A “catch-22”: self-inflicted failure of GCC nationalization policies

Abstract

Purpose The purpose of this paper is to explain prevalent earnings differentials in Gulf Cooperation Council’s (GCC’s) private sectors between skilled local and migrant labor and provide estimates of potential price distortions to underlie future market-based corrective policies that increase participation of locals in private employment. Design/methodology/approach The paper uses an individual-level data set on workers’ earnings and productivity-related characteristics to decompose estimated earnings differentials at the mean level and at various percentiles of the earnings distribution via well-established decomposition approaches. Findings Results show that the real earnings differential between locals and Asians decreases at higher earnings, while that between locals and non-GCC Arabs are relatively stable. Both are characterized by overpayment of locals, that is, self-inflicted by current nationalization policies. Higher earnings of Westerners are due to their superior productivity-related characteristics. Research limitations/implications Due to the lack of official individual-level data on workers’ productivity-related characteristics, this paper is compelled to utilize an open-source primary data set. Despite the data set’s ability to reproduce officially published aggregates and produce sound econometric results, findings are not entirely proof against sampling bias. Practical implications The paper demonstrates that the failure of GCC’s nationalization policies is self-inflicted by the current quota system and by the lack of legislative frameworks that ensure equal pay for equal work. Effective nationalization ought to be market based, rather than by fiat. Originality/value The paper is the first to analyze GCC’s private earnings differentials at the individual level and provides micro-econometric evidence on existing price distortions.

Policy and practical implications for workforce nationalization in the Gulf Cooperation Council (GCC) countries

“…As Alfarhan and Al-Busaidi (2018) state, the failure of nationalization in the GCC countries is self-inflicted by the current practices of the quota system along with the lack of proper legislative frameworks, which will be discussed in the next section.…”

“…Additionally, improving the standard of living and wealth distribution by offering welfare payments directly from the government to citizens working in the private sector will also help in better implementation of nationalization policies (Abdalla et al , 2010). This highlights the need for equity between the two sectors in the GCC labor markets (Al-Dosary and Rahman, 2005; Alfarhan and Al-Busaidi, 2018).…”

“…Fifth, retaining skilled foreign employees. The success of nationalization policies is contingent on many elements, including availability of national skills, that would technically substitute foreign labor, and at the same time, the willingness of national employees to undertake new jobs (Alfarhan and Al-Busaidi, 2018). Without both elements, namely, "availability" and "willingness," the GCC labor markets critically need foreign employees and cannot get rid of them in either short or medium term.…”

“…From a policy perspective, Alfarhan and Al-Busaidi (2018) highlight related impediments that contributed to the failure of GCC nationalization policies, such as the lack of legislative frameworks that ensure equal pay for equal work and the need for internally liberalized labor markets, which should be market based, rather than by fiat. They added that alternative policies need to be designed to reduce unjustified earnings differentials between national and foreign employees.…”

Que faut‐il voir dans les écarts de rémunération entre les travailleurs immigrés des pays du Golfe: l'effet d'a priori patronaux ou la simple conséquence de coûts d'opportunité différents?

“…Selon les statistiques de la Banque mondiale, les migrants représentaient en 2015 plus de 50 pour cent de la population des pays du CCG 1 . De même, selon les statistiques récapitulatives du programme sur les marchés du travail et la migration dans les pays du Golfe (Gulf Labour Markets and Migration Programme ou GLMM) (état en 2014), les travailleurs immigrés, généralement employés en vertu d'un contrat de durée déterminée, dans le cadre de différents programmes de parrainage (kafala), représentaient plus de 70 pour cent de l'ensemble de la main-d'oeuvre 2 et 90 pour cent des effectifs du secteur privé au sein du CCG à l'époque (Alfarhan et Al-Busaidi, 2018). Parmi les migrants, les disparités salariales sont fortes et persistantes, notamment si l'on considère les trois principaux groupes démographiques qui composent cette main-d'oeuvre, à savoir des personnes originaires d'Europe, d'Amérique du Nord, d'Amérique centrale ou encore d'Océanie (groupe «Occident» dans la suite du texte); d'autres qui viennent de pays arabes non membres du CCG (groupe «États arabes») et d'autres encore qui ont émigré depuis le sous-continent indien et l'Asie du Sud-Est (groupe «Asie»).…”