VZCZCXYZ0015
RR RUEHWEB

DE RUEHEG #0117/01 0211551
ZNR UUUUU ZZH
R 211551Z JAN 10
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 0021
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHEG/AMEMBASSY CAIRO

UNCLAS CAIRO 000117 
 
SENSITIVE 
SIPDIS 
DEPARTMENT FOR NEA/ELA 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV SOCI EG
SUBJECT: HIGH INFLATION AND SLUGGISH WAGE GROWTH DETERIORATE STANDARD 
OF LIVING 
 
REF: 09 CAIRO 2007 
 
¶1. (U) Key Points 
 
 
 
--Headline inflation has been high for the past two years and food 
prices have risen consistently faster than prices of other goods. 
 
 
 
--Wage growth is sluggish because of the high level of unemployment 
and the low level of skills and productivity in the workforce. 
 
 
 
--Unemployment is worst among young people with a high school 
education or above and women. 
 
 
 
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Inflation High 
 
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¶2. (U) Headline inflation has been high since the beginning of 2008 
and, while it declined slightly in 2009, it stood at 13.3% y-o-y as 
of December.  Food prices have been consistently higher than those 
of other goods; prices of food and beverages increased 22.3% y-o-y 
in December.  Monopolistic practices, infrastructure problems and 
distribution bottlenecks contribute to high food prices (reftel). 
 
 
 
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Wage Growth Slow 
 
---------------- 
 
 
 
¶3. (SBU) In December, econoff met with Ragui Assaad, a professor of 
planning and public affairs at the University of Minnesota who is 
currently a research fellow at the Economic Research Forum, a 
regional economic think tank, to discuss unemployment and wages. 
Assaad said that wages for government employees have increased 
faster than inflation from 1998 through 2006, but that the rapid 
growth in inflation since then has probably made real wages fall, 
despite the GOE's increase in public sector wages in 2008 in 
response to a spike in commodity prices. Assaad attributed the wage 
increases to a legal requirement that public sector wages increase 
7% every year. (NOTE: The government sector employs 5.3 million 
Egyptians, about 24% of the workforce and the public enterprise 
sector employs another 1 million.) 
 
 
 
¶4. (U) According to both Assaad and GOE statistics, average wages 
in the private sector are lower and grow slower than those in the 
public sector. An economic study by the Egyptian Center for 
Economic Studies, a well-respected Egyptian economic think tank, 
found that wages in the private sector have been growing slower 
than inflation starting in 2003. The private sector employs 16 
million Egyptians, about 70% of workforce. (COMMENT: This is an 
average of private sector wages, and does not reflect the trend for 
high-skilled jobs which are higher than public sector wages and 
almost certainly are rising faster than inflation and civil service 
wages END COMMENT.) 
 
 
 
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High Unemployment and Low Skills Restrain Wage Growth 
 
--------------------------------------------- -------- 
 
 
 
¶5. (SBU) Employers in the private sector do not have to increase 
employee wages because of the oversupply of labor, according to 
 
 
Assaad.  Official unemployment was 9.4% as of the first quarter of 
FY2010, but that statistic does not capture the informal sector of 
the economy.  In addition, the GOE counts 1 hour of work a week as 
employed. Ghada Garada, project manager of a training and 
vocational observatory at the Information Decision Support Center, 
a government think tank that reports to the Prime Minister's 
office, estimates that based on household surveys unemployment is 
actually between 18% and 23%. Garada said that employers are also 
not willing to increase wages because of employees' low 
productivity. 
 
 
 
¶6. (SBU) Assaad attributes poor productivity and skills to the poor 
education system, and told us that many graduates cannot even use 
computers properly.  Assaad is pessimistic that education can be 
overhauled without improving the bureaucracy in the education 
system which he thinks would require widespread civil service 
reform. 
 
 
 
--------------------------------------------- --------- 
 
Unemployment Worst among the Young, Educated and Women 
 
--------------------------------------------- --------- 
 
 
 
¶7. (U) Assaad told us that unemployment is structural; it reflects 
the difficulty people with high school, trade school, and public 
university diplomas have getting formal jobs. He estimated that 83% 
of unemployed people are under the age of 30 and have never worked 
before. He explained that people who finish high school and college 
have high expectations for jobs and salaries and many want 
government jobs that are more secure and, on average, offer wages 
that are higher and faster rising. Assaad said that unemployment is 
lower among uneducated people and poor people because they have 
lower expectations and take whatever job they can find.  Speaking 
at a conference on labor in Egypt, Cairo University Vice President 
and Economist Heba Nassar, estimated that 73% of the unemployed 
were between the ages of 17 and 30. (NOTE: Egyptians who received 
advanced education from private or foreign institutions continue to 
find greater opportunities and higher wages in the private sector 
in Egypt and abroad.) 
 
 
 
¶8. (U) Assaad said that unemployment is about four times higher for 
women than it is for men. Women prefer working in the public sector 
and have been especially hurt by the government hiring freeze. The 
economic crisis has disproportionately hurt women; unemployment for 
women has jumped from 18.8% in the fourth quarter of FY2008 to 
23.2% in the fourth quarter of FY2009. In the same period, 
unemployment for men fell from 5.4% to 5.2%. Nassar attributed the 
disproportionate rise in female unemployment to the global 
financial crisis hitting the spinning and weaving sector which is a 
large employer of women and overall discrimination. The percentage 
of women in the workforce declined slightly from FY2007 to 22.4% in 
FY2008. 
 
 
 
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Comment 
 
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¶9. (SBU) Stagnant wage growth and high and rising food prices are 
eroding standard of living of most Egyptians.  The average Egyptian 
household spends around 40% of its income on food and beverages and 
are extremely vulnerable to price rises. If prices continue to 
outpace wages, income inequality will rise. Egyptians who can 
afford private or foreign education and have connections to get 
jobs with good wages continue to do well while the impact of growth 
and globalization will result in a higher cost of living for most 
of the rest of the population. 
SCOBEY