Okun’s Law, unemployment and informal employment: The impact of labour market policies in Algeria since 1997

Abstract

The paper tackles the job creation issue with respect to the framework of labour market policies implemented in Algeria since the late 1990s, in particular in 1997 and 2008. First, the sharp decline in unemployment rate and high elasticity vis-à-vis the GDP growth rate question the relevance of Okun's law. Second, the quantitative impact in terms of job creation is assessed as regards three employment schemes: intermediation on the labour market, safety net job creation and the effect of entrepreneurship promotion upon employment within SMEs. Third, the interplay between rising informal employment and unemployment decline before and after 2008, is addressed thanks to a Difference-in-Difference (DiD) experiment testing informal wage employment as well as informal businesses. The overall impact of employment policy schemes proves weak upon both the unemployment rate and informal employment. Informal employment stands as a cheap substitute for formal employment.

Keywords: Algeria; DiD; Informal employment; Labour market policies; Okun’s law; Unemployment.