Th Jobs A nd for th Gulf Coop r tion Council Countri s I Table of Contents Acknowledgments III IV Abbreviations Executive Summary V 1 – Overview 1 1.1 – Introduction 1 1.2 – Increasing the Attractiveness of Private Sector Jobs 3 1.3 – Enhancing the Willingness & Ability of GCC Citizens to Accept Private Sector Jobs 5 2 – Fiscal Policy 11 2.1 – Labor Market & Fiscal Policy Linkages in the Region 12 2.2 – Fiscal Consolidation & Labor Markets 13 3 – Competitiveness 17 3.1 – Business Climate Reforms 17 3.2 – Attracting FDI for Higher Value-Added Production & Export Diversification 20 4 – Admission Policy 23 4.1 – Reforming Foreign Labor Recruitment: Guiding Economic Principles 26 4.1.1 – Linking Labor Demand in the Country Closely to the Supply of Foreign Labor 27 4.1.2 – Assessing & Monitoring the Impact on the Local Labor Market 28 4.1.3 – Retaining Successful Migrants in the Country 28 4.2 – Reforming Social Protection for Migrants 29 5 – Social and Labor Policies 35 5.1 – Reforming Social Benefits: A New Way to Distribute National Wealth 40 5.2 – Reforming Job Search Assistance, Activation, & Active Labor Market Programs 43 6 - Governance 45 6.1 – Reforming Public Sector Employment Policies 47 6.1.1 – Reforming Public Sector Compensation Packages 47 6.1.2 – Strengthening Meritocracy & Performance Management in the Public Sector 48 6.1.3 – Rationalizing the Size of the Public Sector 50 6.2 – The Broader Political Economy of Public Sector Reform 51 7 – Education and Skills Development Policies 55 7.1 – Early Childhood Development 57 7.2 – Reforms in the Education System 58 7.3 – Reforms in Improving Job Relevant Skills to Facilitate Transition into the Labor Market 59 III 8 – How the World Bank Supports GCC Countries 63 References 67 Acknowledgments Figures Figure 1: A Policy Framework to Achieve a New Social Contract in GCC Countries 8 Figure 2: Larger Firms Pay Higher Wages (Wage Distribution by Firm Size) 17 Figure 3: Growth of Employment and Productivity 18 Figure 4: Growth & Job Creation in the GCC 25 Figure 5: Employment of Citizens and Foreign Workers by Sector (Millions) 36 Figure 6: Percentage Distribution of Kuwaiti Wage Employees by Sector 37 This note has been prepared by a multi- Peer reviewers providing valuable comments Figure 7: Monthly Average Wages for Kuwaitis & Non-Kuwaitis, by Education Level, 2015 38 sectoral team comprising members of the included: Kevin Carey (GFM07), Zafiris Figure 8: Monthly Average Wages for Bahrainis & Non-Bahrainis, by Education Level 39 following World Bank Global Practices: Tzannatos (Consultant), Mohamed Education, Governance, Macro and Fiscal Abdulkader (GTCME), Ali Abukumail Figure 9: In-Work Benefit with Substantial Reduction in Salaries and Subsidies 42 Management, Social Protection and Jobs, and (GTC05), Khaleda Atta (GTCD2), Jaime Figure 10: Favoritism in Civil Service Recruitment and Advancement 47 Trade and Competitiveness. The team was led de Pinies Bianchi (GMF05), Amira Figure 11: Performance of Public Sector Employees 49 by Jumana Alaref (GSP05) and Johannes Koettl Kazem (GED05), Dino Merotto (GPSJB), Figure 12: International Comparison of Expenditure per Student and Student Performance 56 (GSP05). Harun Onder (GMF05) prepared section Andrei Mikhnev (GTCME), Ayesha Vawda 2 on fiscal policy; Aminur Rahman (GTCME) and (GED05), and Lianqin Wang (GED05). John Speakman (GTC05) provided input for Tables Overall guidance was provided by Nadir section 3 on competitiveness; Robert Beschel Table 1: Comparison of Working Hours in GCC and Other Countries 46 Mohammed (Country Director, MNC05), (GGO23), Izzah Akram Malik (GGO17) and Anya Hana Brixi (Practice Manager, GSP05), Vodopyanov (GGO23) prepared section 6 on Najy Benhassine (Practice Manger, Boxes governance; Manal Bakur N Quota (GED05) GTCME), Safaa El-Kogali (Practice provided input for section 7 on education. Manager, GED05), Eric Le Borgne (Acting Box 1: The Experience of Mobility Saving Accounts (MSA) in the GCC 31 Practice Manager, GMF05), and Renaud Seligmann (Practice Manger, GGO23). V Abbreviations Executive Summary The economies of the Gulf Cooperation Council (GCC) grew severalfold over the ALMPs Active labor market programs past decades, making impressive improvements in key development indicators, DC Defined contribution supported by massive investments in extractive industries. Real gross domestic ECD Early childhood development product (GDP) annual growth reached 5.1 percent during the 2000-2012 period, with hydrocarbons accounting for almost 90 percent of revenues and 80 EOSB End-of-service benefits percent of exports during the same period (IMF, 2011). Economic growth has not FDI Foreign direct investment translated into sufficient employment creation and optimal job outcomes for GCC nationals outside of the natural resources industry. GCC Gulf Cooperation Council Economic growth has been closely tied to government spending and consumption. In combination HRD Human resource development Meanwhile, with liberal admission policies, low-skilled sectors have been fueling non-oil growth. HRM Human resource management the public sector grew considerably and citizens have been shunning private sector jobs. The divergence between economic growth and better jobs for citizens has also produced MENA Middle East and North Africa negative externalities that translated into limited incentives to build human capital. It has also MSA Mobility saving accounts had social cohesion spillover effects, as youth and women in larger GCC economies remain in OECD Organization for Economic Co-operation and Development large numbers excluded from accessing jobs. RSA Retirement savings accounts A key challenge is that GCC citizens are less inclined to accept private sector jobs since public sector employment, in combination with a range of other social benefits, is an integral part of Sistema Integrado de Pagamento de Impostos e Contribuições das SIMPLES the social contract of GCC countries. Against this background, what can be done to change the Microempresas e Empresas de Pequeno Porte current social contract so that GCC citizens have access to more and productive employment? STEP Skills Towards Entrepreneurship and Productivity This engagement note offers a tentative answer to this question, namely that for GCC countries TIMSS Trends in International Mathematics and Science Study to increase private sector employment of their citizens, governments have to increase the attractiveness of private sector jobs while at the same time ensure that citizens are willing and TVET Technical and vocational education and training able to accept private sector jobs. This will require, on the one hand, reforms that increase the U.A.E. United Arab Emirates productivity of the private sector by shifting economic activity to higher value-added sectors, more technology-intensive production, diversified and more sophisticated exports, technology- UNESCO United Nations Educational, Scientific, and Cultural Organization driven foreign direct investment (FDI), and enhancing admission policies. On the other hand, governance and social protection reforms are needed to alter the GCC countries’ current VII wealth distribution strategy to incentivize citizens to build their human capital. In addition to sector. An equally effective but more efficient alternative would be one of an unconditional cash increasing private sector employment, the note highlights the importance of improving citizens’ grants (or universal basic income) for GCC citizens, combined with generous social services and access to productive and merit-based, public-sector employment through the outlined reforms. so-called “in-work benefits” that reward private sector jobs. The cash grants and social services would ensure a basic guaranteed minimum income and adequate access to social services, In terms of fiscal policies, the GCC countries have heavily invested in infrastructure in recent while in-work benefits would be conditional on having a job and would ensure that GCC citizens decades and private sector activities remain dominated by the injection of hydrocarbon can, at least in some sectors, compete with foreign workers and still reap income comparable to revenues through government spending. This is fiscally unsustainable at varying degrees current levels. Such a combination of benefits and services could also serve as a tool to manage across countries. In addition, high public sector wages for GCC citizens combined with the political economy challenges of public sector reforms. generous social benefits and subsidies act as a scheme to distribute hydrocarbon wealth that in the long term reduces economic growth and diversification potential by restricting Reforming public sector employment to increase the productivity and meritocracy of jobs for human capital accumulation. Also, the scale and composition of public expenditures has GCC citizens entails three key recommendations. First, while public sector pay should remain biased the demand for labor towards the low-skilled. competitive to attract highly skilled workers, it needs