US embassy cable - 05BAGHDAD3450

UNCLAS SECTION 01 OF 03 BAGHDAD 003450 
 
SIPDIS 
 
SENSITIVE BUT UNCLASSIFIED 
 
STATE PASS USAID; DEPT FOR DRL/IL; LABOR FOR ILAB 
 
E.O. 12958: N/A 
TAGS: ELAB, ECON, EAGR, EFIN, IZ 
SUBJECT: CURRENT STATE OF IRAQ'S LABOR MARKET 
 
This cable is sensitive but unclassified.  For government 
use only.  Not for internet distribution. 
 
1. (SBU) SUMMARY: Iraq's labor market is in transition as 
the economy shifts from a centrally planned to a market- 
based economy. A (the)Fifty percent of Iraq's population 
is below the age of 18: this has important implications 
for the ability of the economy to provide jobs for such a 
large number of current and future labor force 
participants.  The Iraqi Statistical Office (COSIT) 
estimates unemployment (including discouraged workers), 
at 28 percent in October 2003 and 27 percent in July 2004 
(no figures for 2005 available). Iraqis are well educated 
by Middle East standards and some have experience in 
state-of-the-art machinery and production techniques 
during economic sanctions. Some Iraqis are frustrated 
that higher than expected oil revenues have not trickled 
down to them in the form of more jobs and higher wages. 
The Iraqi Ggovernment does not have a job and vocational 
training program that is able to link job seekers and 
demanders, especially in finding private sector work. 
Wages and working conditions are much better in the 
government sector compared to most private sector jobs, 
especially for female workers. Iraqi job seekers have a 
clear preference for government work, and as a result, 
the gap between public and private sector employment has 
increased since the fall of Saddam. 
END SUMMARY. 
 
2. (SBU) At the center of Iraq's labor market today is 
the transformation that is taking place, albeit gradually 
and irregularly, from a highly-centralized, state-planned 
economy with dominant state-owned enterprises and a 
highly regulated production and distribution chain to a 
market-based economy with an emerging role played by 
private sector decision making.  Roles and 
responsibilities have shifted dramatically with little 
preparation or training for both private sector workers 
and government bureaucrats. With few rules in place and 
little experience, GGovernment ministries, such as 
Agriculture, Trade, Industry and Minerals, with extensive 
ties to the economy, have been generally reluctant or 
even opposed to yielding their statist hold over the 
economy.  Large business families that relied on former 
regime contracts are wondering how they will continue to 
dominate their respective economic sectors.  Many small 
businesses are eager to join the new market-based economy 
but are fearful about its prospects for success and have 
benefited little economically so far. 
 
3. (SBU) A lot about the Iraqi labor market is not well 
understood, even by Iraqis: private sector employment is 
measured imprecisely; most communication between workers 
and employers is disorganized and informal; private 
sector businesses fear releasing information that could 
result in greater government scrutiny and regulation; 
and, government ministries worry about new powers that 
are gradually being transferred to private sector workers 
and employers. Organized labor remains fragmented and 
itstheir legal status, particularly in the public sector, 
remains problematic. 
 
4. (SBU) In broad terms, Iraq's labor force is probably 
between 6.5 and 7 million, including 15 to 18 percent 
women.  Determining the labor force is problematic 
because there is no census to establish a population base 
and many unpaid family workers in agriculture are not 
included in the work force. Working Iraqis are divided 
into several groups: a large, bloated public sector 
estimated to be at least 1 million; an agricultural 
sector with at least 1 million workers and an unknown 
number of unpaid family members; about 500,000 employees 
in 70 to 100 state-run enterprises that are mostly shut- 
down or operating minimally; and, up to 100,000 small 
private businesses with many thousands of employees or 
self-employed workers. 
 
5. (SBU) Iraq also faces a large demographic youth bulge: 
nearly 40 percent of the population is less than 14 years 
old and 60 percent is below the age of 21 -- a statistic 
that makes Iraq's population growth rate nearly twice as 
fast as that of Iran. As a result, Iraq's economy will be 
challenged to produce an increasingly larger number of 
jobs in the future. 
 
6. (SBU) Government ministries and agencies are highly 
centralized and senior managers or even ministers make 
even the most basic decisions about every day government 
work. Government and ministry managers prefer to pass 
decisions to higher authorities, resulting in a backlog 
of decisions and lengthy delays. Senior ministry 
officials tend to be in the 50 to 60 plus age group and 
are reluctant to transfer authority to less senior staff. 
There is also no established training path for younger 
managers to move into senior level positions. 
 
7. (SBU) Unemployment estimates vary but the most recent 
government data put the rate at between 25 and 30 
percent, including those looking for a job and persons 
who have given up their job search. We note that there is 
a widespread tendency to inflate or deflate unemployment 
numbers or to conflate unemployment and underemployment. 
Estimates have ranged from 10 percent unemployment by 
strict ILO definitions to 50-60 percent when 
underemployed and unemployed are counted. 
 
8. (SBU) Unemployment is higher in the 15 to 24 year old 
age group, which comprises a large segment of total 
population and also has the least amount of training and 
job experience.  Iraq's unemployment rate has been stable 
over the past year, suggesting the overall economy has 
not grown much (we anticipate a 4 percent GDP growth of 
2005), despite unexpectedly higher oil revenues. This has 
contributed to growing frustration among Iraqis who had 
hoped that the economy would generate more and better 
paying jobs. Underemployment has been anecdotally 
estimated to be nearly as high as the rate of 
unemployment, but the actual rate is extremely difficult 
to determine due to limited data and differing 
definitions.  A further complication, also based on 
anecdotal evidence suggests that many semi-skilled and 
entrepreneurial Iraqi have two or three jobs, many in the 
informal sector.  The fact remains, however, that there 
probably thousands of former army officers and Ba'athists 
that have been forced to take jobs at lower positions and 
salaries than their former occupations under Saddam's 
regime. 
 
