Adverse Selection in Household Investment in Education in Egypt: Can the World Bank Policy Recommendations Offer a Solution for Egyptian Households?

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Saddek, Doaa Mohie Mahmoud




The Egyptian labour market gives preference to graduates of higher levels of education to fill remunerative jobs, which has encouraged households from all income levels to invest in post-secondary education. However, this investment failed to pay off in labour market outcomes as the number of graduates exceeded the number of remunerative jobs leading a substantial proportion of graduates to either accept low-paid jobs or remain unemployed until they secure remunerative ones. Paradoxically, in response to these unfavourable outcomes, households have continued to invest heavily in higher levels of education to give their children a competitive advantage to secure one of the few remunerative jobs, a behaviour best described as a version of "adverse selection." This situation has posed a challenge for Egyptian policy makers who faced the problems of increased demand for higher education and more unemployed educated youth. To address this challenge, the World Bank has consistently advised the Egyptian government to: a) reduce government intervention in labour markets; b) decrease public subsides, while encouraging private investment in post-secondary education; and c) improve the quality of education to match the needs of private employers and increase demand for educated youth. This thesis examines whether such recommendations could address labour market challenges faced by educated youth and avoid encouraging household spending. Toward this goal, the effect of changes in Egypt's policy direction, from a centrally-planned to a market economy, on the education-labour market relationship and on public and private investment in education was studied. Through interviews with a sample of Egyptian households, the determinants of Egyptian household spending on education were also examined to better understand how the quality and/or outcomes of higher education have influenced such spending. Evidence suggests that for the World Bank's policies to tackle the underlying causes of "adverse selection," they must go beyond attributing education-labour market problems to the quality of education and to distortions caused by government education and labour market policies and focus on the need to promote the creation of good quality jobs. Fortunately, a recent shift by the World Bank to focus on creating good jobs may be a positive development.


Education - Higher
Economics - Labor
Economics - Theory




Carleton University

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Doctor of Philosophy: 

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Public Policy

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Theses and Dissertations

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