to correspond with actual productivity levels. Second, introducing a meritocratic system and formal performance management In terms of competitiveness policies, a focus on business climate reforms is necessary to tools in the public sector would increase competition among public sector employees and attract foreign direct investment for research and development and to diversify exports potentially increase productivity. Finally, in some of the larger GCC economies, rationalization through targeted investment promotion. A key ingredient to achieving more productive of recruitment of citizens into the public sector might be necessary. Further increases in public jobs growth is a high number of firm entries and exits, which helps to fuel job creation by sector employment to absorb an expanding and increasingly educated national labor force may small, younger firms, while allowing for swift exit of inefficient firms. This process fosters contribute to increasing the non-oil fiscal deficit that may prove unsustainable in the near future. rapid growth of efficient firms both in term of employment and productivity. A sound business climate that encourages the creation of new businesses, allows them to be run Given the GCC’s rapidly growing populations and rising unemployment among some countries, but also be closed easily, underpins this process. It is also the basis for effective efficiently, the transition to this more deliberate rationalized recruitment in the public sector, while ensuring implementation of other policies related to competitiveness, such as investment promotion an increased private sector activity, is vital from a fiscal standpoint as well as from a service activities and export diversification. quality perspective. In terms of admission policies, the current sponsorship system limits workers’ internal labor Finally, education reforms are needed to ensure that GCC citizens are not just willing, but also mobility, and provides no incentives for firms to provide training. In some cases employers able to compete for jobs with the right set of skills. Reforms require a sequenced combination extract substantive rents by paying workers below their marginal value product of labor, of education and skills development activities that include investments in early childhood biasing outcomes towards low-skilled migration. The demand for low- and semi-skilled manual education that produce stronger systems with clear learning standards and good teachers, and labor will continue, and it is important that employers have adequate access to migrant a proper regulatory environment, as well as strengthening pre-employment skills to ensure a labor. However, GCC citizens will also continue to have high reservation wages, especially in smooth transition into the labor market. Together, labor demand- and supply-side reforms should some of the smaller and richer GCC countries, such as Qatar and Kuwait. Therefore, linking lead to GCC citizens accessing more and better jobs in both the public and private sectors, and labor demand in the GCC closely to the supply of foreign labor remains critical to ensure that ultimately leading to a new social contract. This note elaborates on this line of reasoning and GCC firms continue to have access to inputs that can guard their competitiveness. At the highlights how the World Bank can assist GCC governments in achieving their stated objectives same time, attracting and retaining high-skilled talent, as well as reducing the bias towards of increasing citizens’ access to more and productive employment and supporting the shift low-skilled labor, will require further reforms in the sponsorship system that can strengthen towards a knowledge-based economy. workers’ rights, internal mobility, incentives for training as well as provide a path towards permanent residency. Providing more social protection to migrants in the form of mobility savings accounts (MSA) is another important step in that direction. Reforms are also needed in the areas of social protection, labor, governance, and education to ensure that GCC citizens are willing accept more private sector jobs. GCC countries have social protection policies that effectively alleviate poverty, but because of their focus on public employment, they provide few incentives for GCC citizens to participate in the private IX The Jobs Agenda for the Gulf Cooperation Council Countries 1. Overview 1.1 Introduction The countries of the Gulf Cooperation Council closely tied to government spending and (GCC), which include Bahrain, Kuwait, consumption. Meanwhile and in combination Oman, Qatar, Saudi Arabia and the United with liberal admission policies, which refers Arab Emirates (U.A.E.), have undergone to all policies regulating entry, exit, residency, a remarkable economic transformation and work permits for non-citizens. in recent decades. Fueled by immense Low-skilled sectors like construction and natural resources, the economies of the GCC retail have been fueling non-oil growth. countries, including non-carbon sectors, As a result, the competitiveness of other high have grown severalfold. Real GDP annual value-added exports has been hampered, with growth reached 5.1 percent during the most GCC economies still highly dependent 2000-2012 period. In the process, GCC on oil. Importantly, wealth is distributed countries considerably raised living standards among citizens through generous transfers while maintaining overall price stability and and subsidized public sector jobs, which stable macroeconomic frameworks, in part generates harmful distortions in the economy. by offering generous access to foreign labor. 1 Meanwhile, GCC economies have been relying New jobs growth in GCC countries has also on migrants to do low-skilled work. Of the 7 been impressive: at least 7 million net jobs million net jobs created between 2000 and were created in the region between 2000 2010, 1.6 million (23 percent) were created and 2010. 2 in the public sector, and GCC citizens filled 1.1 million of these jobs. Only 700,000 GCC Despite these astonishing achievements, citizens entered new private sector jobs, the economic transformation has not fully and foreign workers filled the remaining 4.7 translated into employment creation and million private sector jobs, the large majority productive job opportunities for GCC nationals (4 million) of which were in low-skilled beyond those related to the exploitation of occupations. While this approach can maintain natural resources. Economic growth has been 1 See Behar et al. (2013). 2 This number does not include U.A.E. See Callen et al (2014). 10 living standards in the short to medium of the smaller and wealthier GCC countries. that increase the productivity—and hence, required to alter the GCC countries’ current The Jobs Agenda for the Gulf Cooperation Council Countries term, it comes at the expense of productivity In combination with a range of other social wages and quality of jobs—of the private wealth distribution strategy, so citizens are growth. Labor productivity and total factor benefits, public sector employment effectively sector by shifting economic activity to higher incentivized to invest in their human capital, productivity has been stagnant or declined is an integral part of the social contract value-added sectors, more technology- accept private sector employment, and over the last 10 years.3 Other negative of GCC countries, but it is impeding GCC intensive production, diversified and more access productive and merit-based public spillovers stemming from this divergence countries from achieving their ambitious sophisticated exports, technology-driven FDI, sector employment. These reforms should be between growth and productive job creation goals. Against this background, what can be and by enhancing their admission policies complemented with reforms in the education include limited incentives to invest in done to change the current social contract to to ensure that global talent comes and stays sector to ensure that GCC citizens have the education and human capital, in addition to foster private sector employment, as well as in the GCC countries. On the other hand, appropriate skills to contribute to a diversified the exclusion of certain groups, particularly encourage productive and competitive public governance and social protection reforms are and knowledge-based economy. youth and women, from the labor market as sector employment for GCC citizens? public employment opportunities become This engagement note offers a tentative 1.2 Increasing the Attractiveness of Private Sector jobs limited in larger GCC economies. answer to this question and outlines the World Bank’s potential support to GCC Increasing the attractiveness of private sector to admission policies. In terms of fiscal In following this path, most of the GCC countries in achieving change. jobs for GCC citizens can only be achieved policies, GCC countries have heavily invested countries have not achieved their stated through higher levels of productivity. Higher in infrastructure in past