9. (SBU) An estimated 30 percent of Iraq's population is 
rural and most of these are dependent on farm production 
for their living. Training in modern agriculture 
practices is limited to USAID assistance and several 
large cereal farms. Most farms are small, subsistence- 
based, and inefficient, and they rely on largely unpaid 
and untrained family labor. Few small, family farms have 
access to machinery to work the land. Resulting farm 
incomes are low and there is concern that the growing gap 
between rural and urban living standards is driving more 
farm workers to urban cities where employment 
opportunities are uncertain. Nonetheless, there is an 
emerging body of opinion here that argues that the 
agricultural sector is an area where significant job 
growth is possible in the medium/long term. 
 
10. (SBU) Some workers in state-run enterprises are 
highly skilled and trained to operate state-of-the-art 
machinery. A large number of these workers were employed 
in military-industrial factories and suspected duel-use 
facilities under the former regime. Thousands of small 
businesses have fewer than 5 or 10 workers who have 
minimal skills and are paid low wages. Metal fabrication, 
building construction, and auto repair are common 
occupations for small business workers. 
 
11. (SBU) The Iraqi workforce is well educated, according 
to Middle East standards.  In the last 25 years, Iraq 
developed a large and sophisticated educational system, 
open up to men and women equally.  Nearly half of the 
work force has a secondary education or better. But there 
is an education disparity between the rural and urban 
work force -- nearly half the work force in agriculture 
has no formal education compared to 60 percent of the 
urban work force that has at least completed high school. 
 
12. (SBU) Despite the lack of good data, the demand for 
private sector skilled and semi-skilled workers appears 
surprisingly strong, but low wages -- relative to those 
in the government sector -- and poor working conditions 
are not attracting large numbers of workers to the 
private sector.  Additionally, poor communication links -- 
including limited advertising, newsletters, hiring halls, 
and worker fairs -- has meant the Iraqi private sector 
has been slow to respond to growing business 
opportunities. 
 
13. (SBU) Aside from labor force and employment data, a 
robust informal economy is thriving in Iraq.  A study 
conducted in early 2005 estimated Iraq's informal economy 
contributed at least 35 percent to actual GDP.  Instances 
of informal work are common: it is well known that many 
government workers have unreported second jobs because 
the government work day ends in the early afternoon, 
leaving time to manage a small business or to leverage 
close family relatives for after hours work. Secondly, 
the war sprouted an underground economy that helps 
provide goods and services not available in the formal 
economy, or available but only at higher prices. Lastly, 
the informal sector provides a place where financing the 
insurgency is easy and shielded from government view. 
 
14. (SBU) Iraqis have a strong preference for government 
employment, and opinion polls consistently show that 
government jobs are more sought after by job seekers than 
private sector jobs. Some unofficial polling at Ministry 
of Labor and Social Affairs (MOLSA) job centers show that 
a large number of job seekers are currently employed in 
the private sector but want to transfer to the 
government. Some job seekers at MOLSA have even indicated 
they do not consider their working in the private sector 
to be an actual job, due perhaps to low wages and poor 
working conditions. 
 
15. (SBU) Recent polling this year shows that government 
workers are generally paid 40 to 60 percent more than 
private sector workers.  The Coalition Provisional 
Authority (CPA) and later the Interim Iraqi Government 
(IIG) raised government salaries several times in order 
to get added income quickly into the spending stream to 
stimulate the economy.  For instance, government doctors 
and teachers, who were making only $5 a month before 
Operation Iraqi Freedom, saw their salaries increase to 
between $100 and $250 a month by early 2005.  On the 
other hand, CPA and the IIG did not have control over 
raising private sector wages. This created increased 
frustration for private sector workers and further 
accelerated their drive to acquire government jobs. 
 
16. (SBU) Government employment is particularly 
attractive to Iraqi females who occupy about 30 percent 
of all government jobs compared to only about 5 percent 
in the private sector.  Job security and the short 
workday -- usually over before school lets out -- is an 
especially important feature to female government 
workers.  They also frequently occupy mid-management and 
technical jobs that pay comparatively well. The few women 
in the private sector generally receive below average 
wages.  Mostly, female private sector workers hold down 
clerical or low-skill bookkeeping jobs. 
 
17. (SBU) The Ministry of Labor and Social Affairs 
(MOLSA) is the primary ministry responsible for job and 
vocational training. The ministry is relatively small and 
the Iraqi Ggovernment generally views this ministry as e 
second-rate with minimally qualified employees and its 
work of this ministry as low priority.   and a second- 
rate ministry with minimally qualified employees.  Many 
MOLSA resources are dedicated to as orphans and widows 
payments, and helping pension funds disbursement.  Public 
job training programs have not had an important place in 
Iraq's government, both during the former regime and 
during Iraq's two recent governments. Some of the reasons 
behind the government's low priority for job and 
vocational training include: firstly, the Ggovernment's 
view that the private sector should take the lead in 
providing training for private sector jobs; secondly, 
government employment is still viewed as an Iraqi 
entitlement and expected occupation of many citizens; 
thirdly, retraining or "reinventing" occupations are 
still a new phenomenon in Iraq; and, finally, social 
stigma against citizens asking the gGovernment for help 
finding a job still lingers. 
 
18. (SBU) Comment: Much of the discourse on the Iraqi 
labor market rightly focuses on unemployment. Yet at the 
same time, we note that many public sector jobs 
especially those in uncompetitive state-owned 
enterprises, will become increasingly vulnerable as Iraqi 
opens itself more to international markets to compete for 
private-sector driven growth and jobs in a market-based 
economy. 
 
Satterfield/Khalilzad