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The purpose of this article is to assess the relationship between employment intensity and sectoral output growth, in order to examine whether an economic sector was jobless or created more jobs. Using panel data for 10 sectors over the period 1983–2010 for three Middle Eastern (Egypt and Jordan) and North African countries (Tunisia), we estimate employment value-added elasticities at the sectoral level, using a random coefficient estimation technique. Our main findings show that while manufacturing is the most important sector for creating jobs in Egypt, services are more important in Jordan and Tunisia. For all countries, the mining sector is insignificant. Indeed, this shows to what extent this sector is capital intensive, does not have a significant value-added and thus does not create jobs. A more detailed look at the decomposition analysis shows that the contribution of employment growth to value-added was higher than that of labour productivity. Yet, Tunisia’s growth of value-added was chiefly explained by labour productivity growth. As per Jordan, its growth was mainly attributed to growth in employment, whilst its productivity growth was negative.

Tunisia faces important employment challenges. In fact, the country has a high unemployment rate. The labour market is often fragmented. Labour productivity is generally low. The high level of informal employment illustrates the vulnerability of employment creation. For all these reasons and more, it is important to assess where progress has been made and to identify key opportunities and obstacles to the creation of productive employment. The present study offers an employment diagnostic analysis of Tunisia from the demand side. It goes on to address the determinants of demand for supply and cost of labour. The study will span micro and macro aspects of job creation and proposes an inquiry into a country-wide job diagnosis. The application of the methodological framework reveals three broad categories of binding constraints. (i) Cost of finance would constitute a binding constraint on growth and productive employment. (ii) Poor governance (weak property rights and rule of law), corruption and a complex judicial system have imposed high economic costs and appear to be a major constraint. (iii) Labour market regulation and the financial cost of labour can explain the weak productivity growth, small firm size and scaling up difficulties, and the high level of informal employment.

Drawing on different traditions of institutional analysis, the present study aims at eliciting the perception of institutional uncertainty amongst private sector decision makers and to assess its effect on job creation perspectives. This is done by developing an original subjective indicator to measure the uncertainty induced by institutions and by analysing the results of a survey administered amongst a representative sample of 319 entrepreneurs, business owners, and top managers in Jordan. The estimation of binary logit models signals that our measure of institutional uncertainty is a good predictor for the perspectives of job creation and firm growth and that, in particular, uncertainty related to the judiciary, political instability, and wasta has a significant effect on discouraging job creation expectations