decades. Non-oil goals of (i) more private sector employment This engagement note highlights the current productivity brings higher wages and higher private sector growth is concentrated in low- of their citizens; (ii) a diversified, knowledge- policy challenges that GCC countries face quality jobs, but a sectoral decomposition of productivity sectors employing a majority of based economy; and (iii) a rebalancing of with regard to jobs for their citizens and employment reveals that in the past, labor foreign workers. This is fiscally unsustainable their population towards less reliance on identifies policy areas where the World Bank mostly moved into low-productivity sectors at varying degrees across countries, and foreign workers.4 Failure to achieve these can engage with GCC governments to address such as construction and non-government fiscal sustainability is a priority for the majority goals risks undermining the development of these challenges. The note is targeted to GCC services, such as retail. Private sector of GCC countries due to falling oil prices. the entire region. Undoubtedly, developing government officials who are tasked with businesses in GCC countries have depended Fiscal policies have marked effects on labor a knowledge-based economy with a strong, developing strategies to achieve the stated largely around government expenditure, and markets, operating through direct and indirect diversified and export-oriented private sector objectives in the area of jobs. This note does to a lesser extend private consumption; these channels. The high wages for and extensive in which GCC citizens participate is a high not present new evidence, but identifies areas are sectors where returns are high and risks employment of GCC citizens in the public ambition; but it is both achievable and vital of engagement between GCC governments are low. In combination with generous access sector combined with generous social benefits for the further development of GCC countries. and the World Bank, and tools and services to low-skilled foreign labor that arguably and subsidies act as a scheme to distribute that the World Bank can offer to support Arguably, one of the main challenges for can be hired below the marginal value of hydrocarbon wealth. This has created strong GCC governments. the GCC is that citizens are less inclined to labor product, this circumstance yields labor market distortions by raising reservation accept private sector jobs given the relatively This engagement note proposes a simple overwhelming incentives for the private sector wages of citizens, which in the long term high salaries in the public sector, where jobs approach: For GCC countries to increase to focus on doing business with government reduces growth and the diversification are more secure and work requirements are private sector employment of their citizens, and providing services to consumers in potential of economies by restricting human not as high as in the private sector. At the 5 governments will have to increase the the retail, restaurant, and hoteling and capital accumulation. Indirect channels same time, public sector jobs are readily attractiveness of private sector jobs while at entertainment industries, to name a few. include the scale and composition of public available for GCC citizens to the extent that the same time ensure that citizens are willing expenditures that have biased the demand for Achieving higher levels of productivity and there is almost of an implicit public sector and able to accept private sector jobs. labor towards the low-skilled. The economies the development of a diversified, knowledge- employment guarantee for citizens in some This will require, on the one hand, reforms of the region are currently facing a short-term based economy requires changes to fiscal trade-off between fiscal sustainability and 3 See Callen et al (2014). and competitiveness policies as well as 4 These goals are stated in various national vision documents, such as the Bahrain Economic Vision 2030, the Kuwait Vision 2035, the Oman 2020 Vision, growth. Better functioning labor markets would the Qatar National Vision 2030, the Saudi Vision 2030 and the U.A.E. Vision 2021, and spelled out in accompanying national development plans. 5 Many GCC governments have tried to compensate citizens for the wage differentials between public and private sectors in an attempt at increasing the attractiveness of the private sector, with varying degree of success. 2 not only help reduce the public wage bill in enhancing competition among firms, and to outside the area of admission policies might be sector job opportunities for GCC citizens The Jobs Agenda for the Gulf Cooperation Council Countries a nonconfrontational manner, but also boost enhance the impact of other competitiveness necessary to address instances where wages increase. Reforms are also needed in the areas growth and thus help avoid the trade-off in policies related to investment promotion of migrant workers are below the marginal of social protection and labor, governance, and the medium term. and export diversification. Further trade value product of labor, potentially leading to education to ensure that GCC citizens have integration, through bilateral agreements inefficient resource allocation in the economy. access to productive and merit-based access This shift in fiscal policies is best and regional trade integration, is critical to Reforms related to fiscal, competitiveness, and to jobs in both public and private sectors. accompanied by competitiveness policies access global markets and value chains. admission policies should ensure that private and reforms in the business climate to focus on attracting foreign direct investment Finally, admission policies need to be (FDI) for research and development and carefully reviewed to assess how migrant 1.3 Enhancing the Willingness & Ability of GCC Citizens to diversifying exports through targeted labor is impacting the jobs prospects of Accept Private Sector Jobs investment promotion. Evidence from GCC GCC citizens. The sponsorship system countries seems to emulate the experience limits foreign workers’ internal mobility and GCC countries currently have comprehensive reward private sector jobs.6 The cash grants of developing countries in that firms do not employers’ incentives to train employees; in social protection policies that effectively and social services would ensure a basic significantly grow in terms of employment some cases, employers extract substantive alleviate poverty but that also provide few guaranteed minimum income and adequate and productivity over their life cycle, with firm rents by paying workers below their marginal incentives for citizens to participate in access to social services such as family size largely persistent over time. Although product, biasing outcomes towards low-skilled the private sector labor market. Public support, affordable housing, and social care small and young firms seem to be the main migration. The demand for low- and semi- employment for GCC citizens is at the core of for every citizen. The in-work benefits, on the job creators, larger firms provide the better skilled manual foreign labor will continue, and the social protection system. GCC governments other hand, would be conditional on having jobs. A key ingredient to achieving the leap citizens will continue to have high reservation use public employment, together with implicit a job in the private sector if wage differentials towards higher productivity and jobs is a wages, especially in some of the smaller and subsidies in the form of high wages, as a with the public sector remain, and in either high number of firm entries and exits that richer GCC countries. Therefore, linking labor mechanism to distribute national wealth the public or private sectors in the absence allows for a large number of jobs created demand in the GCC closely to the supply among its citizens. This means that social of wage differentials. They would ensure that by small, young firms, but also allows for of foreign labor remains essential to ensure and governance policies in the GCC countries at least in some sectors GCC citizens can swift exit of inefficient firms, enabling the that GCC firms continue to have access to become intertwined, introducing considerable compete with foreign workers and still reap efficient firms to grow rapidly both in term of inputs that can guard their competitiveness. distortions and work disincentives in the income comparable to current levels. employment and productivity. Underpinning At the same time, reforming noncompetitive labor market. GCC countries currently have As opposed to wage subsidies, in-work benefits this process is a sound business climate regulations surrounding foreign labor the capacity to fund such policies, but may are paid to beneficiaries and not to employers. that encourages the creation of new recruitment that exacerbate this bias remains not be able to afford them in the future. In businesses and allows them to be run imperative as they further undermine