Overall, there are five main characteristics indicating how the rentier nature distorts the GCC labor markets:
Near total dependence of nationals in public sector employment.
With the exception of Oman in which many of the nationals are self-employed in agriculture and fishing, in the other GCC economies, the vast majority of the national workforce employed in the public sector while foreign workers are the almost solely source of employees for the private sector. Qatar is the most extreme example: In 2011, nationals comprised a mere 0.5% of the total private sector workforce (Qatar, SA, LFSS-2011:11). In the cases of Kuwait and the UAE, in 2010 more than 90% of the national workforce was employed by the public sector (Baldwin-Edwards, 2011:15). Forstenlechner and Rutledge (2010:42) note in this regard: “The main reason nationals do not seek private-sector careers is that those in the public sector are so much more attractive - better paid and less onerous.” As noted by al-Dosary and Rahman (2005:500), the GCC public sector has become “a vast social welfare system.”
The vast majority of GCC nationals employed in the private sector work in “clean” white collar occupations. In the Saudi case, for example, by 2010, among the 62,574 persons employed as administrative and business directors in the private sector, 89.9% were Saudi nationals. In the field of clerical jobs, among the 179,331 employees, 171,033, that is, 95.4% were Saudi nationals. In total contrast, in the agricultural sector, from among a total workforce of 492,440, only 8,880, a mere 1.8%, were Saudi nationals. Although we do not have official data, it is quite reasonable to assume that the vast majority, if not all Saudis employed in the agricultural sector were self-employed. In all, by 2010 Saudi nationals comprised only 10.4% of the total private sector workforce (SAMA, AR-2011:207-217). After subtracting the total of the self-employed and ghostworkers
, the figures reveal that the contribution of the Saudi National employees to private sector production can at best be qualified as minor.
Extremely low labor force participation rates.
One of the prominent characteristics of the GCC rentier state since the “oil boom” has been extremely low labor force participation rates (Kapiszewski, 2001:74; Saif, 2009:16-17). In the Saudi case, for example, by 2009, while the Saudi working age population (20-64) numbered 8.45 million (KSA, MEP, ASY-2009:table 2.2), the workforce numbered only 4.29 million. However, those who were actually employed numbered only 3.84 million - 3.333 million males and 505,340 females (SAMA, AR-2011:203). This means that less than 40% of the Saudi working age population were actually employed and their share of the total Saudi national population (17.49 million) was only 21.9%, a dependence ratio of 1/5 – one of the lowest worldwide. In the case of Qatar, in 2011, the national working age population, both males and females, numbered 159,000, 77,000 (or 48%) of whom actually worked. Thus, in the Qatari case as well, the dependency ratio was 1/5 (Qatar, SA, LFSS-2011: 9).
Reasons for low labor force participation rates
Three main factors led to these extremely low labor force participation rates of the GCC national populations: The first and the most important is an extremely low female labor force participation rate. Officially, with the exception of Saudi Arabia, none of the GCC countries have explicit legislative restrictions on women’s employment. Yet, in practice, a wide variety of occupations are considered “not suitable for women.” Although recently the GCC authorities have become more open toward the option of the employment of indigenous women, in practice, even in Bahrain and Oman - the least rentier among the GCC economies - female labor force participation rates remain very low, less than half of those which prevail in developed economies (Scott‐Jackson et al. 2010; Rutledge et al., 2011:186; Harry, 2007:138; Zovighian, 2012:186).
The second reason is early retirement in the public sector which enables the GCC authorities to absorb new national employees and thus increase the number of the citizens who enjoy public sector high salaries/pensions. In the Saudi case, for example, the official retirement age in the public sector is 55 years (Wilson et al., 2004:97). In Kuwait the situation is similar with early retirement for males after 20 years and females after 15 years of employment (Longva, 2000:183).
The third reason is the wide-based age pyramid as a result of prolonged high fertility rates on the one hand and low crude death rates on the other. Thus, the percentage of the population under age 15 of the total national population in each of the GCC countries although somewhat reduced since the early 1980s, remained more than a third in 2010 (Oman, MNE, 2011; UAE, CBS, 2010; KSA, CDSI, 2008).
Low productivity levels.
Due to the actual availability of unlimited cheap foreign labor, productivity rates throughout the GCC economies are on a downward spiral (Al-Kibsi, Benkert and Schubert, 2007:22-23; Mashood, Verhoeven and Chansarkar, 2009:5; Al-Awad, 2009:6; Forstenlechner et al., 2012:408; Hertog, 2012:75-77, 88-89). The Saudi authorities themselves recognized this problem of low productivity and noted in the current five-year plan (2010-2014) that: “…despite the efforts made to promote productivity of Saudi workers, it is still relatively low” (KSA, MEP, 2009:175). Thus, as long as the private sector has the option of employing an unlimited number of cheap foreign workers, even at the price of absorbing a certain percentage of nationals because of the quota regulations, private employers have no incentive to take on nationals. At any professional level, it is always cheaper to employ foreign labor at the expense of national employees. Hence, for the private employers, the quota for national employees is no more than a tax, namely, sharing the overall cost of providing employment for nationals. Consequently, as rightly claimed by al-Kibsi, Benkert and Schubert (2007:20), the availability of cheap foreign workers “has delayed the formation of a skilled national workforce and prevented the development of a diversified and productive private sector that could help absorb new entrants into the workforce.” From the point of view of the nationals themselves, they either have no incentive to be employed by the private sector, unless of course if they are self-employed. In many cases, nationals work in the private sector for a limited period only, until they succeed in getting a public sector job.
Inappropriate educational and professional skills.
