More Jobs for University Graduates: Some Policy Options for Tunisia

The combination of demographic factors and an increase in education has caused a significant rise of university graduates’ unemployment in the MENA region. The article provides a prospective cost- effectiveness analysis of the impact of alternative labor market policies using a dynamic general equilibrium model. The model allows for an endogenous determination of unemployment through a multisectoral efficiency wage setting mechanism. The main finding is that a wage subsidy targeted at highly skilled intensive sectors is more effective than tax reductions or investment subsidies. However, wage subsidies are not enough to reduce significantly unemployment. Other policy options need to be considered.