the De-linking national wealth distribution any case, the massive distortions and the efficiently, but also to be closed easily. attractiveness of private sector jobs to strategies from public employment policies, associated inefficiencies are key obstacles for A sound business climate also enables other nationals and limit efforts to attract more as well as their wage setting policies, entails GCC countries to achieve their stated goals, as policies related to competitiveness, such as global talent. This requires transitioning from three types of recommendations for reforming mentioned above. investment promotion activities and export employer-sponsored immigration to contract- public sector employment policies to help diversification, to be implemented efficiently. based immigration that give more freedom to An equally effective but more efficient promote competitive and transparent public migrants to move in and out of the country alternative to social protection policies and employment policies in the GCC. First, while Small- and medium-sized enterprises are accompanying focus on public employment public sector pay should remain competitive and between employers as well as a pathway largely marginalized in GCC countries and would be a system that uses unconditional to attract highly skilled workers, it should toward permanent residency. Providing entrepreneurship skills and innovation cash grants (or universal basic income) for correspond with actual productivity levels. more social protection to migrants in the are lacking. This is a lost opportunity for GCC citizens, combined with generous social form of mobility savings accounts (MSA) GCC countries to improve productivity by services and so-called “in-work benefits” that is another important step. Finally, reforms 6 In-work benefits are cash transfers conditional on having work. Section 5 elaborates more. 4 This would necessitate charting a policy towards a more deliberate and targeted learn by building stronger systems with This note elaborates on these findings and The Jobs Agenda for the Gulf Cooperation Council Countries course that balances desired reform staffing strategy, which seeks to select the clear learning standards, good teachers, highlights how the World Bank can assist outcomes against what is realistically best and brightest for specific functions adequate resources, and a proper regulatory GCC governments in achieving their stated feasible in the local political environment. and administrative or service needs. environment; (iii) building job relevant skills objectives. The note is a collaboration between A reduction or at least a slowdown in that employers demand; (iv) encouraging various Global Practices within the World Given the key role that public employment future increases of public sector pay levels entrepreneurship and innovation; and (v) Bank, namely Education, Governance, Macro plays in the labor market for GCC citizens, to their true competitive levels would developing capacities to support job seekers and Fiscal Management, Social Protection reforms in governance and social protection ensure a less segmented labor market and match skills demand with supply. and Labor, and Trade and Competitiveness. policies have ramifications for education and significantly improve incentives for The note goes into the details of the findings policies as well. For example, reforms Together, reforms pertaining to labor demand GCC citizens to invest in their human by policy area, namely fiscal policy (section in public employment policies former and supply should lead to more GCC citizens capital and to accept private sector jobs. 2); competitiveness (section 3); admission would significantly increase incentives for accepting private sector jobs and finding policy (section 4); social and labor policies The aforementioned in-work benefits students to improve learning outcomes. productive and merit-based public sector (section 5); governance (section 6); and combined with the unconditional cash If a guaranteed public sector job with low employment. This may produce a social education policy (section 7). The final section transfer could act as a transitional device performance expectations awaits at the contract in GCC countries that is based less gives an overview of how the World Bank can to compensate for any income loss in the end of a school and university career, on distributing wealth among GCC citizens assist GCC governments in the various policy short- to medium-run for GCC citizens incentives for students to learn and through subsidized public sector employment, areas discussed in this engagement note. and as a tool to overcome the political invest in their human capital are low. and that encourages and rewards the and economic challenges related to productive and competitive participation of If the labor market is aligned to provide the far reaching governance reforms. GCC citizens in the labor market. Figure 1 right incentives for nationals to invest in summarizes this policy framework to achieve Second, introducing tools to promote their human capital, supply-side education a new social contract in GCC countries. meritocracy at entry into the public sector, reform policies are needed to ensure that such as by using entry exams, and for nationals are willing and able to competitively promotions, by using formal performance participate in the private sector with the management tools, would not only right skills. Currently, GCC countries are far increase competition among public sector from this goal, as illustrated by international employees, but hopefully also increase assessment results on learning outcomes productivity in the public sector. (see below). Additionally, specialization choices at the post-secondary level are Finally, to shift labor market incentives and geared towards public sector employment rebalance employment between the private (such as humanities and arts), with limited and public sectors, GCC governments, at focus on technical and scientific fields least those with large national populations generally demanded by the private sector. such as Saudi Arabia, must rationalize the Reforms that focus on fostering skills needed recruitment of citizens into the public sector. for productivity and economic growth require This does not mean cutting jobs for citizens a sequenced combination of education overnight—a move that could be politically and skills development activities through difficult for some governments. Rather, it interlinked steps: (i) getting children off means moving away from the previous policy to the right start through early childhood of open recruitment, which has resulted in development; (ii) ensuring that all children bloated and unproductive administrations, 6 The Jobs Agenda for the Gulf Cooperation Council Countries Figure 1: A Policy Framework to Achieve a New Social Contract in GCC Countries A n w soci l contr ct for GCC countri s, with productiv priv t s ctor jobs for GCC citi ns t th c nt r Reforming extent and structure of public wage bill and subsidies The cash grants and social services “ FISCAL POLICY Reforming extent and structure of public INCREASE PRIVATE investments INCREASING would ensure a basic guaranteed SECTOR JOB OPPORTUNITIES Business climate reforms to allow for ATTRACTIVENESS OF PRIVATE minimum income and adequate more firm entry, exit, access to social services such as FOR GCC and growth SECTOR JOBS NATIONALS COMPETITIVENESS Support FDI and export diversification through family support, affordable housing, ” targeted investment promotion and social care for every citizen. Afford more social and ADMISSION employment protection POLICY to foreign workers Unconditional cash grants in combination with in-work benefits SOCIAL AND for GCC nationals LABOR POLICY Reforming job search assistance and activation GCC NATIONALS INCREASE LABOR Reform public sector SUPPLY OF GCC wages and employment WILLING AND NATIONALS FOR ABLE TO ACCEPT PRIVATE SECTOR GOVERNANCE PRIVATE SECTOR Strengthen meritocracy JOBS JOBS and performance management in the public sector Expand early childhood development EDUCATION Reform schools and POLICY higher education Foster jobs-relevant skills Source: World Bank analysis. Note: Green represents policy areas targeted at labor demand; blue for policy areas aimed at labor supply, with admission policies partially spanning both. 8 The Jobs Agenda for the Gulf Cooperation Council Countries 2. Fiscal Policy Fiscal policy plays a more pronounced role in the These policies are unsustainable to varying GCC than in most other countries in the world. degrees in individual GCC countries. Monetary policy has been constrained with long- Whereas those with major hydrocarbon standing currency pegs, and fiscal policies are revenues such as Kuwait and Saudi Arabia needed to perform both stabilization functions have not felt the urgency to change their fiscal and address longer-term growth objectives. stance, those with short resource horizons, Perhaps more importantly for labor markets in such as Bahrain and Oman, have been