Employment and the Functioning of the Labor Market

The main purpose of this paper is to study the functioning of the Tunisian labor market. The focus is on the key labor market and education institutions and regulations and their impact on the structure and segmentation of this market into formal and informal segments, on the one hand, and public and private segments, on the other. The paper also examines how the current regulations affect the ease of hiring and firing. In this context, it explores the gap and the mismatch between supply and demand of educated labor and examines the structure of employment by firm size and workers’ skill composition. In Tunisia, the larger firms create most of the formal employment but are not growing fast enough in size and number, while informal employment is widespread partly because of inappropriate regulations that increase the cost of formal employment. This paper argues that the high cost of formality and weak law enforcement are the main factors that accelerate the growth of informal employment and that the greater the level of informal employment, the longer it takes to fight unemployment. The analysis comprises an important institutional component and relies on the data provided by the TLMPS 2014 and by other sources, mainly data from the National Statistics Institute (INS).