March 22, 2023
Labor Force Integration in Saudi Arabia
GCC Middle East

Labor Force Integration in Saudi Arabia

by Sultan Alateeg

Labor Force Integration in Saudi Arabia

Gulf Cooperation Council (GCC) nations seek to increase the number of citizens working in the private sector to deal with the influx of new workers. They have implemented workforce nationalization programs to reverse two aspects of their labor markets: the preference for hiring citizens for positions in the public sector and the displacement of citizens by foreign employees in the commercial sector. In the private and commercial sectors, quotas of citizens are used by all GCC countries. Saudi Arabia, which has one of the most stringent quota systems, has seen significant growth in the number of nationals engaged in the private sector. However, there have been significant ramifications for businesses, which confront rising payrolls and challenges filling positions previously held by expats with expats.

Labor subsidies that lower the cost of national labor in the private sector encourage enterprises to recruit nationals while allowing them to recruit locals in their workforce. Since the early 2000s, Saudi Arabia has implemented labor subsidy schemes. The labor force participation rate of Saudis and other GCC nations remains low compared to other economies, owing mostly to women’s relatively low involvement. But over the past two decades, Saudi Arabia has seen a rise in the percentage of citizens participating in the workforce, particularly women. A variety of factors characterizes the Saudi Arabian labor market. First, the public sector absorbs a substantial proportion of local citizens, whereas the private sector relies on foreign labor. Citizens often have higher education levels than foreigners, and they favor employment in the public sector since it pays well, has job stability, is more benevolent, and requires fewer hours than the commercial sector. Most expats often work in the private sector, mostly in industries including construction, agriculture, commerce, personal services, wholesale and retail, and agricultural and retail. In these fields, expat employees are frequently low-skilled, paid less, and perhaps required to put in more hours. Second, Saudis are paid more than non-Saudis in the private sector. There is a substantial shift in the demand for labor toward foreign workers. There is a sizable salary disparity between domestic workers and foreigners in the public sector. Third, the economic participation rate in Saudi Arabia has been rising, although it is still low, particularly for women.

Additionally, there is a skill mismatch in the labor market since certain residents may lack the qualifications required by the private sector. Over the years, the government has established several measures supporting employment in the private sector to stimulate job creation for citizens. For instance, the Hafiz program was established to assist citizens looking for employment by providing a monthly stipend of SAR 2000 for a maximum of one year. The Nitaqat program seeks to improve the proportion of citizens employed by private companies. Additionally, this policy placed penalties on businesses that didn’t hire citizens. While there is a SAR 4,000 minimum pay for citizens working in the public sector, there is no such floor for international workers. Initiatives to modernize the labor market have steadily increased the proportion of Saudi citizens working in the private sector. Under Saudi Vision 2030, Saudi Arabia has specified the number of economic development goals. These include reducing the unemployment rate from 11.6% to 7% and raising the involvement of women in the workforce from 22% to 30% by 2030. To attain these objectives and better understand employment dynamics in general, employment should be represented as a function of its determinants. Moving on to the other investigated predictor of employment, labor is a major expenditure for the private sector, and higher salaries diminish profit. As a result, although there are several conceptual alternatives for increasing production, private enterprises will only raise salaries if there is increased demand for their work, necessitating extra employment. The government can boost employment even further by encouraging more working-age people to enter the workforce. This would increase worker supply, lowering market pay rates and labor demand. Additionally, raising employment subsidies for Saudi workers and funding it with expat levy revenues will improve Saudis’ involvement in the labor force.

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