more the region, fiscal instruments have assumed concerned about it. However, the drop in oil unconventional roles, with deep consequences prices in 2014 and subsequent years has for labor markets in the region. Fiscal policy made fiscal sustainability a problem has traditionally been shaped to allocate the for all. The authorities initially responded states’ windfall revenues to citizens in various with a counter-cyclical reflex by adjusting channels, and it has involved very limited non- hydrocarbon production and keeping public hydrocarbon tax collection (especially direct expenditures relatively unchanged. taxes). For instance, public sector wage bills As the protracted nature of the collapse in work implicitly as public transfer schemes oil prices became apparent, they shifted focus in addition to reflecting the cost of service towards more structural policies to boost delivery: public employment and civil servant non-oil tax revenues, reduce subsidies, and wages for GCC citizens have historically been limit public expenditures at varying degrees used as mechanisms to transfer hydrocarbon across countries. revenues to GCC citizens. Similarly, provision of Overall, however, the traditional role of fiscal public goods and services have been heavily policy has not been altered drastically in most subsidized. Private sector activities remain fully of the region’s economies. Although some dominated by the injection of hydrocarbon reform efforts such as the introduction of new revenues through government spending, with taxes and fees and a reduction in subsidies limited transparency in procurement processes have somewhat addressed the immediate for government contracts to the private sector sustainability problem, these quantitative and the presence of excessive monopoly rents adjustments have not altered the prevailing in the non-tradable sector (IMF, 2016). 10 social contract and fiscal policy. Private sector to discretion of policy makers with limited 2.2 Fiscal Consolidation & Labor Markets The Jobs Agenda for the Gulf Cooperation Council Countries activities remain dominated by the injection transparency and rules, and extensive public of hydrocarbon revenues through government sector employment and high salaries for By addressing labor market issues, GCC policy skills across sectors and countries, the full spending and the award of government citizens continue to prevail. makers can amend the trade off between economic implications of these measures need contracts; these injections remain subject growth and fiscal consolidation in the medium to be assessed carefully. If there is scope for term. Given the deteriorating fiscal outlooks addressing one kind of distortion (lucrative following the collapse of oil prices, many public sector employment that prevents the 2.1 Labor market & Fiscal Policy Linkages in the Region GCC economies have undertaken significant economy from reaching its potential), with GCC fiscal policies have had pronounced Indirect channels include the scale and efforts to reduce public expenditures and another, (increasing the cost of expatriate effects on labor markets via direct and composition of public expenditures, raise non-hydrocarbon revenues. These labor), then the economic rationale needs to indirect channels. Direct channels comprise which determine the growth and sectoral efforts will unavoidably have consequences be formally elaborated to inform policies. public employment as well as taxes, fees, composition of non-hydrocarbon economies. for non-hydrocarbon growth in the short and regulations on expatriate labor. Provision The sectoral composition translates and medium terms. The economies of of low-cost (low-skill acquisition criteria) into demand for labor with various the region are currently facing a fiscal and high-return (high and risk-free lifetime skills. Therefore, the allocation of public sustainability and growth trade-off in the incomes) employment opportunities have expenditures to physical infrastructure, short term; e.g. achieving fiscal sustainability distorted labor market incentives directly intangible capital, and various public services in a rapid manner often entails introducing by increasing the reservation wages of plays an important role on changing relative measures, like fiscal consolidation, that have citizens. As a result, citizens often find demand for expatriates or citizens, as they contractionary effects. Better functioning private sector employment unappealing, typically have different in skillsets. Although labor markets would help to reduce the public and there are typically wide gaps between these indirect effects denote a secondary wage bill in a non-confrontational manner wages of citizens and expatriates. In the channel of impact on labor markets, the and boost growth, thus helping to avoid short term, these affect the employment significance of the impact became apparent the medium-term trade-off between fiscal outcomes of citizens, and in the long term, after the oil price collapse triggered fiscal sustainability and growth. they reduce growth and the diversification consolidation efforts in the region. Quick fixes may fail to alleviate the problems potential of economies by restricting human Finally, the efficiency and effectiveness of or even make them worse. GCC economies capital accumulation, which is critical to fiscal spending also produce indirect effects have recently been exhibiting tendencies to highly productive and technology-intensive on labor market outcomes through human level the playing field in their labor market by sectors. Although GCC economies typically capital accumulation. For example, in most undertaking nationalization practices in the have had access to a relatively large pool cases, the budget preparation process labor force using additional taxes and fees of foreign labor, excessive reliance on this does not facilitate strategic alignment on immigrant labor. These measures aim to pool in unsustainable due to the tension and planning, leading to suboptimal create disincentives to hire expatriates and between two fundamental objectives: education outcomes that translate into more incentives to hire citizens. However, it boosting economic growth and nationalization skills mismatch in labor markets. is unclear who would pay for the subsequent of economic activity and employment. economic inefficiencies. With differences in substitutability of local and expatriate 12 For GCC countries to increase private “ The Jobs Agenda for the Gulf Cooperation Council Countries sector employment of their citizens, governments have to increase the attractiveness of private sector jobs while at the same time ensure that citizens are willing and able to accept ” private sector jobs. 14 The Jobs Agenda for the Gulf Cooperation Council Countries 3. Competitiveness 3.1 Business Climate Reforms Evidence from developing countries Figure 2). At the same time, evidence also suggests that the biggest net (formal) job suggests that larger firms can offer more creators are relatively small and young firms, productive and better paid jobs (World defined as under five years old and fewer Bank 2012), which are the kind of jobs than 20 employees (Ayyagari et al. 2011; that GCC citizens are willing to accept. Figure 2: Larger Firms Pay Higher Wages (Wage Distribution by Firm Size) 6 SMALL LARGE 4 2 0 0 2 4 6 8 Source: World Bank, 2012. This suggests that there is both a need to (to exit) quickly and at low cost, for two make it easy for new firms to be created (to reasons: (i) low exit costs can also encourage enter) as they are the main providers of new more entry, as entrepreneurs are more willing jobs, but also to foster growth of productive to open new businesses knowing that closing firms that can provide more productive them is cheap if they fail; and (ii) quick exit jobs in the long run. A key ingredient for of inefficient firms allows for a pruning of the this to happen is to also make it easy for market and favors the growth of efficient firms. unsuccessful firms to be closed down 16 The experience of developing countries (see Figure 3). Productivity grows by about The experience of GCC countries seems to costly and better business operations, and The Jobs Agenda for the Gulf Cooperation Council Countries is often that growth of firms is stunted. the same factor during the same period. be more in line with developing countries. higher productivity; it will also attract more For example, the average 40-year-old In India and Mexico, on the other hand, Evidence from Saudi Arabia, for example, investments from local and foreign investors, manufacturing plant in the United States employment and productivity growth are shows that the levels of firm entry and exit ultimately producing more and better jobs. employs about 10 times as many workers much lower or even negative, suggesting are significantly lower than in developed Business climate reforms in other countries as a plant that is less than five years old, that the all-important leap towards more countries of comparable levels of income. have produced compelling results. suggesting a considerable employment and better jobs is not taking place. On the other hand, new market entrants in For example, business entry reforms in Mexico expansion over the life cycle of firms Saudi Arabia have much higher chances of increased the number of registered businesses survival than in comparable countries and by 5 percent and employment by 2.8 percent consequently grow faster, but for the wrong Figure 3: Growth of Employment and Productivity over a Firm’s Life Cycle in India, (Bruhn 2011); a business tax reduction and Mexico and the United States reason: not because they are more productive, simplification program in Brazil7 increased but because they face less competition. The firm formalization, firm expansion, and formal result is an allocative inefficiency that may . Emplo m nt si ov r firm lif -c cl jobs (Fajnzylber et al. 2011); a reduction 11 have a staggering effect on productivity, in competition barriers in the French retail EMPLOYMENT SIZE, RELATIVE TO BIRTH 10 growth, and job creation. This inefficiency INDIA industry led to a 10 percent increase in retail 9 represents a forgone opportunity to increase MEXICO employment (Bertrand and Kramarz 2002). 