U nemployment in the G ulf : T ime to U pdate the “S ocial C ontract ”

© 2010, The Author Journal Compilation © 2010, Middle East Policy Council The growing level of national unemployment in the Gulf Cooperation Council (GCC) countries remains one of the region’s key domestic policy challenges. This is clear, even if one does not share the hyperbolic depiction of it as an “impending time bomb” that could culminate in “armed insurrection.” In order to provide adequate (and productive) employment opportunities for all nationals, not only is a major overhaul of educational systems required; there also needs to be a renewed focus on policies designed to facilitate economic diversification that generates the sorts of jobs nationals consider appropriate. Moreover, the region’s ruling elites need to modify and then recommunicate their respective social contracts (“ruling bargains”). These, in many senses, lie at the heart of the issue. For it is the way in which oil wealth has been historically distributed that has led to a situation in which nationals choose to remain unemployed until they obtain a government job. It is the primary transmission mechanism of the social contract — the provision of well-remunerated publicsector jobs — that, albeit unwittingly, has caused GCC labor markets to become so highly segmented. The concomitant laissez faire approach to the private-sector labor market has further exacerbated distortions. From the 1960s onward, an influx of expatriate workers, while pivotal to the impressive and rapid transformation of the region’s infrastructure, accepted wages at levels far below those being offered to nationals in the public sector. There is, it seems now, a growing realization within the region that public-sector bureaucracies have reached the saturation point. They can no longer act as employer of first and last resort. It is therefore likely that, in the coming period, both perceptions of entitlement and the manner in which hydrocarbon wealth is distributed will need to be reconsidered, regardless of the predicted rebound in oil prices (see Chart 1). For Bahrain, Oman and Saudi Arabia, where per capita oil revenues are much lower, the imperative to address this issue is considerably greater (see Table 1). Nevertheless, many citizens, especially those who operate local businesses, have a vested interest in the status quo. Unemployment in the GUlf: time to Update the “Social contract”