Labor Market in Saudi Arabia Analysis
The world has become more populated than ever, and this means that the issue of employment in the labor market has reached critical levels in almost every country. Saudi Arabia, however, is a special case given that a huge portion of the world’s oil is obtained in the country. In the recent past, the country has secured a spot as one of the key members of the G20 states. The country is undergoing a transformation in its labor market that will ensure that its economic growth expands even further in the years to come. The labor market has experienced improvements over the years regarding the increased number of people in the working population who have for long not been allowed to access employment, such as women and certain minorities. The unemployment rate was recorded at 5.6 % in the year 2015 with the labor force participation approximated at 54% in the same year.
The labor market in Saudi Arabia has attracted attention from both economists and scholars due to the use of foreign workers, the use of labor regulations that hinder the prevailing conditions for expert rates, as well as the traditions that have prevented women from joining the labor market. With the country becoming a member of the G20, there is a need to study the labor market and help the government find the best ways of empowering the Saudis to be more active in both private and public labor markets.
Most employees in Saudi Arabia are foreigners, which means that a huge portion of the Gross Domestic Product is remitted to foreign countries. Saudi Arabia remains the largest importer of human resources in the world. 30% of its population are foreigners. These foreigners remit approximately 6.2% of Saudi Arabia's GDP back to their countries. Therefore, Saudi Arabia is a crucial source of income for many countries around the globe. However, foreign workers are underpaid, and it has been a practice in the labor market to offer unhealthy competition for many unemployed Saudis. Thus, Saudi Arabia is considered to be heavily dependent on foreign labor. In the private sector, for instance, only about 7% of the natives offer their services, while the general native work supply was recorded at 47%. There are several reasons for the low participation of the natives in the labor market, including the nature of projects in the country. The government has several mega projects that only require temporary labor. Since these jobs are not sustainable for locals, the government considers them more fitting for foreigners. The second reason is that the natives find it shameful to take unprestigious jobs, such as janitor or garbage collector, and this has made it easier for foreigners to be given such jobs. Another reason is that foreigners are desperate to get jobs, and they will work even for the lowest wage offered, unlike the natives who will feel offended when paid too little. The cultural concerns are also part of the low number of Saudi workers. For instance, women are restricted from working and only given the role of raising children, thus preventing a huge number of willing women from being employed.
The government of Saudi Arabia has implemented various strategies aimed at ensuring that the locals take most job positions. Nitaqat has been one of these strategies. Nitaqat is a term coined by the ministry of labor in the year 2011. The word is an Arabic term that refers to zones or ranges, and it described a program that was meant to subdivide the labor market into four main zones platinum, red, yellow, and green. All these zones were distinguished by the number of Saudis that worked in them. The zones came with both benefits and penalties that could lead to the closure of a company that failed to adhere to the expectations. There was a tremendous change in the labor market in Saudi Arabia as a result of the program, and this led to an increase Saudis in employment as the companies sought to meet the threshold and maintain their status. This was effective in addressing the issue of unemployment in the country because it ensured that there was a rise in employment among the Saudis as well as an increase in wages. The Nitaqat Program was initiated as a result of the continued failure of the Saudization program that sought to replace foreign labor with natives. Whenever a reduction unemployment level was set, it was mostly followed by an increased unemployment percentage. This made the government think of new ways of dealing with the problem. For instance, in the year 2009, unemployment was set to decrease by 20.6% and reach a 51% threshold. Instead, it only reached 40%, which was an increase of 12.2%. The program worked for a short time before the companies began to use ghost workers to be compliant with the regulations, making the decrease in unemployment in the country only theoretical.
Minimum Wage in Saudi Arabia
Minimum wage guarantees that more individuals are encouraged to take job opportunities, so the Saudi government introduced the minimum wage to ensure that most of the citizens work in the private sector. The minimum wage was announced by the King in the year 2012 when he stated that the minimum wage would be set at $800 monthly for all Saudis working in the public sector. The private sector was also called upon to implement the new minimum wage. The labor minister later came up with a law stating that those in the private sector working under the minimum wage will not be considered compliant with government labor regulations and will not be allowed to continue their operations in the country. This was a welcome move for the economy as many Saudis flooded the job market. However, another problem was created in that the females were at a disadvantage. Saudi women have a lower market clearing wage rate, and this escalated the unemployment gap even further.