8 productivity and aggregate economic growth UNITED STATES 7 and employment expansion, since limited Importantly, in developed countries, evidence 6 competition reduces firms’ incentives to suggests that tax incentives seem to attract FDI 5 4 improve productivity. and create jobs (based on firms’ production 3 technology), but they are a financially viable Two broad categories of factors inhibit firm 2 policy option only when there is an otherwise growth and hence job creation: business 1 favorable business environment (Becker et 0 climate-related constraints and firm-specific al. 2012). Hence, business climate reforms <5 5–9 10–14 15–19 20–24 25–29 30–34 > =35 constraints. Examples of constraints related are an important precondition that will make FIRM AGE (YEAR) to business climate are restrictions on market other policies related to attracting FDI and entry, a cumbersome and costly regulatory diversifying exports more efficient. environment for business operation, and b. Productivit ov r firm lif -c cl 11 complex and costly regulations to close PRODUCTIVITY (TFP), RELATIVE TO BIRTH 10 businesses. Examples of firm-specific INDIA 9 constraints include lack of entrepreneurial MEXICO 8 UNITED STATES and managerial skills, limited innovation and 7 technological upgrading, and lack of access 6 5 to global markets and value chains. Removing 4 these restrictions and addressing firm-specific 3 constraints will foster competition, less 2 1 0 <5 5–9 10–14 15–19 20–24 25–29 30–34 > =35 FIRM AGE (YEAR) 7 The program is called in Portuguese Sistema Integrado de Pagamento de Impostos e Contribuições das Microempresas e Empresas de Pequeno Porte Source: Hsieh and Klenow (2011) (SIMPLES). 18 3.2 Attracting FDI for Higher Value-Added Production & Finally, there are a few additional areas The Jobs Agenda for the Gulf Cooperation Council Countries Export Diversification that promise high returns in terms of job creation for GCC citizens. Innovation and The focus should be on attracting foreign skilled sectors—could be strengthened. entrepreneurship help to create more and direct investment (FDI) for research and The focus here should be on providing risk better jobs by promoting successful startups development and production of goods and management tools for exporters in the form of and improving firms’ productivity and growth. services that are intensive in their use of export subsidies, public-private partnerships Increased trade leads to more and better jobs capital and technology. So far, FDI has not (PPPs), or other incentives that facilitate risk through easing entry to export markets and led to higher export sophistication and quality taking. Moreover, policy makers could think by strengthening GCC countries’ position in (Callen et al. 2012). The large majority of of strategic ownership in global innovation the global value chain, which in turn help FDI in GCC countries seems to flow into the leader companies to leverage the potential for firms to become more productive and expand. hydrocarbon-related sectors, like chemicals establishing subsidiaries in the GCC to attract Regional integration among GCC countries and refined petroleum products, or into FDI and lead to export diversification in could be an important contribution in this regard. construction. There are some signs, though, higher value-adding sectors. However, such that a certain share of FDI has been flowing policies are best combined with mechanisms into other sectors, in particular services that hold exporters accountable for their (finance) and wholesale and retail trade. performance, as Chile has done in the past. However, these limited flows have not led to GCC policy makers should pay special increased export quality or sophistication. attention to services. Services are a means Investment promotion activities (IPAs) can of adding value to low labor cost, light be effective to attract more FDI; however, manufacturing. A simple example is fashion they seem to work better when targeted to design, which adds significant value to specific sectors rather than being general. garment manufacturing when branded. According to Harding and Javorcik (2011), Another example is advanced manufacturing, targeted sectors received twice as much as which is heavily reliant on services. For FDI and created 68 percent more jobs than example, the value of a modern electric non-targeted sectors using a data set on car comprises over 50 percent services. employment in US affiliates abroad for the Services themselves can be tradable and period 1983—2003. highly valuable. Moreover, the service sector Successful economic development crucially is likely to be one in which GCC citizens are depends on export diversification towards willing to work and able to earn the returns on higher value-added and more sophisticated education they seek, as evidenced by some products and services. To achieve greater successes in the GCC in aviation, logistics, export diversification, incentives to develop and tourism. export markets—as opposed to developing business with GCC governments in low- 20 The Jobs Agenda for the Gulf Cooperation Council Countries 4. Admission Policy The majority of GCC countries recognize the leave the country upon termination of the need to reform their admission policies given usual two to three years’ contract before being the role that migration plays in influencing their allowed to commence a new contract under stated development strategies and national a new sponsor. Since they are tied to their visions, specifically encouraging the participation sponsor, migrants become immobile within of citizens in the private and diversified sectors the internal labor market for the duration of of the economy. Admission policies enacted their contract. This means that they cannot can directly influence the attractiveness of command a higher wage even when there private sector jobs by shaping the quality and is demand for their services by rival firms productivity of the private sector, and can also willing to hire them to avoid costs of hiring influence the willingness of citizens to accept from abroad, and in some instances, they private sector jobs depending on the level are made to accept lower wages than initially playing field between citizens and expatriates. contracted. Consequently, the sponsors Admission policies also have implications for benefit from noncompetitive environments GCC countries’ desired move towards diversified, where they extract substantial economic rents high-skilled, and knowledge-based economies. that equal the difference between migrant earnings (which remain above wages in their All six GCC countries offer admission policies country of origin but well below the marginal to expatriates that are driven by employers’ value of labor product) and the net marginal demand for specific occupations and in specific return from employing the migrant worker. sectors. The majority of GCC countries, namely Saudi Arabia, Kuwait, Oman, and Bahrain, In recent months, some of the GCC countries currently implement a sponsorship-based have initiated varying reforms to move away migration system, known as Kafala. Workers from a sponsorship-based system and also require a national sponsor (called Kafeel) to strengthen workers’ rights. In 2015, the and are only allowed to work for the firm United Arab Emirates (U.A.E.) announced sponsoring their visa. The sponsor regulates new measures to allow foreign workers to workers’ entry and residence. Additionally, the terminate their contract and change employers workers must obtain a no-objection certificate by prohibiting involuntary employment, from the sponsor to resign, and they must requiring that workers’ contracts be filed with 22 the respective Ministry of Labor instead of yet to be seen. Meanwhile, the broader labor-intensive activities towards higher value- of