The third demographic dividend: measuring the “demographic tax” in the Arab Countries in Transition

This paper proposes a new approach to quantify the demographic dividend and shows evidence of a demographic tax in the Arab countries in Transition (ACT). Our question is whether a shift in the age structure (a larger share of working-age population) is translated into less (more) efficient labor supply and demand and whether these in turn reduce (increase) per-capita GDP. We propose estimates based on stochastic frontier analysis and quantile regressions. We find several interesting results. First, we document the existence of a dividend gap for the ACT with unchanging inefficiency scores over time between 56% and 79% in Yemen, 35% on average in Egypt, between 4% and 23% in Tunisia, between 7% and 30% in Libya, between 6% and 21% in Jordan. Morocco in the only country showing a demographic dividend with an average 30% inefficiency score that decreases over time. Secondly, the variables that are sources of these inefficiencies are the gender gap (with a significant influence of female labor market participation), insufficient secured jobs (this variable carry a positive sign with GDP per-capita and has the largest size among of the coefficients in the regression), own-account employment (which can be considered as a proxy of the importance of the informal sector) and a low public spending in health.