Unemployment in Saudi Arabia, Case Study Example

Each country in the world has its own specifics of economic growth and employment characteristics conditioned by country’s economic history and the contemporary place in the global economy. Saudi Arabia is not an exception. It may seem that the country that is considered to be one of the most successful economies due the strong oil industry should have tremendous issues with the unemployment rate and its resolution. However, the situation with unemployment rates in Saudi Arabia is far from a simple one. The aim of this paper is to outline the features of unemployment rate and its conditionality in the case of Saudi Arabia with the use of the relevant data.

At the first glance, in the last two decades, the unemployment rate in Saudi Arabia was relatively stable fluctuating between 4.35 percent in 1999 to 5.7 percent in 2014. The increase took place in 2006 with a consequent rate of 6.3 percent. From the strictly statistical perspective, the overall level of unemployment in the country corresponds to the estimation of healthy and such that would not cause any tremendous consequences for the economic growth. In others words, since it varies between 3 to 6 percent, no tremendous implications for the national economy are foreseen.

On the other hand, the problem of unemployment in Saudi Arabia is in the actual structure of it. Although overall unemployment rate can be around 5.7 percent, the unemployment among Saudi population is closer to 12 percent. This discrepancy is the primary cause of concern for the economy. Moreover, in terms of further categorization of unemployment, the rate is even higher – 30 percent among youth and 35 percent among women. Unlike many countries that suffer from cyclical or frictional unemployment, in the case of Saudi Arabia, the structural type of unemployment prevails.

The reason for the dominance of the aforementioned type of unemployment in Saudi Arabia is conditioned by the historical economic socio-economic structure of the Saudi society. Frist of all, there is a big gap between private and public sectors. Traditionally, Saudi people tend to aim for public and administrative positions since they are well-paid and also have a greater socio-cultural prestige in the society. Moreover, private sector jobs are less well-paid, have different social packages and the level of prestige in the society. The private sector that often has a greater variety of job positions and dynamics is targeted primarily at foreign labor that is cheaper and less demanding in terms of social welfare packages than Saudi people.

Consequently, another factor of the Saudi labor market is that dynamic private sector is oriented on the foreign labor that is more profitable of the sector than Saudi employees. Another structural inconsistency is between the system of education that is aimed at the preparation of Saudi students for a more privileged work in the public sector and the actual demand for the available positions in the private sector. In this regard, the inconsistency is between employers’ demanded set of skills and the available skills of the new Saudi graduates and potential employees, whereas, foreign labor is trained particularly for the target private sector requirements. Thus, the problem is more structural rather than cyclical or frictional in its very nature.

Another aspect of unemployment is related to the position of women in Saudi society. Historically, the position of women in Saudi society corresponded to strict Muslim laws of subordination, staying at home and did not recognize the equality of rights with men. In the last two decades, the situation began to improve and women began to get access to education, and certain working positions. The problem is once again related to inconsistency between the education system, social perception, employment practices and governmental regulations of all of the above. In this regard, although the number of female graduates increases, there are very few jobs available for them and the social perception of women working with men is more than just sensitive. Consequently, although women manage to graduate and get required qualifications, they tend to join the unemployment group of the Saudi population.

The complexity of the issue was addressed by the government through an adoption of a few policies aimed at reduction of unemployment rates. However, these policies did not aim at structural changes but the treatment of the outcome. In this regard, in order to create more working positions for women gender-divided rooms were in various public institutions. Further actions were made towards lifting bands on various female jobs including in the legal sphere. In terms of involving Saudi people in the private sector, the government introduced the policy of “Nitaqat.” According to this policy, private companies are obliged to have a certain number of Saudi employees, if they go below the given level, than company will be punished through the denial of visas to its foreign employees.

Thus, the problem with governmental policies is that they do not look into the root of the existing problems. For instance, in the case of female workers, first of all, their social status needs to be re-established by the state, since in the traditionalist Muslim society the opportunity to work and social approval of a woman at work are two different notions. If the status of women is reemphasized and gradually changed in the society, then their working opportunities will increase faster.  In the case of encouraging Saudi people into the private sector, the government looked from the perspective of statistics instead of problem resolution. In this regard, instead of equalizing social benefits between private and public sectors and encouraging salaries rise in the private sector, the government simply created the ration for Saudi employees without improving their incentives to work in the private sector.

The case of Saudi Arabia complex situation with unemployment rate is not unique among the GCC countries. A great difference between overall unemployment and youth unemployment is characteristic for almost all countries of the GCC, particularly for Kuwait, UAE, Oman and Bahrain. Although in 2012 unemployment rate in Oman was 8.1 percent and it was higher than in Saudi Arabia, which was 5.6 percent, the percentage of unemployment among youth was 20.6 percent, while in Saudi Arabia 27.8 percent. This inconsistency demonstrates that the situation for the youth unemployment in Saudi Arabia was more severe than in Bahrain although the economic situation of Bahrain was worse than in the case of Saudi Arabia.

Overall, from all mentioned above it can be concluded that the situation with the unemployment rate in Saudi Arabia is more severe than the overall statistics demonstrate. Its structural conditionality requires crucial changes in the society to embrace new pressing demand for modification of the labor situation in the country. This case also demonstrates that irrespective of the high economic growth and overall economic stability, Saudi Arabia and the GCC countries require essential reforms of their labor legal framework and structural changes of the old system of employment and a big gap between conditions of work in private and public sectors. In a long run in order to avoid further deterioration of the situation structural reforms of labor sector should take place in order to reflect the realities of the contemporary globalized business environment. This is particularly essential for the improvement of the role of women in the Saudi society.