Thursday, July 14, 2005

Wage parity :: Khaleej Times

"Talk of the Town" seems to believe the story in yesterday's Khaleej Times that wages of expats and Emiratis will be brought into parity. In an unfettered market economy wages of equally valuable workers come into parity. That's one way to look at why such a tiny fraction of Emiratis work in the private sector: they will not accept the low wages that expats from India and other countries accept.

In the current environment, Emiratis are offered wages they will accept -- wages higher than expats -- only if the employer is forced to fulfill a quota. Thus, in the current environment, an Emirati takes up a job in the private sector when his or her wage is not at parity with the expat.

To achieve parity plus substantial numbers of Emiratis choosing to work in the private sector, wages would have to increase substantially. If the wages are market determined the wages would only rise if the number of expats on work visas is reduced substantially. The increase in wages would translate into higher costs of production leading to higher prices for goods and services.

The citizens of the UAE have enjoyed low prices for many goods and services because of a large expat labor force willing to accept low wages. Is it politically viable to give up that benefit? I don't believe it is. Rather, I believe a policy that would be viable would include a smaller reduction in the expat labor force combined with subsidies to the private sector salaries of Emiratis who choose to work in the private sector.

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