Editor’s Note: Paul Dyer is a development economist specializing in youth economic inclusion and labor markets in the Middle East and North Africa. He is currently Managing Director at Legacy Social Advisory and has over 20 years of experience advising governments, international organizations, and non-governmental organizations on economic policy, the design of impactful programmatic interventions, and public policy reform. Over the course of his career, Mr. Dyer has worked with or provided advice to teams at the World Bank, the International Finance Corporation, the International Labor Organization, the International Growth Center (Oxford University), the International Development Research Center, the Islamic Development Bank, and the United Nations Development Program, as well as non-governmental organizations focused on youth empowerment like Junior Achievement (Injaz) and Silatech. He has served as a fellow at the Dubai School of Government and a non-resident fellow at the Middle East Council on Global Affairs. 

By Hafed Al-Ghwell, Senior Fellow and Director, North Africa, Mediterranean, and the Sahel Program

The Kingdom of Morocco has emerged as a new model economy for Africa and the Middle East, its sustained economic growth, low inflation, and manageable external debt standing in contrast to neighbors like Egypt and Tunisia. Morocco’s economic success builds on substantial resource wealth and agriculture, but its transformation is rooted in an industrial strategy focused on export-oriented manufacturing. By establishing free zones around which firms have begun developing industrial clusters, Morocco has attracted large-scale investments in automobile manufacturing, aerospace, textiles, and electronics, firmly positioning itself in global manufacturing supply chains.

The challenge for Moroccan policymakers going forward is to ensure that Morocco’s economic success is shared more widely within society. While poverty has declined, income inequality is becoming more pronounced. The country’s emergent prosperity is concentrated in urban areas along the northern coast, with Moroccans residing in interior cities and rural areas not benefiting significantly from industrialization efforts. Moreover, job creation from industry and manufacturing, while growing, has been limited when compared with services and construction. Youth unemployment — a persistent problem in Morocco — remains high, particularly in urban areas and among university graduates.

To help address poor labor market outcomes and income inequality, Moroccan authorities recently agreed to a $500 million financing package with the World Bank. The loan will support implementation of Morocco’s Jobs Roadmap, which seeks to bolster job creation through support for small and medium enterprises (SMEs) and businesses focused on green energy and pharmaceuticals through grants and improved access to finance as well as reforms to the business and investment climate. The program also aims to improve on existing active labor market programs, access to childcare, and skills training. 

Whether the approach will ultimately resolve the job creation challenges faced by Morocco is highly uncertain. Like its neighbors across the Middle East and North Africa, Morocco has had little success in addressing youth unemployment through spending on training, job search services, and business subsidies. Specific programs have been shown to provide real benefit to participants, and gains can be made through improved targeting and cooperation with the private sector on program design. However, public spending on employment, training programs, and access to finance for SMEs has had only a marginal effect on employment outcomes at scale. Despite progress towards industrialization, labor market and business outcomes for the majority in Morocco look strikingly like those in the early 2000s.

Morocco’s labor market regulations are at the root of its policy conundrum. Labor unions and labor laws provide essential protection for workers in our modern economies, but highly protective environments skew incentives for employers, employees, and jobseekers, undermining the intended aims of these protections. Importantly, rigid labor regulations protect established workers, but in a young labor force facing high unemployment rates and long job searches, such regulations form barriers for new entrants. Faced with complex hiring and firing regulations, formal sector firms prioritize capital-intensive investment over hiring workers, particularly untested new entrants. For small firms, the costs of taxes and labor regulation compliance often serve as a barrier to firm growth and productivity, leading to a large informal sector generally providing low-quality jobs.

The unintended impacts of rigid labor market regulations in Morocco are manifest in labor market outcomes for young Moroccans. First, with an unemployment rate of 37.6%, those ages 15 to 24 make up nearly a third of all the unemployed, bearing in mind that their labor force participation rates (particularly among young women) are low. Most businesses in Morocco (83%) are in the informal sector, and nearly 80% of workers are employed in the informal sector, where they lack any union support or labor protections. There are also a range of challenges related to the interaction between labor market regulation, educational policy, and the housing market that further compound labor market outcomes in Morocco. 

Morocco’s position can be contrasted with how East Asia created its own export-oriented economic miracle in the 1980s. Countries like Hong Kong, Korea, Singapore, and Taiwan secured rapid economic growth through export-oriented manufacturing, building on young labor forces, strong government support, and flexible labor market regulations as well as restrictions on unions. The East Asian experiment happened at a different time in global history and in countries at very different initial stages of development than Morocco, but it remains the model for how countries can maximize employment and growth by building on export capacity in a competitive global environment.

Eliminating worker protections is not a preferable option or reasonable expectation for Morocco. This is reflected in the strong response of unions to the 2025 law restricting strike action in Morocco. Trade unions in Morocco have played an important role in the history and political structure of modern Morocco, and they remain popular, even if the number of union workers has declined in the context of informality. There is also broad popular support for current labor regulations. Pushing to eliminate or curtail these protections would likely be met with fierce political resistance. At the same time, maximizing the job creation potential of export-led growth in Morocco requires firms to have more workforce flexibility.

Morocco must strike a new equilibrium between protecting workers and enabling firms to create jobs while remaining competitive. Securing that balance will require a structured process of social dialogue convening unions, employers, government, and civil society in a sustained and outcome-oriented effort to negotiate a resolution that meets the essential needs of all parties in the economy. A social dialogue process can move Morocco beyond entrenched positions toward pragmatic compromise, not weakening protections but redesigning them so they expand opportunity, particularly for those currently excluded from the formal economy. Only with such reform can Morocco unlock the full employment and growth potential of its industrialization efforts. As such, this agenda should sit at the center of government job creation priorities and be actively supported by international partners invested in Morocco’s long-term development.