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Meeting the Employment Challenge in the GCC

(Version in عربي)

The issue of how to create more jobs is high on the minds of policymakers everywhere. The economies of the six Gulf Cooperation Council (GCC) countries—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates—are no exception.

By many measures, these economies are doing very well. Abundant oil and gas reserves are producing large budget and external surpluses, growth is up, and considerable strides have been made on social indicators.

Yet, economic activity is dominated by the oil/gas sector and—given that many GCC countries have proven reserves of at least another 50–100 years at current rates of production—will remain so. However, that sector creates relatively few jobs directly—it employs less than 3 percent of the region’s labor force.

Diversification strategies are in place, and the non-oil sector has grown fairly rapidly over the past decade. But can it deliver enough jobs for GCC nationals? While unemployment rates differ across countries, even those with very low levels of unemployment—such as Kuwait, Qatar, and United Arab Emirates—are focusing on how to create more opportunities for nationals in the private sector.

We examined the issue of GCC unemployment in our study Gulf Cooperation Council Countries: Enhancing Economic Outcomes in an Uncertain Global Economy. In this post, I wanted to share with you a few of our findings.

Job creation is not the problem

Over the past 10 years, the GCC created about 7 million new jobs—a significant achievement for a region with a total population of about 40 million. But, fewer than 2 million—less than one-third—went to nationals. The sharp rise in expatriate employment took place mostly in the private sector, but also in the public sector in Kuwait and Qatar. Many of the positions filled by expatriates were low-skill and low-paying construction jobs, but a significant part also went to highly educated professionals for jobs where there was a shortage of nationals with the requisite skills.

As a result, even the creation of millions of new jobs has not been enough to reduce unemployment for GCC nationals. In Saudi Arabia, for example, unemployment among nationals has remained above 10 percent for the past several years, with joblessness concentrated among new entrants to the labor market—that is, young people and, increasingly, university graduates.

Overall job creation is set to remain high—at an estimated 6 million over the next five years. However, past labor market trends suggest that less than one-third of these jobs will go to GCC nationals. The workforce is also growing rapidly, with more than 4½ million nationals potentially entering the labor market during this period (compared to approximately 5 million employed nationals in 2010). Barring a change in labor market patterns, an additional 2 to 3 million GCC nationals could thus find themselves without employment.

Continued strong—or even accelerating—economic growth is unlikely, by itself, to be the solution. If labor market dynamics remain as they are, the amount of additional growth necessary to meet employment objectives could be quite substantial.

Increasing opportunities for nationals

The challenge is to promote the employment of nationals without imposing undue costs of doing business that would erode competitiveness and potentially reduce growth. Saudi Arabia, for example, is already implementing new initiatives to provide added impetus to private-sector activity and job creation: partial guarantees to ease access to credit for small and medium-sized enterprises; and new programs to match job seekers with employers, including through the scaling-up of placement programs and training and education schemes. Similar initiatives are under way in other countries too.

To enhance the appeal of working in the private sector, governments could make public-sector employment less attractive—perhaps by scaling back the high wages that come with it or by cutting some of the supporting benefits that have made it the dominant employer of nationals in most GCC countries. Another challenge is to help nationals become more productive and thereby more attractive to employers. Some options include:

  • better aligning education and equipping prospective job-seekers with the skills demanded by the marketplace—including extending the training and placement services and other initiatives already in place in several countries;
  • providing incentives for nationals to acquire the skills needed for private-sector employment;
  • evaluating the possibility of a tax on foreign workers (for example, as an extension of plans to increase fees for work permits, as some countries are considering) in a way that minimizes distortions in the local labor market while redressing the effect of the high wage demands of nationals;
  • considering the time frame and scope for offering the private sector financial and other incentives to employ nationals, and
  • supplementing the income of nationals through a salary top-up scheme for nationals moving to the private sector, thereby facilitating initial recruitment by employers and reducing the bias on the part of workers toward seeking public-sector jobs.

(Originally published on the IMF's blog, مواجهة تحدي العمالة في منطقة الخليج.)