Academic journal article The Journal of Developing Areas

Early Retirement in the Government Sector in Egypt: Preferences, Determinants, and Policy Implications

Academic journal article The Journal of Developing Areas

Early Retirement in the Government Sector in Egypt: Preferences, Determinants, and Policy Implications

Article excerpt

ABSTRACT

This study looks at factors affecting the decision of early retirement for Egyptian government sector employees. The empirical analysis is based on 2005 nationally representative sample of government sector workers. Among the findings of this study are: women are more likely to retire earlier than men; good health status is associated with longer stay on the job; the level of education is not a determining factor for women, but it is for men; men plan to work after their early retirement; the presence of the working wife has a positive effect on her husband to retire early, yet a working husband discourages his wife from retiring early. Policy implications discussed timing of the announcement of the plans; the potential outcome of excessive payouts, as well as the need for the government to provide early retirees with necessary skills and training to plan their after retirement years.

JEL Codes: J18, J26, J33, C20, H55

Keywords: Retirement, Employment, Government Sector, Egypt

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

One of the axioms of stabilization and structural adjustment policies suggested by the World Bank and the IMF is privatization and downsizing of the overcrowded public and government sectors. Early retirement has been considered one of the most effective tools of downsizing. Often financed or heavily subsidized by the government, early retirement facilitates the privatization process, and mitigates the adverse social impacts of layoffs when unemployment benefits are unavailable. In 1990, Egypt embarked on a program of economic liberalization and reform. At the heart of this program has been privatization of state-owned enterprises (SOEs), public and government sectors. The rationale for privatization and labor force restructuring is to fuel private sector interest in the businesses being privatized, such as SOE. Shedding excess labor would render the business more attractive to prospective investors, and reduces operating costs to enhance the business's financial viability.

Privatization and structural adjustment proponents believe this process would not be efficiently realized without an effective, voluntary early retirement program, with a satisfactory and fair compensation packages1. An arrangement that fairly compensates workers for the loss of guaranteed lifetime employment and benefits. This instrument-early retirement incentives- is often used where labor laws ban layoffs, or where labor unions are strong. Based on the proceeds generated from privatization in Egypt, a fund was created in 1997 to implement early retirement programs.

One of the features of the Egyptian economy is the dominance of state-owned enterprises, which has been characterized by overstaffing and excess employment. According to CARANA (2002a), estimates of overstaffing in typical SOEs before labor force restructuring range from 30% to 60%. At the start of the privatization program in 1991, Egypt's total labor force was around 15,250,000 employees. The government was by far the largest employer in the country, accounting for 37.4% of aggregate employment, around 5,500,000 employees (CARANA (2002b)).

The minister of social insurance, the minister of finance, and the minister of investments in Egypt have put pension reforms high on their reform agenda. Before the new reform package, which went into effect on 15 January 2006, the retirement age for women was set at 50, the same as for men. Under a new reform package, women are eligible for early retirement at the age of 45 provided they have worked at the same enterprise for at least 19 years; whereas men are still eligible at the age of 50. Women's groups believe these reforms permitting optional early retirement for women at an earlier age than men will result in increased marginalization of women workers. On the other hand, Egyptian economists say it will grant companies greater freedom and promote privatization. …

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