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8 Oct 2008, Djavad Salehi-Isfahani and Navtej Dhillon

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Rising oil prices and increased investment have spurred economic growth in the Middle East. At the same time, about one-third of the region’s population is now between the ages of 15 and 29. This confluence of economic growth and millions of youth ready to hit the job market could be a recipe for prosperity. However, young people are encountering numerous obstacles: with one quarter of Middle Eastern youth unemployed, they are unlikely to be able to afford housing, access credit, or get married and start a family.

The root cause of youth exclusion lies in the institutions that mediate transitions from school to work and family formation. These institutions provide the signals that tell young people what skills to learn, tell firms whom to hire and how much to pay, tell credit agencies to whom to lend, and tell families how to evaluate the potential of a young person as a future spouse or parent. In the region, many of these signals and incentives are skewed, leading to adverse consequences for young people, including a mismatch between those skills obtained in the education system and those demanded for jobs in the growing private sector.

Policy must take into account the interconnectedness of outcomes in education, employment, and family formation: reforms in one area will not be effective, and may even be counter-productive, without consideration of their impact on other sectors. Suggested reforms include: giving greater flexibility to the private sector in hiring, compensation, and dismissal practices, encouraging "soft skills" formation through university admissions policies, and reforming labor and credit markets to promote career trajectories among young people.