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Cablegate: Current State of Iraq's Labor Market

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 BAGHDAD 003450

SIPDIS

SENSITIVE BUT UNCLASSIFIED

STATE PASS USAID; DEPT FOR DRL/IL; LABOR FOR ILAB

E.O. 12958: N/A
TAGS: ELAB ECON EAGR EFIN IZ
SUBJECT: CURRENT STATE OF IRAQ'S LABOR MARKET

This cable is sensitive but unclassified. For government
use only. Not for internet distribution.

1. (SBU) SUMMARY: Iraq's labor market is in transition as
the economy shifts from a centrally planned to a market-
based economy. A (the)Fifty percent of Iraq's population
is below the age of 18: this has important implications
for the ability of the economy to provide jobs for such a
large number of current and future labor force
participants. The Iraqi Statistical Office (COSIT)
estimates unemployment (including discouraged workers),
at 28 percent in October 2003 and 27 percent in July 2004
(no figures for 2005 available). Iraqis are well educated
by Middle East standards and some have experience in
state-of-the-art machinery and production techniques
during economic sanctions. Some Iraqis are frustrated
that higher than expected oil revenues have not trickled
down to them in the form of more jobs and higher wages.
The Iraqi Ggovernment does not have a job and vocational
training program that is able to link job seekers and
demanders, especially in finding private sector work.
Wages and working conditions are much better in the
government sector compared to most private sector jobs,
especially for female workers. Iraqi job seekers have a
clear preference for government work, and as a result,
the gap between public and private sector employment has
increased since the fall of Saddam.
END SUMMARY.

2. (SBU) At the center of Iraq's labor market today is
the transformation that is taking place, albeit gradually
and irregularly, from a highly-centralized, state-planned
economy with dominant state-owned enterprises and a
highly regulated production and distribution chain to a
market-based economy with an emerging role played by
private sector decision making. Roles and
responsibilities have shifted dramatically with little
preparation or training for both private sector workers
and government bureaucrats. With few rules in place and
little experience, GGovernment ministries, such as
Agriculture, Trade, Industry and Minerals, with extensive
ties to the economy, have been generally reluctant or
even opposed to yielding their statist hold over the
economy. Large business families that relied on former
regime contracts are wondering how they will continue to
dominate their respective economic sectors. Many small
businesses are eager to join the new market-based economy
but are fearful about its prospects for success and have
benefited little economically so far.

3. (SBU) A lot about the Iraqi labor market is not well
understood, even by Iraqis: private sector employment is
measured imprecisely; most communication between workers
and employers is disorganized and informal; private
sector businesses fear releasing information that could
result in greater government scrutiny and regulation;
and, government ministries worry about new powers that
are gradually being transferred to private sector workers
and employers. Organized labor remains fragmented and
itstheir legal status, particularly in the public sector,
remains problematic.

4. (SBU) In broad terms, Iraq's labor force is probably
between 6.5 and 7 million, including 15 to 18 percent
women. Determining the labor force is problematic
because there is no census to establish a population base
and many unpaid family workers in agriculture are not
included in the work force. Working Iraqis are divided
into several groups: a large, bloated public sector
estimated to be at least 1 million; an agricultural
sector with at least 1 million workers and an unknown
number of unpaid family members; about 500,000 employees
in 70 to 100 state-run enterprises that are mostly shut-
down or operating minimally; and, up to 100,000 small
private businesses with many thousands of employees or
self-employed workers.

5. (SBU) Iraq also faces a large demographic youth bulge:
nearly 40 percent of the population is less than 14 years
old and 60 percent is below the age of 21 -- a statistic
that makes Iraq's population growth rate nearly twice as
fast as that of Iran. As a result, Iraq's economy will be
challenged to produce an increasingly larger number of
jobs in the future.

6. (SBU) Government ministries and agencies are highly
centralized and senior managers or even ministers make
even the most basic decisions about every day government
work. Government and ministry managers prefer to pass
decisions to higher authorities, resulting in a backlog
of decisions and lengthy delays. Senior ministry
officials tend to be in the 50 to 60 plus age group and
are reluctant to transfer authority to less senior staff.
There is also no established training path for younger
managers to move into senior level positions.

7. (SBU) Unemployment estimates vary but the most recent
government data put the rate at between 25 and 30
percent, including those looking for a job and persons
who have given up their job search. We note that there is
a widespread tendency to inflate or deflate unemployment
numbers or to conflate unemployment and underemployment.
Estimates have ranged from 10 percent unemployment by
strict ILO definitions to 50-60 percent when
underemployed and unemployed are counted.

8. (SBU) Unemployment is higher in the 15 to 24 year old
age group, which comprises a large segment of total
population and also has the least amount of training and
job experience. Iraq's unemployment rate has been stable
over the past year, suggesting the overall economy has
not grown much (we anticipate a 4 percent GDP growth of
2005), despite unexpectedly higher oil revenues. This has
contributed to growing frustration among Iraqis who had
hoped that the economy would generate more and better
paying jobs. Underemployment has been anecdotally
estimated to be nearly as high as the rate of
unemployment, but the actual rate is extremely difficult
to determine due to limited data and differing
definitions. A further complication, also based on
anecdotal evidence suggests that many semi-skilled and
entrepreneurial Iraqi have two or three jobs, many in the
informal sector. The fact remains, however, that there
probably thousands of former army officers and Ba'athists
that have been forced to take jobs at lower positions and
salaries than their former occupations under Saddam's
regime.