Four decades following the “oil boom” foreign labor still occupy the positions in the vast majority of the professional occupations, in both the public and private sectors. The reason for this is the shortage of indigenous professional workers. Many claim that the heart of alleviating the unemployment problem of the nationals is through changing their educational and professional training which would enable them to replace the professional foreign labor. However, the concentration of GCC students in the humanities and social sciences (see, e.g., Baldwin-Edwards, 2011:50-51) is only a reflection of the GCC current segmented labor market structure. In practice, as long as the GCC nationals are forced to compete in the private sector with much cheaper foreign labor, they will always lose at any professional level.
A huge number of domestic service workers.
A major reason for the huge number of foreign workers in the GCC countries is the widespread phenomenon of domestic service employees (Awad, 2009:4). According to Qatari official figures, by 2011, from among the 1,196,394 foreign workers, 131,515, that is 11%, were employed in domestic services (Qatar, SA, LFSS-2011:37). In Kuwait as well, the number of domestic service workers is extremely high - reflecting the high level of family income. In 2007, 24% of all foreign workers in Kuwait were employed in domestic services (Shah, 2007:7). In fact, the GCC countries are the only countries worldwide in which the public sector middle-class employees employ domestic services. The number of domestic servants one has is a status symbol. In some cases their number is higher than that of family members.
The end result of these “five rentier-distortions” is that the number of foreign workers steadily increases regardless of the employment situation among the national workforces. This is the true nature of the GCC segmented labor market. In 2010, the total number of unemployed Saudis reached approximately 500,000 (al-Sulami, 2011), while unemployment among the Saudi youth amounted to 30.2% (de Kerros, 2011). In the UAE the unemployment rate in 2010 amounted to 7.8%, but it was as high as 17.9% among first-time male job seekers (ESCWA, 2011:17). Overall, in early 2010 approximately 435,000 GCC national graduates were unemployed (Salama, 2010). Forstenlechner and Rutledge (2010:38) draw a clear connection between the increasing unemployment among the GCC young nationals and their rentier mentality: “…nationals choose to remain unemployed until they obtain a government job.” Thus, the huge difference in the unemployment rate between nationals who are first time job seekers and older nationals is that once public sector employment is achieved, unemployment is extremely rare.
In practice, the rentier system created a situation in which the national workforces have become almost irrelevant for the private sector. In many respects, Foley (2010:198) rightly claimed that: “Despite the Gulf states’ massive investments in education, job creating, and programs that favor indigenous male workers, Gulf men are in no better position to play a tangible role addressing the region’s labor needs than they were in the 1970s.” Only in the public sector has there been a massive replacement of Arab foreign workers by nationals. This, however, was and still is quite a simple affair. This is because in the public sector nationals do not have to compete with foreign workers and the number of new national employees in the public sector is mainly determined politically even if it means increasing hidden unemployment and inefficiency. Thus, it could be stated that as the per capita rental revenues are higher, the labor force participation rates of both males and females are lower and the percentage of nationals employed by the public sector of the total national workforce is higher.
The kafala system and its implications for labor immigration to the GCC oil-states
The kafala (sponsorship) system provides the legal basis for residency and employment of migrant workers and their accompanying family members in the GCC countries. According to the system, any migrant worker (not tourist) is tied to a specific employer (kafil) who is responsible for his/her entry visa, monitors him/her during the stay in the country and even approves the exit visa at the end of the employment contract. In the public sector, the kafil is the specific agency/ministry which plans to employ the worker; in the private sector the specific employer is the kafil. In the event that the kafil withdraws sponsorship, there is no legal basis for the foreign worker to stay in the country and s/he must leave immediately.
Consequently, migrant workers are contractually bound to their employers (Baldwin-Edwards, 2011: 37; Ruhs, 2009:19; Shah, 2009:7). The rights of the foreign labor mainly depend on two elements: The first is the professional uniqueness of the worker and the possibilities of the employer to replace him/her. The second element is the nationality of the worker. Naturally, western professional workers, such as engineers and top managers in big companies enjoy vast rights and are not subject to exploitation and abuse. Those at the bottom, mainly Asian women employed as domestic workers, not only earn an extremely low wage, $100-$200 per month, but are often subject to exploitation and abuse by their employers. Some embassies of countries that send large numbers of domestic service employees to the Gulf even maintain safe houses for their nationals who flee from their employers due to nonpayment of wages and physical abuse (U.S. Department of State, 2008:2152). These employees cannot change jobs without permission from the employer, have restrictions on their physical mobility and in many cases receive inadequate housing and healthcare treatment. In many cases, the kafil even holds the passport of the foreign labor as an insurance that the foreign workers will not run away (Okruhlik, 2011:127; HRW, 2011). The original intention of the kafala system was that foreign workers could rapidly be imported in periods of economic prosperity and expelled during periods of recession. In reality, however, many migrant workers stay in the GCC countries for many years.
Recently, however, the GCC countries have realized that the kafala system has largely failed as it did not bring about better control on the foreign labor but rather a steady increase in their numbers due to the profits of the private kafils from the current system. Thus, in 2009, Bahrain alleviated its kafala regulations by allowing a foreign worker to switch employers without the prior consent of the current employer. The migrant worker is only required to give notice to the employer three months before resigning (Al-Hasan, 2012:109-110). In the UAR, although the kafala system has not changed, the authorities have recently implemented wage protection by requiring private employers to pay the wages of foreign labor directly into their bank accounts in order to better monitor non-payment claims (Migration News, January 2012). In any case, as noted by Naufal (2011:310), “foreign workers may stay for a short term, long term or even be born in the Gulf but they cannot live in the GCC countries without a local sponsor.”