One of the widely discussed issues concerning the Saudi Arabia labor market is the deportation laws that have been very strict and touched the lives of many. Since the inception of the new legislation in the year 2012, more than one million expatriates have been deported. By this new law, every individual is expected to only work under a sponsor. If found to be working for a different company, an individual is deported with immediate effect. The law also stipulates that an individual has to process a work permit that costs an annual fee of $650 which the funds are channeled to the Saudi Human Resources Development Fund which seeks to train the Saudis to make them prepared for the labor market. To enforce these laws, the ministry of labor has sought collaboration with the interior ministry and hired over 1,000 inspectors. Both jail terms and fines are imposed on those found to have violated these laws. The impact of its enforcement is the shrinking of the foreign labor supply by approximately 20 percent. This effect resulted in the decline of the labor supply, and thus raised the labor demand connected to the wages.
Labor market challenges in Saudi Arabia
- Lack of competitive and fulfilling private sector jobs
The private sector in Saudi Arabia has been known for paying low wages to employees, thus discouraging the Saudis from seeking employment in this sector. The non-oil private sector has been the main driver of the economy in Saudi Arabia, contributing to about 49.3 % of the country’s Gross Domestic Product (GDP) in 2015 as compared to 37.7% in the year 2010. This means that the sector is vibrant and an integral part of the country's economic progress. Despite the extreme growth, it is the state-owned enterprises that continue to provide employment opportunities to the individuals entering the job market. This has been fostered by the notion held by the Saudis that government jobs are prestigious. Most Saudis view small enterprises as deficient in professionalism and working conditions, thus making them unattractive as compared to government jobs that are well-paying with convenient working hours and good conditions.
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Therefore, the private sector is dominated by expatriates, while the Saudis dominate the public sector. There is an increasing wage variation between the public sector and the private sector, and this had in a way contributed to the perception of employment in Saudi Arabia. The private sector requires an employee to work for six days for approximately 50 hours and only the well-educated get a good starting salary. In contrast to the public sector where one is required to work for five days. that translates to an equivalent of fewer than 40 hours, while the salary is lucrative. The public sector is also viewed to offer great job security and personal development through regular training and mentorship programs. Family and community also have an impact on the choice of the sector that one would seek to join. The individuals working in the public sector have high social privilege, and thus the youth opt to remain unemployed with the hope that there will be a vacancy in the public sector.
- Inefficient Job Placement and Matching
Matching the available jobs with the right skills has been an issue in Saudi Arabia, and this has made the country rely on the importation of foreign laborers. The GDP of Saudi Arabia saw a tremendous growth of about 5.3% in the period between 2010 and 2015. This means that employers are seeking laborers among both the expatriates and the Saudis to fill numerous positions. The greatest hindrance connected to the issue of employment and skills is that there is still a huge mismatch in the skilled labor market since there are not enough skilled Saudis to fill the positions. This mismatch is, therefore, a hindrance to economic growth in the long run. Moreover, the link between job seekers and private sector employers is functioning ineffectively. This can be attributed to the fact that there is a lack of public information on matters of labor since society has traditionally relied on personal networking. This has created a marketplace that is opaque regarding relevant information. Students would like to work in certain professions, but lack the necessary carrier guidelines. This makes it hard for them to perform in the sector that they have not mastered during their schooling. On the other hand, even those who get the best education in a given sector are not aware of the organization that requires their skills. Furthermore, others take courses that are not applicable in their country and have to seek a job in foreign countries.
- Low Rate of Female Labor
The female Saudis are a tragically underdeveloped resource for the economy of the country. A large number of Saudi women are educated and can be instrumental to the country's labor market, but they are yet to be allowed to offer their services. It raises a great concern to point out that with a total of 9.1% of females of the working age only about 20% are active in the labor market as compared to their male counterparts with 77% as per 2015 statistics. Among the G20 member countries, Saudi Arabia has been recorded as the country with the highest level of gender imbalance in the labor market. The high unemployment rate among women shows that they are motivated to seek employment, but are not taken seriously on the job market. The trend has however taken a different turn with the private sector employing about 99,000 women in the year 2012. In 2015, the number rose to about 159,000. This is a clear indication that women can be a viable source of labor and thus a great contributor to the country’s economy.