jobs generated and the level of real wages The Jobs Agenda for the Gulf Cooperation Council Countries with employers, and prohibiting the retention immigration policies followed by GCC countries added industries that require higher skills-based offered in the private sector. Indeed, labor of passports by employers. Additionally, provide incentives for firms and entrepreneurs production methods in dynamic, capital- productivity (as measured by non-oil output the reforms have sought to terminate the to concentrate on low-skilled, labor-intensive intensive industries. In the U.A.E., economic per worker) has decreased in Qatar, Oman, so-called “substitution” practice, under activities where profit margins are high and rents have been estimated at 50 percent of Bahrain, and U.A.E. over the last decade (Behar which foreign workers sign one contract relative secure. In Qatar, between 2012 and GDP (World Bank 2011). With the exception et al. 2013). In Dubai, firms operating under before they leave their home country 2015, the number of workers concentrated of Saudi Arabia, total factor productivity in GCC the sponsorship system displayed substantially and are compelled to renegotiate lower in occupations with relative low skills’ countries’ non-oil sectors (mainly driven by and statistically higher technical inefficiency wages when they arrive in the GCC.8 requirements – those requiring secondary capital investment and labor force growth) has than firms in free zones10 exempt from the education or below, such as crafts, service been negative since 1990 (IMF 2013), reflecting sponsorship system. Using firm level data from In December 2016, Qatar implemented workers, and elementary occupations – grew the chosen growth model underpinned by May 2010, inefficiency levels were estimated similar reforms to facilitate the transition to a by 530,773. In Kuwait, the labor market for the easy availability of low-skilled labor. at 6.6 percent of total costs and 11 percent of system based on contractual arrangements expatriates in 2011 was comprised of 87 profits in average (Soto and Alvarez 2011). between employers and migrant workers Second, flat wages and lack of internal mobility percent of workers with a secondary education As a result, the economy-wide efficiency levels that includes both open-ended and fixed- provide no incentives for migrant workers to or below. Similarly, in Bahrain, 82 percent have not improved in the last two decades in term contracts. The reforms allow workers exercise greater productivity and engage in of workers had a secondary education or Dubai despite massive investments, whereas to leave their jobs without the objection of activities to enhance their human capital, which below in 2010. In contrast, in the United Arab they doubled in Hong Kong, and quadrupled in employers, giving them a period of three in turn influences the attractiveness of private Emirates, the percentage of the highly skilled Singapore (Hussain 2014). months to search for a job without having to sector jobs for citizens since it effects the quality foreigners was 35 percent in 2013, which leave the country. Nevertheless, restrictions may be attributed to the status of the country on the ability of workers to change jobs persist as a financial and logistics hub that requires Figure 4: Growth & Job Creation in the GCC in cases of changing occupations or sectors, highly educated workers (Behar et al. 2013). or moving to direct competitors, which gives 14 Construction, Trade and Transport employers the right to object to workers’ The bias towards low-skilled labor is evident Government & Other Services (incl. health, education) moves. Qatar’s reforms have also eased in government fiscal spending that drives 12 Manufacturing restrictions on workers to obtain exit permits to the growth of the non-oil private sector. GDP Oil leave the country from the Ministry of Interior growth has been strong in sectors such as 10 Others (MOI) without having to obtain employers’ construction, wholesale and retail trade, approval unless they are faced with criminal and transportation, which tend to employ 8 and civil lawsuits. MOI is ultimately given low-skilled, low-productivity workers. More the responsibility to intermediate in cases of productive sectors, such as financial services 6 conflict between employers and workers, but in and manufacturing, have also contributed many cases, the terms of the contract remain to growth but with a modest impact on 4 in employers’ favor since they hold more employment of highly skilled labor in Bahrain, bargaining power. Bahrain is also introducing Oman, Qatar, and Saudi Arabia (Figure 4). 2 gradual reforms to its sponsorship system The current admission system presents 0 that were due to take effect in April 2017.9 multiple challenges. First, it remains a liability While these are welcomed reforms to improve for GCC governments as the relative easy -2 current immigration policies, the potential availability of low-skilled migrants is not BAHRAIN KUWAIT OMAN QATAR SAUDI U.A.E. ARABIA changes associated with such reforms are conducive to their desired shift from low-cost, Source: Behar et al., 2013 10 There are currently 23 free zones in Dubai that includes the largest duty-free retailer in the world, the largest man-made port, several technology parks, a free 8 See http://www.aljazeera.com/news/2015/09/uae-announces-labour-reforms-protect-foreign-workers-150929143336000.html. zone for gold and diamond, and the International Financial Center. Free zones are exempt from paying import duties and are not subject to the labor-related rules 9 See http://english.alarabiya.net/en/business/economy/2016/12/19/Bahrain-abolishes-sponsorship-system-for-foreign-workers.html and regulations implied by the sponsorship system and the Emiratization process (Soto and Alvarez 2011). 24 Third, the current admission policies competitiveness and growth. To the extent smaller GCC countries, particularly Kuwait only come to and stay in GCC if entry into and The Jobs Agenda for the Gulf Cooperation Council Countries contribute to the wage gap between citizens that wages for low-skilled migrants are in and Qatar, reservation wages are too high to exit from the country are uncomplicated and and expatriates in the private sector. The fact below the marginal value product of fill many jobs in the low- and medium-skill not marred by uncertainties. Global talent combination of easily available low-cost labor, inefficient resource allocation within sectors, which are currently dominated by the needs to be assured that they can come migrant labor that may be unproductive the economy is likely. In these instances, expatriate populations. Linking labor demand and leave as they please, and that they can due to a noncompetitive environment, reform outside the area of admission in the GCC closely to the supply of foreign bring their immediate family members. combined with the high reservation wages policies might be necessary, such as in labor remains essential to ensure that GCC They will also want opportunities to invest in of citizens due to state subsidies, precludes governance (transparency of government firms continue to have access to inputs that real estate, buy homes, and spend retirement, a level playing field in some of the sectors contracts) and public expenditures. can guard their competitiveness. At the same with their families. In other words, they in which citizens and expatriates compete. Also, in some GCC countries, notably Oman time, noncompetitive regulations pertaining will need a path to permanent residency This situation undermines incentives for and Saudi Arabia, the substitutability between to foreign labor recruitment that limit worker independent of employment status. Finally, human capital formation and diversification, migrants and citizens might be higher than mobility by imposing barriers preventing enhancing the social protection of migrants is and consequently hinders the move in others; in all GCC countries, there will be migrants from changing employers, sectors, a key ingredient to provide options for global towards a knowledge-based economy. some substitutability in certain segments and occupations, as well as restrictive entry talent in the GCC to manage their social risks; of the labor market, such as clerical jobs. and exit regulations, might undermine efforts it also serves GCC governments as a tool to However, in many segments of the GCC to attract more global talent. Global talent will keep resources for investment in the country. labor market , GCC citizens are no substitute In short, GCC countries need to review their for foreign workers for jobs, since GCC admission policies to assess how migrant citizens are not interested in many jobs, labor is impacting the jobs prospects of 4.1.1. Linking Labor Demand in the Country Closely to the such as domestic work and other low-skilled their citizens, but only after careful analysis Supply of Foreign Labor service sector and construction jobs. In of the potential impact of admissions Foreign recruitment policy, like