Long Live the Labor Force

It would seem that the troubles in the Gulf, which until now have been focused in financial markets and oil prices, are beginning to trickle down to the grassroots level. Specifically- jobs are at risk. This is not necessarily new. In UAE, firms have been laying off workers left and right. Until now, however, most of these workers have been expats. A 12 February article in the New York Times detailed how expat workers are being put in a bind in Dubai- left without a job but with debt (many times mortgage related), many expats have just up and left the country. A new report put out by National Bank of Kuwait suggests that unemployment among Gulf nationals will also soon be on the rise. NBK forecasts that contraction in the private sector will be significant across the Gulf in the next year limiting the number of jobs being created. It's worth noting that the significant expansion in jobs across the Middle East in recent years has come from the private sector. NBK estimates that in the Gulf, private sector employment opportunities were rising at a rate of eight percent annually between 2003-2007. These jobs went largely to expats, but a gradual shift of the Gulf national workforce out of the public sector and into the private sector had begun: according to the same NBK report, across the Gulf, 58 percent of nationals employed worked for the public sector while 42 percent worked for the private. This is a significant increase even over five years earlier.

This decline in employment opportunities has obvious ramifications as the region continues to work through its demographic boom. It also has worried local governments, particularly in UAE. Gulf News reported today that the UAE Ministry of Labor introduced new regulations "guiding" the firing of UAE nationals. Farouk Soussa, head of the division that handles sovereign ratings for the region for Standard & Poors, cautioned Dubai's government from going ahead with all the planned reorganizations of it's state-owned companies, such as Dubai World, since it would only further aggravate the unemployment picture in the emirate.

The Gulf's labor market has for a long time harbored serious structural inefficiencies with an over dependence on foreign labor and a domestic labor pool that is payed more and has less skills than some of its regional counterparts. On the face of it, the expat community taking the first hit in the declining economy should be a good thing by opening up opportunities for local labor. Unfortunately, when the expat labor is more efficient and lest costly, it's unlikely that those businesses laying off employs will rush to fill the bill with local hires. And so the situation gets worse for everyone.