Unemployment amongst Gulf nationals persists

Khaleej Times ran this AFP report:

Governments in the oil-rich Gulf Arab states have so far failed to tackle unemployment among their own citizens despite impressive economic growth fed by record oil revenues. Despite most Gulf Cooperation Council (GCC) members having programmes to train their nationals to join the workforce, the region’s private sector still relies on imported labour.

Faced with an inability — or unwillingness — among their own people to work in the private sector, governments remain the main employer of native workers in the GCC, which comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

Saudi economist Ihsan Bu Hulaiga believes that the GCC labour market has been deformed because of its openness to foreign workers and because the public sector functions as a convenient employer for citizens.
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despite its wealth, unemployment among Saudis themselves was 11 percent in 2007, according to official figures, just one percent down from the previous year.

Traditionally, the public sector in GCC states has employed as many nationals as possible under conditions considered very relaxed compared with the private sector.

“The public sector attracts young people for its job security and fewer working hours,” Bu Hulaiga lamented.

But because the private sector generates greater job opportunities, most GCC countries have quota systems for nationals in private business.

This policy “contradicts all economic concepts,” said Bu Hulaiga.

The solution is to make “national manpower, which is unqualified and more costly (than foreigners), more appealing to employers,” he said.

“We have a great chance to qualify our young people amid the current economic growth.”

Bu Hulaiga believes GCC governments should make the private sector more attractive to Gulf nationals by providing training and subsidising salaries so they are on par with those of the public sector.

Kuwait already does so. Private companies pay their employees the set basic salary and the government chips in with allowances.
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Half of the employees in the public sector represent what Kuwaiti economist Jassem Saadun called "masked unemployment."

Paying to create such posts "is a way to distribute oil dividends," he told a seminar last month, but warned that such a policy will not work in the long term.
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Bahrain and Oman are less well-off as their oil reserves are dwindling.

Unemployment in Bahrain dropped dramatically to around four percent in 2007 according to official figures, after it was reported to have soared to 15 percent of a 120,000-strong workforce in 2005.

Bahrain also established a programme to aid job seekers, with a governmental body trying to place them in the most suitable posts.

Because it comparatively poorer, Bahrain has had to adopt a sounder approach. For more, check out the links here.

The UAE welfare state

Bloomberg:

All 800,000 Emirati citizens get free education and health care, and subsidized utilities. Emirati men can claim free land and no-interest loans to build homes. Other benefits include a $19,000 payment toward wedding costs.

The handouts, based on traditions of royal patronage dating back centuries to Bedouin society, now discourage citizens from working, academics say. Expatriates outnumber Emiratis and dominate fields such as banking, law and technology. The quandary for Sheikh Mohammed is how to reduce the culture of dependence without alienating his people.

``The relationship between work and income is broken,'' says Kenneth Wilson, Dubai-based director of the Economic and Policy Research Unit at Zayed University, a school for Emirati women that opened in 1998. ``That's unlikely to change until the government starts trying to give incentives to work in the private or corporate sector.''

The phrase "culture of dependency" bothers me. Suppose I inherited stock and could live very comfortably off of the dividends if I chose. Would you say I was dependent on the stock? And does it create an incentive for me to stop working? No; Bill Gates is still working plenty hard.

The UAE is a very rich country and it is only natural that the wealth owned by the government/rulers is shared with the citizens. Where economists begin to worry is when the size of the transfers creates adverse incentives. For example, suppose you get more from the government if you earn less. This cuts your incentive to work. Or suppose underpricing of utilities causes you to waste water and electricity -- there are more efficient ways to make transfers. Or suppose that government jobs are require little effort and pay much more than the private sector -- where's the incentive to choose the private sector rather than engaging in rent-seeking activities (wasta) to get a government job? Or suppose you are guaranteed a government job as long as you have any college degree -- where is the incentive to excel in college?

It's not the size of the transfers. It's their design.

The Bloomberg article goes on to suggest that the transfers buy political allegiance. If that is true then the trick to solving the Emiratization problem will be to reform the welfare system without cutting the benefits to most citizens.

Spigot-like labor force

From Business Week

A North American economist at Merrill Lynch (MER), [David Rosenberg] is one of a number of economists who say the concerns about too few workers are vastly overblown. Rosenberg recently studied the issue and put out a report entitled Is There a Labor Shortage? If employers are having trouble filling jobs, "perhaps they're not looking hard enough," he says.

The issue may not be the number of workers, but rather the level of pay. Economists like Rosenberg argue that in a market economy, there's really no such thing as a true shortage. If you want more of something, you can pay more and have it. When employers say that there's a worker shortage, what they really mean is they can't get enough workers at the price they want to pay, the argument goes. "While it makes for nice cocktail conversation, the data aren't saying there is an acute labor shortage in this country," Rosenberg says.
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Rosenberg argues the simplest way to gauge whether there's a worker shortage is to look at the price of labor. According to the basic laws of economics, the tighter the supply of labor, the more it should cost. So if the economy were operating with full or near-full employment, we would be seeing an "explosion in labor compensation," he says.

