Abstract:

Labour qualifications and labour market regulations are important determinants of investment. Egypt is abundant in labour and the new Labour Law; Law no.12 of 2003 has attempted to establish a more flexible legal framework to attract more investment and create more jobs. However, education and skills of workers and labour market regulations are argued to be major obstacles to investment in Egypt.
This study evaluates the impact of education and skills of workers and labour market regulations on investment climate in Egypt, and assesses how much they are considered constraints on enterprises' growth and operation. The study examines and compares the effect of lack of skills and labour market regulations on enterprises' competitiveness, innovation, expansion plans and hiring decisions. The study analyzes the variation in burden of these two obstacles among different types of enterprises and informal methods used by these enterprises to lessen the burden of labour market regulations.
The empirical analysis is based on data from the Productivity and Investment Climate Survey 2008 which is the most recent Investment Climate Survey conducted in Egypt. This survey provides data on different types of business enterprises of different sizes; working in Egypt. It is a detailed firm level survey on 2030 enterprises. It is one of Investment Climate Surveys, which were launched in 2001, covering more than 53 developing countries to collect assessments of constraints facing enterprises. They also collect objective quantitative data, which allow investment climate indicators to be linked with enterprises' performance. The survey allows for identifying firms on the basis of their legal status, ownership, location, size, and sector. In the survey, managers were asked to rate the extent to which different obstacles constrained the operation of their business. These obstacles include skills and education of available workers and labour regulations. In addition to identifying general constraints, they were asked more detailed questions to understand the nature of these constraints. Moreover, the survey provides data on expansion plans, competition pressures, innovation and factors affecting enterprises' hiring decisions. The survey has a large number of questions on labour qualifications, regulations and other factors affecting hiring decisions.
Using data of this survey, different indices are constructed, to identify enterprises that consider skills of workers and labour market regulations major obstacles. Three indices are constructed to measure the incidence of skills and labour market regulations obstacles. These indices measure the percentage of enterprises considering education and skills of workers a major or a very severe obstacle to operation and growth, the percentage of enterprises considering labour market regulations a major or a very severe obstacle, and the percentage of enterprises considering either lack of skills or labour market regulations or both as a major or a very severe obstacle. The severity of each obstacle is calculated as a weighted average of the degree of severity.
Finally, the study identifies several policy interventions needed regarding both the education system and the legal framework of the Egyptian labour market so as to lessen the burden and severity of lack of skills and labour market regulations as obstacles to investment in Egypt.

Keywords:

Education, skills, labour market regulations, investment climate, enterprises' growth.