Growth without hiring

Morocco is growing. Real GDP expanded by an estimated 4.7–4.9% in 2025, investment rose by close to 17%, and the IMF projects growth above 4% through the medium term. Yet the labour market moved by a fraction of that. The economy added roughly 193,000 net jobs in 2025 against a working-age population growing faster than employment; labour-force participation stalled at 43.5% (and just 17–18% for women); youth unemployment sits between 27% and 37% depending on the definition; and the new HCP labour survey puts total labour underutilisation at 22.5% of the workforce. Growth is real. It is simply not being converted into paid work at anything like the rate the headline numbers suggest.

This brief argues that the missing link is not the tax rate, which for a small firm is low, and not a shortage of entrepreneurs, who exist in the hundreds of thousands. It is the economics of the marginal formal hire inside the firms that make up 93–95% of Morocco's enterprise base. We reconstruct that decision from the bottom up, using current 2026 rules, and show that:

Under these conditions, a rational micro-firm grows revenue by working the owner and family harder, buying a machine, or hiring informally. Any of these raises GDP. None of them creates a formal job. That is jobless growth as a series of individual, defensible decisions.

The brief closes with six recommendations aimed at the hiring margin rather than at aggregate investment: a permanent low social wedge on low wages instead of temporary exemptions; taxing profit rather than revenue; a missing "micro-company" rung between the auto-entrepreneur and the SARL that permits a first hire; state-led payment discipline; narrowing the informal cost gap; and cutting the compliance cost that currently consumes 5–10% of a micro-firm's turnover.

Two cautions on reading this table. First, the HCP changed methodology in 2026; the 9.5% strict unemployment rate is not comparable with the 13% figure for 2025, and the new composite indicator (22.5%) is the more honest measure of unmet demand for work. Second, employment growth of roughly 1.8% against non-agricultural GDP growth of roughly 4.8% implies an employment elasticity in the region of 0.4. In other words, for every point of growth, Morocco gets less than half a point of employment. Rich economies often sit near 0.5–0.7; job-rich developing economies above that.

True. The 2025 acceleration came from infrastructure, ports, mining, tourism construction and World Cup–related investment. A motorway employs many people while it is being built and few afterward. But this explains why large projects create few permanent jobs; it does not explain why the 93% of firms that are small, labour-intensive and domestically oriented also fail to hire.

Graduates are unemployed at 19% and a wide literature documents the gap between university output and employer needs. Real, but it cannot explain why bakeries, workshops, transport operators and small traders, which do not need graduates, hire so cautiously.

Partly true, and the more useful of the three, because it points at something that can be fixed. A solo operator who chooses a SARL for 100,000 MAD of annual activity, when the auto-entrepreneur regime would cost 1% of turnover, has made a structural error that costs him 20–30 points of margin. But knowledge does not change the price an informal competitor sets, does not make a client pay on time, and does not lower the Cotisation Minimale in a loss year. It is a lever on perhaps a third of the problem.

The remainder of this brief looks at the decision none of these explanations model directly: whether to add one formal worker.

Take a small bakery. The owner is considering hiring a baker who asks for 6,000 MAD per month, well above the SMIG (~3,422 MAD in 2025). This is the ordinary case, not an edge case.

The worker receives 5,580 after his own 6.74% CNSS and a token IR withholding (the 2025 IR reform exempts the first 40,000 MAD a year, so at this wage income tax is close to nil). On cash alone, the hire costs 123% of gross.

The law grants 1.5 days of paid leave per month plus roughly 13 public holidays. The employer pays twelve months for about 233 working days rather than 264. The 7,365 therefore buys 19.4 working days a month, and the real cost per day worked is roughly 380 MAD, not the 273 MAD that "6,000 ÷ 22" suggests. Add seniority premia (5% after two years, rising in steps to 25%), overtime for Sunday and holiday work in a trade that needs both, and provisioned severance, and the fully loaded cost sits at 125–130% of gross with a further 5–10% liability accruing over time.

Practitioners use a simple rule: a hire is justified when the extra gross margin it generates is at least 1.5–2× its cost. At 1× the employer has taken on risk, management time and a severance liability for nothing.

In a bakery, gross margin depends on product mix. Standard bread is price-regulated and thin-margin; viennoiserie, pastry and sandwiches carry 55–65%. At a blended 50%, the 2× bar requires roughly 29,000 MAD of additional monthly sales, close to 1,000 MAD a day, that would not happen without the hire. A second, independent check gives the same answer: bakeries run with labour at 25–35% of sales, and 7,365 ÷ 0.30 ≈ 24,500 of sales per employee.

Suppose the baker clears the 1.5× bar and generates 11,000 MAD of monthly gross margin. Over a year:

State receipts attributable to this single job: employer CNSS 15,180 + employee CNSS 4,853 + IR 195 + IS 8,724 + dividend tax 3,926 = ~32,900 MAD. The worker nets ~67,000. The split is roughly one quarter to the state, a quarter to the owner, one half to the worker.

The owner's quarter is the reward for taking on a fixed monthly obligation of 7,365 MAD that does not fall when sales do, a severance liability, and an exposure to every late-paying client. This is not an unreasonable return. It is a thin one, and it is thin before the three distortions described in the next section.

Bank Al-Maghrib and the CESE put the informal sector at roughly 30% of GDP and the resulting revenue shortfall at about 40 billion MAD a year. An informal bakery two streets away pays no TVA, no employer CNSS, no IS, no Cotisation Minimale and no accountant. Its cost base is 30–50% lower. In price-sensitive domestic markets the formal firm is a price-taker: it cannot pass its compliance costs to consumers who can walk to the cheaper alternative. The 29,000 MAD of incremental sales the hire needs must be won at prices set by a rival whose marginal worker costs 6,000, not 7,365, and whose books do not exist.