The price of labor, however, is hardly surging....
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"Employers are very quick to raise the specter of a labor shortage, but often it's another way of saying they can't find the workers they want at the price they're paying," says Jared Bernstein, senior economist for the Economic Policy Institute, a left-leaning think tank in Washington. "They are unwilling to meet the price signal the market is sending, so they seek help in the form of a spigot like immigration."
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"I'm a trained economist," says Bernstein. "I can't sign on to the idea that there are jobs people won't do at any price."

Even more so than the US, the UAE has a spigot-like labor force (and a drain-like labor force!).

We hear claims that there are some jobs Emiratis simply will not do. But we don't really know that because wages have never risen to see whether there is a wage sufficient to draw them into those jobs. The spigot from abroad has remained open -- employers can easily obtain work visas and import laborers. Unemployment amongst Emiratis is not what economists would call unemployment; you are unemployed if you would take a job at the current wage but cannot find one.

We hear claims that western expats in the UAE are dissatisfied with their pay. But if they were in a meaningful sense they would be leaving in large numbers. They aren't. Wages have not climbed significantly because the wage being paid matches the alternatives foreign workers could get elsewhere.

We hear claims that there are shortages in critical areas like government teachers and nurses in government hospitals. But there is no shortage. Rather the government simply is not paying a market wage. (I hasten to add teacher and nurse "shortages" are chronic issues in the US as well. See here, for example.) It is in a perpetual position of replacing workers who move on as soon as they can find better pay and working conditions. Such as a job elsewhere in the region. Or even in the US.

The UAE labor force is spigot-like. But it is also drain-like as well.

McKinsey interviews Minister of the Economy Lubna Al Qasimi

Full interview here (free reg.req.). Some extracts:

The Quarterly: Many outsiders see limits on foreign ownership and the UAE's agency law as outmoded and unnecessarily restrictive. What plans do you have to change this? (Under the current system all foreign companies producing and selling goods, services, or both in the UAE must do so through a UAE-owned partner.)

Sheikha Lubna: What we've done is to launch a study looking at sectors where we believe the contribution comes solely from foreigners, or at least very little from locals. So with that in mind I think parts of the law might undergo change. Depending on the sector and the Emirate, foreigners might be allowed to hold controlling shares in these ventures. Having the agency law, however, does not mean that we have excluded all foreigners from majority ownership. The whole idea of creating the 23 free zones and special economic zones throughout the UAE was to offer 100 percent foreign ownership.
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The Quarterly: How concerned are you about the unemployment rate among nationals and the extent to which foreigners dominate the labor market?

Sheikha Lubna: The UAE is, perhaps, the only country in the world where foreigners dominate the private sector, both as employers and employees. In almost all countries that allow immigration, the rule is that foreigners are only allowed to take up jobs when suitably qualified nationals are not available.

Expatriate workers will obviously continue to play a vital role in our economy, but it is unacceptable that 22,000 nationals are either unemployed or underemployed. The private sector therefore cannot be left unregulated. Hence the Emiratization program, which establishes a quota system for nationals in certain sectors. The strategy will only succeed in the medium to long term, though, if adequate educational and training programs are geared toward creating skills among nationals to suit the demands of the private sector....
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The Quarterly: What are the major risks for the UAE over the next three to five years?

Sheikha Lubna: Number one is obviously the political stability of the region. Anything that happens to one of our neighbors has implications for us. We are all investors in and exporters to Lebanon, for example, so when it was brought to the ground, the efforts of the past ten years were completely demolished.

I've talked about labor in another context, but when you have such a mix of people they sometimes bring their political problems with them. So far the UAE has been very good at managing these differences, but that doesn't mean we should just take it for granted.

I don't think the price of oil will threaten the development of the UAE economy—the inflow of FDI shows it is working—but a more concerning issue is inflation triggered by the high oil prices and booming economy.

Unemployed Saudi youth sad lot :: Arab News

Quote:

I have a vision: A vision that sets the stage for the creation of generation two of Saudi Arabia’s Dynamic Leaders of Tomorrow (SADLOT). It is a vision that calls for a top down, and a bottom up approach to youth integration.
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If each chamber of commerce was mandated by policy to establish a “Youth Economic Council” as the formal economic voice of our nation’s SADLOT, then I am sure that the fresh young blood will not be lacking in providing us with new ideas for resolving old issues of unemployment, economic diversification, and entrepreneurial support.

In other news,

- Hairdressing: A Trade Looked Down Upon in Saudi Society
- 14% of Madinah Residents Live in Poverty: Survey
- Employers Skirting Saudization Quota Pledged Iron Fist
- Need for Educational Reform Stressed
- Website Provides Forum for Unemployed to Voice Their Concerns