Solutions to the Saudi Arabia Labor Market Challenges
The challenges facing the Saudi Arabia labor market require serious consideration. The government should not seek to introduce policies that aim at substituting foreigners with the Saudis regarding the high rate of unemployment among the citizens, but it should rather aim at creating more jobs for the Saudis. It is evident that the Saudis are not comfortable with working in unprestigious positions and this means that the government ought to create more industries as well as alter their labor policies to allow foreign investors to set up organizations that will help in expanding the employment base. Furthermore, concerning the issue of job mismatch, the government should come up with programs that will enable the youths to understand the career decisions they make while still in school. This knowledge will help to ensure that those who enter the labor market are well aware of the organizations that seek their services and at the same time understand the job opportunities available in their country so that they can only pursue the readily marketable courses. This will help reduce the high rate of unemployment that is a result of skill mismatch in the labor market.
Additionally, the rate of unemployment among Saudi women has been high, and for the country to match the required threshold set for the G20 members, it has to come up with policies that override the traditions that have held women in the position of raising children only. Laws that restrict women from seeking employment should be restructured in a way that will pave the way for a greater number of women who wish to seek employment. Many women are educated and have the motivation to work, but the social customs and traditions have made it hard for them to be part of the workforce. Women are more flexible and take even those jobs that are considered shameful, such as garbage collection and working as cashiers. The government and the private sector must invest in a working environment that accommodates women in the job market. The traditional workplace discouraged women from applying for such roles because women were not supposed to work in environments where they had direct contact with men. This means that efforts should be put in place to ensure that separate working spaces are created to accommodate both genders. Lastly, the government should come up with regulations that will make the private sector more appealing to the Saudis, so that the unemployed youths will be willing to join the private sector. The policies should aim to improve working conditions enough to meet those of the public sector. The link between the job seekers and the employers ought to be improved so that those seeking jobs do not rely on word of mouth to learn about vacancies.
Comparison of the United States Labor Market and Saudi Arabia
A comparison between the United States of America and Saudi Arabia shows that, unlike in Saudi Arabia where foreigners dominate the labor market, the United States has the opposite situation, where the natives account for most of the labor force. The main distinction is that in the United States it is the natives who are skilled, while a great number of the foreigners are unskilled and have low language proficiency levels to fit in white-collar positions. In Saudi Arabia, it is the foreigners who are skilled, and this is the reason that they had been dominant in the employment positions. The second difference between the two countries is that in the United States the immigrants do not affect the wages of the natives, since the natives are at higher levels and the only level at which the immigrants can be considered competitive is the low level. This tends to decrease the decrease wages and leads to a huge gap between the highly skilled and low skilled workers to about 5%. The third difference is that the United States does not have policies that prevented women from entering the labor market. Therefore, women have been able to compete favorably with their male counterparts. In contrast, in Saudi Arabia, legislation and traditions have made it difficult for women to contribute to the economy of the country despite their high level of education.
The two countries have other common aspects of their labor markets, even though they vary in their causes and measures applied. While both countries might be experiencing increased rates of unemployment, the United States has the highest rate in the construction sector. On the other hand, Saudi Arabia has the highest rate of unemployment in the skilled labor market while the construction sector is a flourishing one that employs the greatest number of workers. It is also evident that the job mismatch in the two countries is a common issue, whereby the main issue in Saudi Arabia is the lack of adequate skills. The United States experiences the issue of displacement. whereby individuals may be in a state that does not have vacancies for their skills. Each country approaches the process of finding a solution differently. The United States seeks to expand its sectors to accommodate a variety of skills, while the Saudi Arabia authorities have sought to come up with policies that aim to replace foreigners with Saudis.
Conclusively, the labor market is the main aspect of the economy. In regards to the labor market, the country can be termed either progressive or retrogressive. The rise in the rate of employment means the creation of more job opportunities and growth in the economy. However, a country like Saudi Arabia has for the longest time relied on foreign labor, making its citizens incapable of offering skills that expatriates possess. It is this lack of skills that has rendered the majority of natives unemployed. The government has tried to come up with policies, such as the Nitaqat, minimum wage, and deportation policies to ensure that the natives get better employment opportunities, but the most pertinent issues have not been addressed. The country still suffers from the idea that public jobs are the best, and thus the youths opt to remain jobless until they get government jobs. Additionally, traditions made it difficult for women to get into the job market. Some of the solutions to the high rate of unemployment in Saudi Arabia include education of the population to enhance its capacity to offer relevant skills. The comparison between the United States and Saudi Arabia shows that the United States labor market is highly dependent on natives, especially in high-skilled positions, while in Saudi Arabia the labor market is highly dependent on foreigners. Both countries suffer from increased unemployment levels, but while the United States seeks to create job opportunities, Saudi Arabia aims to replace foreigners with Saudis.