Information about Middle East Oriente Medio

Labor Market Challenges and Policies in the Gulf Cooperation Council Countries

International Monetary Fund
Published Date:
November 1997
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Information about Middle East Oriente Medio
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Cyrus Sassanpour, Ghazi Joharji, Alexei Kireyev and Martin Petri 

Executive Summary

• The rapid growth of the GCC economies over the past three decades required large inflows of foreign labor. Expatriate workers currently comprise over one-half of the labor force in all GCC countries and as much as 90 percent in some countries.

• The labor markets in the GCC countries are segmented along several dimensions: between public and private sectors, between nationals and nonnationals, and between skilled and unskilled labor. Market segmentation reflects a number of factors, perhaps most importantly the more attractive wages and benefits as well as job security and social status offered by the pubic sector to nationals. It also arises from the mismatch between the qualifications of new entrants to the labor market and the requirements of the private sector. The segmentation of the labor market is such that in some GCC countries, as much as 90 percent of the national labor force is employed in the public sector with expatriate workers comprising a comparably high ratio in the private sector.

• In most GCC countries, unemployment among nationals is a relatively recent phenomenon and still of a largely frictional and voluntary nature. In the period ahead, however, the labor market conditions are expected to tighten in view of a rapidly growing number of nationals entering the labor force at the time when governments can no longer act as employers of first and last resorts because of budgetary considerations as well as for efficiency reasons.

• Policymakers in the GCC countries recognize these pressing challenges and have embarked on formulating labor market strategies to create employment opportunities for nationals within a broader framework of fiscal consolidation and structural reforms. The policy instruments to achieve the employment objectives have included an array of measures affecting the quantity (quotas and employment targets), price (wage subsidies to private sector, government wage restraint, and fees and charges on foreign labor), as well as the quality (education and training) of labor.

• Employment quotas and administrative measures may create jobs for nationals in the short run, but such measures offer no permanent solution and could even be counterproductive in the long run. An effective strategy to reduce labor-market segmentation and improve market efficiency would require a mix of measures aimed at increasing the market responsiveness of incomes and employment policies, minimizing distortions created by government benefit packages, and matching the skill profile of the national labor force with the present and future requirements of the private sector.

• The labor market policies in the GCC countries have broader regional implications. Workers’ remittances originating from the GCC countries are a major source of foreign exchange earnings and an important source of financing private sector consumption and investment in a number of labor-surplus MENA countries.

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