A forecast of a flood of new job seekers highlights the need for a holistic approach to create opportunity, particularly where unemployment is high. Dr Hatem Samman comments The major challenge facing the Gulf Co-operation Council (GCC) countries over the next decade is creating jobs for waves of nationals entering the labour market. According to recent World Bank projections, the labour force in the GCC will exceed 20 million by 2020, up from the currently estimated labour force of 16 million.
This implies that the GCC will need to generate hundreds of thousands of jobs annually. Although challenges vary, several GCC countries are wrestling with double-digit unemployment and high inactivity rates among nationals, and high underemployment in major economic sectors. The large expatriate workforce is an additional challenge, especially because the expatriates often have skills that GCC nationals lack, making them hard to replace.
Just how bad, statistically, is unemployment in the GCC? Unemployment was estimated to be 10 per cent to 13 per cent in Saudi Arabia last year, and about 15 per cent in both Bahrain and Oman, despite the rapid growth in those countries' economies since 2003. The employment picture fares better in other GCC countries, primarily because of their supply-demand imbalances: the UAE had an unemployment rate of 2.5 per cent in 2007 (down from 11.4 per cent in 2001); while Qatar had 3.2 per cent (down from 11.6 per cent in 2001).
The precipitous decline in unemployment may point to a looming problem for those countries, however, since in the GCC governments serve as the employer of first and last resort. Those governments, in other words, may soon be expected to create more jobs. Our analysis of the GCC workforce - both active and inactive populations - indicates that among the economically active, the majority of the unemployed are under the age of 30, exhibit low levels of educational attainment and a long duration of unemployment. The most recently available figures show that in this group, those aged 20 to 24 and 25 to 29 are hurt the most by unemployment. For example, 48 per cent of Saudis between the ages of 20 and 24 are unemployed, as are 31 per cent of Saudis ages 25 to 29.
In Qatar, 40 per cent of those in the 20 to 24 age group are unemployed, as are 22 per cent of those aged 25 to 29. Of those unemployed youth, women experience a higher rate of unemployment than men do. For example, unemployment among Qatari women in 2007 was 8 per cent compared to 1.7 per cent for men. Similarly, unemployment for Saudi women in the same year reached 25 per cent compared to 8 per cent for men.
In most GCC countries, the unemployment rates appear to be worst for women with the most years of education. Furthermore, low productivity, low skill and low motivation to work among the economically active population are additional challenges with which the GCC countries need to contend. On the other hand, the inactive population rates of the GCC are much higher than developed economies. This is a result of low rates of labour participation for women, a rising informal sector and an unwillingness to work among nationals. For example, between 1990 and 2003, the world's average participation rate for women stood at 55.6 per cent. By contrast, participation rate for women in GCC countries averaged 33 per cent in 2005, a period of high economic growth.
These challenges of employment in GCC countries are a result of a confluence of policies that have had limited effect on the development of the labour market over the years. Most notable is the overdependence on natural resources, which has created considerable inefficiencies in GCC economies. First, it bloated the size of government, especially in non-manufacturing activities such as services, and contributed to lower overall economic productivity and limited economic prosperity. Government competed directly with the private sector for national labour recruitment, thereby causing the private sector to rely on cheaper foreign labour and contributing significantly to underemployment.
Second, the private sector has not expanded in proportion to the supply of labour, partly because investments have been concentrated in oil-related industries at the expense of expanding the private-sector base. Since national income is dependent on the supply of oil, and is exposed to price volatility, investments in oil-related industries have not led to an increase in employment, despite the periodic spikes in oil prices over the past three decades. Instead, oil revenues encouraged the delivery of government subsidies to the private sector in the form of inputs.
While such outlays intended to promote private industries, they yielded the opposite result, namely a private sector that depends on government assistance and is unable to compete and grow outside national borders. This boom-and-bust cycle worsened the unemployment problem; while the private sector was sclerotic, the number of job market entrants increased. Third, oil windfalls have resulted in under-accumulation of human capital. The promise of government employment has encouraged waves of students to aim for public jobs that do not require market-demanded skills.
Additionally, the government's role as first and last employer tends to create a sense of entitlement among citizens, especially among the younger population, which serves to decrease workers' motivation while increasing the private sector's aversion to hiring nationals. As jobs demand a more skilled labour force, the supply from the education system is not in line with the demand, either in quantity or in quality. The current situation stimulates the employment of foreign workers.
Addressing the employment challenges in the GCC will require a holistic approach that incorporates three main strategies. The first expands the economic base focusing on promoting the private sector to create high-income jobs in strategic industries in which GCC countries have a competitive advantage. The second develops the workforce by reforming the education system and by upgrading the skill of the national labour force to match the requirements of economic development.
Finally, make institutional reforms to ensure that labour policies become more effective. With such strategies, the GCC can better face the labour market challenges that lie ahead. Dr Hatem Samman is the director and lead economist of the Ideation Center, Booz & Company's leading think tank in the Middle East