The impact of aggregate supply shocks on sectoral employment in Algeria (1990-2022) using Structural Vector Autoregressive (SVAR) models

Abstract

The aim of this study was to assess the potential effects of aggregate demand shocks on employment in key economic sectors (agriculture, industry, trade, and services) in Algeria during the period 1990-2022 using Structural Vector Autoregressive (SVAR) models in both the short and long terms. The main findings of this study highlight the existence of a relationship between aggregate demand shocks and the employment rate in key economic sectors (agriculture, industry, and services) in Algeria over both the short and long terms. This outcome was theoretically expected. However, the severity of the impact of aggregate demand shocks on employment in these sectors was not uniformly anticipated, making it difficult to precisely identify the most affected sector based on the type, intensity, and duration of the shocks. Nevertheless, it can be concluded that the industrial sector is more susceptible to the impact of aggregate demand shocks, both in the short and long terms, based on statistical tests. Despite this, employment in the industrial sector represents only 14% according to the latest available statistics from relevant authorities, whereas the trade and services sector accounts for about 60%. Therefore, it is the trade and services sector that is most affected by aggregate demand shocks, a finding corroborated by the study. The study also recommended striving to By implementing diverse government policies tailored to each sector to enhance job opportunities, investing in labor-intensive sectors, targeting economic growth to broaden market inclusivity, improving the business environment, and developing infrastructure and technology for the overall economy and specifically the Algerian labor market. This is aimed at increasing demand for labor to mitigate aggregate supply shocks.