in the first three and a half years after graduation. The distribution of SIVP by governorate of residence in 2004 shows a bias towards large urban areas (e.g. Tunis, Ariana, Nabeul and Bizerte). Those with ‘good’ or ‘satisfactory’ degree are more likely to benefit from SIVP as opposed to those with just a ‘pass’ or a ‘very good’ degree. At the level of discipline, those with Social Science, Law and Language degrees are considerably less likely to benefit from SIVP than those with Finance and Management degrees. The study found that SIVP has a positive outcome on the likelihood of having a job (especially for those at high risk bracket of unemployment), but there is less strong evidence that the program has any effect on the likelihood of having a contract, or on salaries. SIVP beneficiaries are less likely to find employment with a large firm, and are more likely to enter the private sector. The multivariable analysis slightly lowers the estimate of the effect of the program on joblessness and unemployment but they remain statistically significant and stable across all specifications. SIVP participation results in an estimated reduction in the likelihood of joblessness of around 7 percentage points. However, although the program appears to increase the likelihood of obtaining a job, it does not appear to have any impact on the quality of that job. One out of four individuals who spent zero or one month of unemployment in the first six months of graduation benefited more from the program than other individuals in their cohort. Similarly, one out of four individuals who spent five or six months of unemployment after the first six months of their graduation benefited more from the program than other individuals in the same cohort. The study finds that the program is poorly targeted and is therefore poorly targeted. Although the program should probably be kept, the targeting of the funds should be improved in order to minimize deadweight loss. The subsidy should be restricted to job-seekers who have been registered with ANETI and who, despite demonstrating job-seeking effort, have been unable to find work for a considerable period of time. The program should be better targeted geographically by removing the requirement that the company should be part of the social security system so that smaller, informal enterprises also become eligible to recruit SIVP interns.