Small country, international labor market
The UAE federal government has recently announced a 25% wage increase across the board for all nationals working in the public sector. Nonnationals will receive 15%. Most of the seven emirates have announced the same increases for their public sector jobs. The others will probably follow suit if they have not done so already.
Since most working nationals are in the public sector (very few nationals work in the private sector) the intent of the policy appears to be to share the increased oil revenues of the country with the working citizens of the country. (That nonnationals share in the windfall at all presumably is because unequal pay in the same job is not healthy for organizations. At the same time, giving nonnationals 25% is not palatable politically; why should nonnationals share (fully) in the transfer of oil income from the government to its people?)
The resulting prospect for Emiratization (increased employment of nationals) in the private sector is not good, as discussed in a previous post.
Other implications for the private sector, besides Emiratization?
The fact that some nonnationals, those working in the public sector, have experienced a windfall increase in wages has no effect on the reality that the UAE is a small country and is able to import labor at world wages.
The other important reality has to do with labor mobility within the UAE. For nonnationals it is restricted. Your employer is the sponsor of your visa and has some say in whether you can change jobs. There is some rationale for this government rule: it allows the worker to make commitments not to take advantage of the employer and change jobs shortly after the employer has paid to move the worker here.
Note that financially the fact that my counterpart in a public university suddenly is paid 15 or 25% more has no effect on me. But, while we economists generally ignore envy as a possibility (in the sense that we are reluctant to assume it if other "rational" explanations are at hand), it is evident that envy exists, and that it is harmful to morale and productivity.
This consequence for labor productivity in turn harms private employers. In addition, private employers lose because of increased turnover. Their employees will tend to leave when vacancies occur in the public sector. Except: employers have some say in whether employees can leave to take another job in the UAE. The right which exists to protect the firms can also be abused by the firms. Employers may exercise this right, but only at the peril of alienating themselves from their employees. Upshot: Wise firms will use this right sparingly, when it appears that it is the employee that is taking advantage. In my opinion.
Thus, I anticipate a transition period where private employers experience increased turnover. Further, while we may be in an international labor market, it can take considerable time to fill vacancies in some specialized job categories. In sum, the private employers face a transition period with the associated hiring/training costs and prolonged vacancies which have their own costs.
In the long run, {insert your favorite joke here}, the private employers might just be able to return to the position they were in before the public sector wage hike. Over time as workers are hired, knowing at hire that the public sector jobs pay more, envy will decline -- if I can venture into psychology -- and so will its poisoning effects. Likewise, workers who take a private sector job in the UAE with the view of switching to a public sector job will not get as much sympathy when their sponsoring employers refuses permission.
The UAE federal government has recently announced a 25% wage increase across the board for all nationals working in the public sector. Nonnationals will receive 15%. Most of the seven emirates have announced the same increases for their public sector jobs. The others will probably follow suit if they have not done so already.
Since most working nationals are in the public sector (very few nationals work in the private sector) the intent of the policy appears to be to share the increased oil revenues of the country with the working citizens of the country. (That nonnationals share in the windfall at all presumably is because unequal pay in the same job is not healthy for organizations. At the same time, giving nonnationals 25% is not palatable politically; why should nonnationals share (fully) in the transfer of oil income from the government to its people?)
The resulting prospect for Emiratization (increased employment of nationals) in the private sector is not good, as discussed in a previous post.
Other implications for the private sector, besides Emiratization?
The fact that some nonnationals, those working in the public sector, have experienced a windfall increase in wages has no effect on the reality that the UAE is a small country and is able to import labor at world wages.
The other important reality has to do with labor mobility within the UAE. For nonnationals it is restricted. Your employer is the sponsor of your visa and has some say in whether you can change jobs. There is some rationale for this government rule: it allows the worker to make commitments not to take advantage of the employer and change jobs shortly after the employer has paid to move the worker here.
Note that financially the fact that my counterpart in a public university suddenly is paid 15 or 25% more has no effect on me. But, while we economists generally ignore envy as a possibility (in the sense that we are reluctant to assume it if other "rational" explanations are at hand), it is evident that envy exists, and that it is harmful to morale and productivity.
This consequence for labor productivity in turn harms private employers. In addition, private employers lose because of increased turnover. Their employees will tend to leave when vacancies occur in the public sector. Except: employers have some say in whether employees can leave to take another job in the UAE. The right which exists to protect the firms can also be abused by the firms. Employers may exercise this right, but only at the peril of alienating themselves from their employees. Upshot: Wise firms will use this right sparingly, when it appears that it is the employee that is taking advantage. In my opinion.
Thus, I anticipate a transition period where private employers experience increased turnover. Further, while we may be in an international labor market, it can take considerable time to fill vacancies in some specialized job categories. In sum, the private employers face a transition period with the associated hiring/training costs and prolonged vacancies which have their own costs.
In the long run, {insert your favorite joke here}, the private employers might just be able to return to the position they were in before the public sector wage hike. Over time as workers are hired, knowing at hire that the public sector jobs pay more, envy will decline -- if I can venture into psychology -- and so will its poisoning effects. Likewise, workers who take a private sector job in the UAE with the view of switching to a public sector job will not get as much sympathy when their sponsoring employers refuses permission.
Labels: *, ***2005, **2005, Emiratization
posted by John B. Chilton at 4/11/2005 06:06:00 PM
1 Comments:
Interesting that you suggest the 25% rise is an attempt to share the wealth of the nation with its citizens. It could be that (but then why give 15% to non-nationals - except to keep them from drowning in envy, of course). I don't actually know why they've done it, but it worries the hell out of me. If it was to help employees keep pace with inflation, then it is actually of itself an inflationary measure, and not actually necessary - as far as I can see the main element of inflation now is house rents. It would have been better for the Government to a) increase housing allowances for their workers, or b) restrict the amounts by which landlords can increase rents (not something you'd want to go for, but until the market adjusts to the new realities of what accommodation costs a huge number of people are seriously suffering).
You mis-state the point about employment transfer. The 6-month ban is automatic. It is imposed by the Ministry of Labour (and till the day I die I will never understand why). The ex-employer has no say in whether a ban is imposed or not. But there are exemptions for certain professions, and it is not imposed on Free Zone employees.
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