Inter-firm trade credit in Morocco is estimated to exceed 40% of GDP, with payment delays of 120–180 days common, particularly from large corporates and public entities. The CNSS declaration is due monthly; the TVA return is due monthly or quarterly; the wage is due on the last day of the month. A firm that has hired must therefore finance the wedge between when it pays and when it is paid. Banks fill this gap poorly: the World Bank Enterprise Survey collateral-to-loan ratio for Morocco is about 167%, VSEs receive under 20% of commercial credit, and Basel-style risk weights make unrated SMEs expensive for banks to carry. Law 69-21 on payment terms, well intended, requires a distressed SME to self-declare and pay fines on its own late payments to suppliers, even when the cause is a large client's late payment to it.

The result is that the decision to hire is also a decision to carry roughly three to four months of the worker's cost as working capital. For a micro-firm with no overdraft facility, that alone can decide the matter.

Morocco offers a genuinely light regime for the smallest operators: the auto-entrepreneur status (roughly 0.5–1% of turnover, near-zero bookkeeping) and, for individuals under the IR regime, the Contribution Professionnelle Unique. These are competitive with Spain's autónomo or a US sole proprietorship. But they are designed for the individual: the auto-entrepreneur may not employ salaried staff, and the CPU excludes legal entities and imposes revenue ceilings.

The moment a micro-business needs a first employee, it must become a SARL. That brings full CGNC double-entry accounting, an accountant costing 6,000–12,000 MAD a year (5–10% of turnover for a firm doing 100,000–200,000), annual accounts filed with the commercial court, quarterly IS instalments, the Cotisation Minimale from year four (0.25% of turnover with a 3,000 MAD statutory floor, payable in loss years), the Taxe Professionnelle from year six, and the employer CNSS wedge in full. The state's own employment subsidies (Idmaj, Tahfiz) suspend that wedge for 24 months and then restore it in a single step, which is why they are often followed by dismissal rather than retention.

Comparable economies keep a middle rung. Spain's micro-SL pays 19% on its first €50,000 of profit and can hire from day one; a US single-member LLC can add a W-2 employee without changing its tax form. Morocco has no equivalent: the ladder goes from "one person, no staff" straight to "full corporate compliance."

Combine sections 3 and 4 and the owner of a growing micro-business faces four ways to meet rising demand:

Options 1 to 3 explain, at the level of individual decisions, why 4.8% growth produces 1.8% employment growth and why the paid-employment-to-population ratio is 38%. Growth is happening inside firms that have chosen not to convert it into formal jobs, and most of them are behaving rationally.

Each recommendation is chosen because it changes the numbers in section 3 or removes a distortion in section 4. Approximate fiscal cost is noted where it is material.

Set the employer CNSS rate at roughly half the current 21.09% on the portion of wages up to 1.5× SMIG, permanently, for all employers, and phase out the cliff-edged Idmaj/Tahfiz exemptions. In the bakery example this cuts the cash cost from 7,365 to about 6,730 and the required sales target by 8–9%. Cost: significant, but concentrated on the lowest-paid formal workers and partly self-financing through formalisation of jobs that currently pay nothing.

Suspend the Cotisation Minimale for firms with turnover below 1 million MAD, or convert it into a fully creditable advance on future IS. Remove the 3,000 MAD floor for loss-making VSEs. The revenue at stake is small; the signal to a firm deciding whether to survive a bad year is not.

Create a simplified legal-entity status (or extend the auto-entrepreneur regime) that allows up to, say, three salaried employees, with flat-rate taxation on turnover, cash-basis simplified accounting, no court filing of full financial statements, and automatic CNSS enrolment through a single monthly declaration. This is the single change most directly targeted at the first hire, because it removes the compliance step-change that currently coincides with it.

Public entities and state-owned enterprises should be held to 30-day payment terms with automatic interest, before private firms are fined under Law 69-21. Allow SMEs to net their own late payments against verified overdue receivables from large clients when calculating Law 69-21 penalties. Extend Tamwilcom guarantees to receivables financing (factoring) against invoices to large firms, so that a hire is not also a decision to self-finance a client's credit.

Enforcement should target the wholesale and supply tier of the informal economy, where cost advantages originate, rather than the street-level retailer. On the formal side, allow deduction of purchases from CPU- or auto-entrepreneur-registered suppliers so that the "scissors effect" on unrecoverable TVA does not penalise firms for buying locally. The goal is not to punish informality but to make the formal price competitive within a 10–15% band, at which point the CNSS coverage and legal protection of a formal job become worth paying for.

The 2026 e-invoicing mandate creates the infrastructure for the DGI to pre-fill TVA, IS and CNSS declarations for firms below a turnover threshold, as several OECD administrations already do. If an accountant's 9,000 MAD a year can be replaced by a free state portal for a firm doing 100,000–300,000, the owner keeps 3–9 points of margin, which is more than the entire IS bill at that size.

Morocco's jobless growth is not a paradox once it is viewed from the counter of a small shop. The country has built a tax and labour system in which the large firm's marginal hire is a manageable line item and the small firm's marginal hire is a bet on winning 1,000 MAD a day of new sales at prices set by someone who pays none of the costs, financed for three months out of the owner's pocket, in exchange for a quarter of the upside. Faced with that bet, owners buy machines, work their families harder and hire off the books. The GDP figures record all three. The employment figures record none of them.

The reforms above do not require lower headline rates or a larger budget for subsidies. They require aligning the moment at which compliance costs step up with the moment at which a firm can actually bear them, and taking the state's own behaviour as payer, tax collector and regulator out of the list of reasons a micro-business gives itself for not hiring.