The emergence of structural unemployment and the ensuing policies | The Gulf Cooperation Council States (GCC) | bpb.de

In the mid-1990s, the unemployment rate among the national workforces was above 10% in each of the GCC countries (Dito, 2008:11; Harry, 2007:135; Winckler, 2009:153). It became clear to the GCC authorities that their traditional labor force nationalization policy, which aimed at reducing dependence on foreign labor (see, e.g., Randeree, 2012), although a success in the public sectors, almost totally failed in the private sectors mainly due to the wide salary gap between the nationals and the foreign workers and strong opposition from the private employers themselves to employ nationals in place of foreigners (see, e.g. Kapiszewski, 2006:5; Forstenlechner et al., 2012:408). Hence, it appeared that the unemployment level among the GCC nationals was not a consequence of the supply/demand balance in the whole labor market, but rather a result of the public sector’s ability to absorb additional national employees.

Strategies to create jobs in the private sector

Consequently, since the mid-1990s, increasing work opportunities in the private sector for nationals rather than reducing dependence on foreign labor has become the top priority of the GCC employment policies. The following are the five major strategies which were adopted by the GCC authorities in order to create suitable employment opportunities for nationals in the private sector:

1. Restricting certain occupations to nationals only.

2. Imposing quotas for nationals in private sector companies.

3. Heavily subsidizing wages of new nationals employed in the private sector.

4. Improving the professional skills of the national workforce in order to correspond to the needs of the private sector (Hertog, 2012:91-92).

5. Adopting the “Dubai Development Model” (Foley, 2010:144-147; Hvidt, 2009:401-402) which promotes economic diversification through the development of non-hydrocarbon sectors - mainly tourism, banking and insurance services, maritime transportation and trade, and electronic and high-tech industries -which although demanding the recruitment of massive foreign labor, they also produce large-scale employment opportunities for nationals.

Labor migration after the turn of the millennium

The “price” of this massive creation of suitable job opportunities for nationals was to increase the dependence on foreign labor. Thus, during the 2000s, particularly since 2004 when the economic situation markedly improved, due to the increased oil price and the rapid development of the non-hydrocarbon sectors, the number of foreign labor in the GCC countries rapidly increased to almost 12.7 million in 2010, compared to 7.1 in 1999. This means that in a decade only, the number of the foreign labor in the GCC countries increased by almost 80%. The total number of foreigners in the GCC countries increased from 10.1 million in 2000 to 21.0 million in 2010, an increase of more than 100%. Overall, in 2010, the total population of the GCC numbered 44.6 million compared with 9.7 million in 1975 (cf. Figure "Total GCC Population").

Labor migration to Saudi Arabia

Traditionally, Saudi Arabia - the largest among the GCC countries in both, oil production and population - had the highest number of foreign workers among the GCC countries. In recent years, however, due to the slow expansion of the Saudi non-oil sectors, the number of labor migrants in the Kingdom has stagnated. Consequently, while until the early 2000s, more than half of the total foreign workers in the GCC countries were in Saudi Arabia, since then the share of the foreign workers in Saudi Arabia among the total GCC foreign labor has markedly declined to 34% only, as one can see in the Figure "The Percentage of Saudi Foreign Workers of the total GCC Foreign Workers".

Labor migration to Qatar, Kuwait and the United Arab Emirates

The greatest increases in foreign labor in the GCC countries occurred in Qatar, the UAE and Kuwait - countries which during the past decade benefitted not only from the sharp increase in oil and gas rental revenues, but also from the massive expansion of their non-oil sectors, mainly in tourism, banking, insurance and the real estate and construction industries. The rapid economic growth also led to a sharp improvement in living standards which led to an increase in the employment of domestic workers - all of whom of course foreign labor. The Qatari economy, which enjoyed the highest GDP growth rates among the GCC countries, absorbed the highest rate of foreign workers accordingly.

The development of the oil price and its effects on labor migration to the GCC states

It should be noted however, that as opposed to various expectations the sharp decline of oil prices following the onset of the global recession only had a minor and short-run influence on the number of foreign labor in the GCC countries. In fact, only in Dubai and to a lesser extent in Oman was there some reduction in the number of foreign labor. However, with the recovery of oil prices in the second quarter of 2009, the number of foreign labor in these two economies returned to the former trend of a steady increase.

As opposed to the previous global economic recession of 2008/9, the current recession in both the EU and in the U.S. did not bring about a sharp cut in oil prices. Thus, while most of the countries in the world are negatively affected by the current recession, in the GCC countries, the economic situation continues to be solid. Consequently, the steady increase of foreign labor has continued as before.

Why is the employment situation in the GCC countries so different from other rich economies? Why have their labor and immigration policies failed to decrease dependence on foreign labor? The answer to these questions lies in the GCC unique socioeconomic-political structure, namely their “rentier nature.”

The “rentier state” and “rentier mentality” in the GCC oil-states

The term “rent” relates to “income derived from the gift of nature” or in other words “rent as pure luck.” The term “rentier state” refers to a situation in which the rental incomes, which largely dominate the governmental revenues, are external to domestic production. Although some rental income exists in every country, in the GCC oil-states, rental income - stemming predominantly from oil revenues - amounts to at least 80% of total direct governmental revenues. The fact that the rent is external is crucial as it enables the economy to exist without a strong internal productive sector. Consequently, in a rentier economy, the scale of the national income does not reflect the performance of the domestic economy, but it is rather a function of the price of the rentier resource in the international market.

Thus, a “rentier government” does not deal with the redistribution of internal resources through taxes on income and commodities on the one hand and supplying various social services, subsidies and allowances on the other, in return for political participation. It rather mainly deals with the distribution of the external rental incomes among the indigenous population in the most beneficial political manner. Consequently, in the GCC countries, “a rentier mentality” emerged in which the government was not a political representative body, but rather a supplier of allowances, subsidies and various services which were free of charge in exchange for concessions regarding political participation on the part of the citizens. Hence, citizenship in a rentier state became a source of direct and indirect financial benefits.

A major tool to distribute the rental wealth among the citizens is through employment in the public sector which offers to its national employees high salaries and luxury work conditions without any work-reward causation. A highly rewarded job in the public sector is the key component of the “social contract” between the GCC royal families and their citizens. These are jobs for life. In addition, nationals do not have to pay income taxes. In return, the state, namely, the ruling family, expects citizens to be totally loyal. The political implication of a rentier state is thus “no taxation and no representation”

(Beblawi and Luciani, 1987; Beblawi, 1990: 85-98; Ayubi, 1995:251-252; Gause, 1994: 42-77; El-Katiri et al., 2012: 168-181; Niblock and Malik, 2007:14-21; Ross, 2001:325-361).