Gulf states need a new social contract to repair a disconnected employment system, according to a report from the World Economic Forum.
The Rethinking Arab Employment report warns that perpetuating the current system will create stagnant productivity, political pressure and tension between national and non-national workforces.
“The result of the current employment system is that the private and public labour markets are disconnected from each other, with high barriers for national young people to be productively employed in the private sector,” said the report.
The system is rooted in the massive demand for non-national labour after the oil boom, coupled with a “pervasive protective attitude by governments towards their own citizens”, it claims.
The Middle East and North Africa has the world’s highest regional youth unemployment.
More than 27 per cent of young people in the Middle East are unemployed, according to the International Labour Organization – twice the global average.
That is projected to grow to more than 28 per cent by the end of this year and to more than 29 per cent by 2018.
Rising joblessness has encouraged Arabian Gulf governments to accelerate localisation drives in which growing numbers of private sector jobs are earmarked for national citizens.
However, typically higher public sector salaries have created challenges for some employers in meeting national employment targets. The process has been particularly acute within service industries such as retail and hospitality.
The trend has also threatened to create economic headwinds as the cost of living accelerates in parts of the region.
“Efforts at getting more nationals into private sector employment risk putting upward pressure on inflation,” said Jason Tuvey, regional economist at Capital Economics.
He highlighted the case of Saudi Arabia where a drive to create hundreds of thousands of jobs for young Saudis has pushed up salaries in some sectors.
“Companies are having to employ more Saudis to meet quotas but many are unwilling to take jobs in the private sector unless they are paid as much as the public sector. They are happy to hold back until a better paid job in the public sector comes along.”
The use of quotas as a conduit for greater participation of nationals in the private sector jobs market is not necessarily wrong but not a solution in itself according to Kristel Van der Elst, senior director and head of strategic foresight at World Economic Forum.
“We are not against quotas in general but on their own they are unsustainable because you end up making the private sector uncompetitive.”
The need for a change in the social contract is especially acute with declining oil prices, even if it creates “short term pain”, she said.
The WEF report makes three key recommendations - including harmonising labour laws between nationals and non-nationals, developing more vocational training to provide jobs seekers with relevant skills and prioritizing investment in job creation in industries that are key to economic diversification goals.
“Tackling the challenge on a structural level today, now that wealth and economic growth allow it, opens the way to seize long-term opportunities and makes the system more sustainable over the long run,” it said.
scronin@thenational.ae
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