9. (SBU) An estimated 30 percent of Iraq's population is
rural and most of these are dependent on farm production
for their living. Training in modern agriculture
practices is limited to USAID assistance and several
large cereal farms. Most farms are small, subsistence-
based, and inefficient, and they rely on largely unpaid
and untrained family labor. Few small, family farms have
access to machinery to work the land. Resulting farm
incomes are low and there is concern that the growing gap
between rural and urban living standards is driving more
farm workers to urban cities where employment
opportunities are uncertain. Nonetheless, there is an
emerging body of opinion here that argues that the
agricultural sector is an area where significant job
growth is possible in the medium/long term.

10. (SBU) Some workers in state-run enterprises are
highly skilled and trained to operate state-of-the-art
machinery. A large number of these workers were employed
in military-industrial factories and suspected duel-use
facilities under the former regime. Thousands of small
businesses have fewer than 5 or 10 workers who have
minimal skills and are paid low wages. Metal fabrication,
building construction, and auto repair are common
occupations for small business workers.

11. (SBU) The Iraqi workforce is well educated, according
to Middle East standards. In the last 25 years, Iraq
developed a large and sophisticated educational system,
open up to men and women equally. Nearly half of the
work force has a secondary education or better. But there
is an education disparity between the rural and urban
work force -- nearly half the work force in agriculture
has no formal education compared to 60 percent of the
urban work force that has at least completed high school.

12. (SBU) Despite the lack of good data, the demand for
private sector skilled and semi-skilled workers appears
surprisingly strong, but low wages -- relative to those
in the government sector -- and poor working conditions
are not attracting large numbers of workers to the
private sector. Additionally, poor communication links --
including limited advertising, newsletters, hiring halls,
and worker fairs -- has meant the Iraqi private sector
has been slow to respond to growing business
opportunities.

13. (SBU) Aside from labor force and employment data, a
robust informal economy is thriving in Iraq. A study
conducted in early 2005 estimated Iraq's informal economy
contributed at least 35 percent to actual GDP. Instances
of informal work are common: it is well known that many
government workers have unreported second jobs because
the government work day ends in the early afternoon,
leaving time to manage a small business or to leverage
close family relatives for after hours work. Secondly,
the war sprouted an underground economy that helps
provide goods and services not available in the formal
economy, or available but only at higher prices. Lastly,
the informal sector provides a place where financing the
insurgency is easy and shielded from government view.

14. (SBU) Iraqis have a strong preference for government
employment, and opinion polls consistently show that
government jobs are more sought after by job seekers than
private sector jobs. Some unofficial polling at Ministry
of Labor and Social Affairs (MOLSA) job centers show that
a large number of job seekers are currently employed in
the private sector but want to transfer to the
government. Some job seekers at MOLSA have even indicated
they do not consider their working in the private sector
to be an actual job, due perhaps to low wages and poor
working conditions.

15. (SBU) Recent polling this year shows that government
workers are generally paid 40 to 60 percent more than
private sector workers. The Coalition Provisional
Authority (CPA) and later the Interim Iraqi Government
(IIG) raised government salaries several times in order
to get added income quickly into the spending stream to
stimulate the economy. For instance, government doctors
and teachers, who were making only $5 a month before
Operation Iraqi Freedom, saw their salaries increase to
between $100 and $250 a month by early 2005. On the
other hand, CPA and the IIG did not have control over
raising private sector wages. This created increased
frustration for private sector workers and further
accelerated their drive to acquire government jobs.

16. (SBU) Government employment is particularly
attractive to Iraqi females who occupy about 30 percent
of all government jobs compared to only about 5 percent
in the private sector. Job security and the short
workday -- usually over before school lets out -- is an
especially important feature to female government
workers. They also frequently occupy mid-management and
technical jobs that pay comparatively well. The few women
in the private sector generally receive below average
wages. Mostly, female private sector workers hold down
clerical or low-skill bookkeeping jobs.

17. (SBU) The Ministry of Labor and Social Affairs
(MOLSA) is the primary ministry responsible for job and
vocational training. The ministry is relatively small and
the Iraqi Ggovernment generally views this ministry as e
second-rate with minimally qualified employees and its
work of this ministry as low priority. and a second-
rate ministry with minimally qualified employees. Many
MOLSA resources are dedicated to as orphans and widows
payments, and helping pension funds disbursement. Public
job training programs have not had an important place in
Iraq's government, both during the former regime and
during Iraq's two recent governments. Some of the reasons
behind the government's low priority for job and
vocational training include: firstly, the Ggovernment's
view that the private sector should take the lead in
providing training for private sector jobs; secondly,
government employment is still viewed as an Iraqi
entitlement and expected occupation of many citizens;
thirdly, retraining or "reinventing" occupations are
still a new phenomenon in Iraq; and, finally, social
stigma against citizens asking the gGovernment for help
finding a job still lingers.

18. (SBU) Comment: Much of the discourse on the Iraqi
labor market rightly focuses on unemployment. Yet at the
same time, we note that many public sector jobs
especially those in uncompetitive state-owned
enterprises, will become increasingly vulnerable as Iraqi
opens itself more to international markets to compete for
private-sector driven growth and jobs in a market-based
economy.

Satterfield/Khalilzad

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