any other work experience. However, point systems these cases, the easy availability of low- policy reforms on firms’ and citizens’ policy, should serve governments’ national require tedious negotiations between industries skilled migrant workers clearly contributes to competitiveness in the labor market. development goals and stated objectives. and government to determine which skills are Recruitment policies should support in demand. It is not always the case that those 4.1 Reforming Foreign Labor Recruitment: Guiding economic development by linking labor industries with the greatest needs succeed Economic Principles demand closely to supply. This link empowers in lobbying the government to award more employers, in part by ensuring that the types points to the skills they need. Indeed, there are Current GCC policies allowing for relatively Such steps may entail guiding principles that of labor needed—including low-skilled—are concerns that a point system leads to “brain easy access to global talent could be an need to be underscored by sound economic available through immigration. For example, waste,” with highly skilled migrants ending enormous comparative advantage for building analysis to determine what limitations— immigration policies can empower employers up working in low-skilled jobs.11 Continuing to a knowledge-based economy. Generous which may run counter to governments’ by allowing them to initiate visa applications for rely on employers to initiate visa applications admission policies can allow companies and objectives—need to be in place and how migrant workers identified as being needed. for expatriates they recruit overseas is good start-ups to tap global talent quickly and in recruitment policies can best serve national Arguably, this is already the case in the GCC, practice to ensure that employers have access an unbureaucratic manner. However, there objectives. Limiting existing subsidies that as employers in the region are free to recruit to the types of human capital they need, and is a need to undertake steps to abolish the bias migration outcomes in directions the workers they need. Such policies minimize ultimately to helping to grow the economy. sponsorship system and manage foreign that run counter to governments’ national the risk of inviting unnecessary migrant labor recruitment in a way that would allow objectives need to be carefully considered. labor. Australia and Canada, for example, labor to move to its most productive use Importantly, GCC governments should employ point systems that grant migrants and provide employers and employees with recognize that the demand for low- and access to the country based on predefined incentives to invest in human capital and semi-skilled manual labor will continue, characteristics, such as education, age, and productivity that can eventually raise the and citizens will continue to have high wages and quality of jobs in the private sector. reservation wages. In some of the richer and 11 See Koettl (2009). 26 4.1.2 Assessing & Monitoring the Impact of Foreign moving from a sponsorship to a contract- health insurance, social assistance and so The Jobs Agenda for the Gulf Cooperation Council Countries Recruitment on the Local Labor Market based recruitment system, but more needs on and so forth. These social risks can be to happen to attract global talent. This does managed in a way such that no liabilities Nevertheless, such a relatively flexible sufficient time within the country, without not mean that the GCC governments have arise for the GCC (see below); but some basic recruitment policy also has drawbacks. being able to find a suitable candidate from to provide citizenship or, as a matter of rights like free entry and exit and a path In many countries, the concern has been within the residing national or expatriate fact, take on responsibilities to provide for to permanent residency12 for workers and that the unrestricted supply of immigration populations. However, labor market testing these new residents through social benefits their families will need to be considered. drives down wages for citizens and increases is not a substitute for extensive economic like pensions, unemployment insurance, unemployment among some of the low- and research and labor market monitoring by semi-skilled national workers. In the GCC governments. Even when employers can 4.2 Reforming Social Protection for Migrants context, this concern might be less relevant, show their inability to fill vacancies with local particularly in the domestic work and candidates, governments need extensive Another way to attract more global talent is An MSA scheme would reduce the economic construction sectors, where the possibility of information on whether employers have to provide more comprehensive social and vulnerability of expatriate workers through substitution between citizens and expatriates offered suitable wages and work conditions employment protection to foreign workers. financial support during resettlement is limited. However, the situation might in their vacancies and made a serious effort This may take the form of mandatory health periods and transitions between jobs or into change in the future, especially if some of to fill the vacancy with workers living in the insurance, and mandatory savings schemes retirement. Currently, expatriate workers the current wage premiums are replaced country. This information would include the in lieu of old-age pensions and severance require additional income protection since with universal income and in-work benefits average time to fill vacancies by sectors and pay. In this regard, mobility savings accounts most stay in the same job or stay in GCC for (see below). To the extent that competition occupations, prevailing wage levels, and so (MSAs) have emerged as an innovative a short period of time and the current EOSB between citizens and expatriates will on. Ultimately, such information would enable policy instrument to extend social protection cannot cope with financial vulnerability. increase—and to assess whether that is likely governments to assess the ability of certain to foreign workers. MSAs are mandatory Reforms are necessary to improve the to be the case, GCC governments will have industries – say, for example, agriculture medium- or long-term savings schemes shortcomings of the EOSB and increase to find ways to monitor the impact of foreign – to remain competitive in a diversifying for expatriate workers that are partially the social protection of expatriate workers recruitment on their local labor markets by and knowledge-based economy given the co-financed by employers. Their goal is to while providing opportunities for economic conducting extensive economic research and prevailing wage levels. In this sense, foreign provide a tool to noncitizens to cope with development and also leveling the playing close monitoring of labor market conditions. recruitment is an essential part of economic contingencies usually covered by social field with GCC nationals, where appropriate. One possibility for governments could policy. Foreign recruitment could be a tool insurance schemes but that are currently An MSA scheme, enhanced by retirement be to consider applying so-called “labor not only to gain comparative advantage by beyond the scope of available end-of-service savings accounts (RSAs), has already been market testing,” which requires employers allowing flexible immigration, but also to benefits (EOSB). Extending the benefits of proposed for countries such as the United to prove that they have posted the vacancy steer develop certain sectors and industries. the existing pensions scheme for citizens to Arab Emirates (Dubai) and Saudi Arabia they intend to fill with a new migrant for expatriate workers is not feasible, and it would (see Box 1). MSAs promise to deliver on a be expensive and financially unsustainable. number of important policy objectives, the 4.1.3 Retaining successful migrants in the country As such, the introduction of MSAs such as most important being: (i) self-financed mobility a savings scheme for retirement, in addition for foreign workers and retirement income for Another drawback of relatively flexible successful migrants remain in the country to mobility for expatriate workers, should long-term expatriates, which should enhance admission policies is that they might lead to contribute their talent to and to invest in be considered as socially acceptable and labor market outcomes for both expatriates to suboptimal length of stay for expatriates, the host economy. The GCC has to consider economically convenient alternatives. and citizens; (ii) creation of a local labor since employers recruit new labor from more reforms to retain global talent to help market of expatriate workers, which should overseas instead of investing in training build diversified, competitive, and knowledge- of current employees (including citizens). based economies. Some GCC countries have Hence, GCC governments should ensure that already implemented important reforms by 12 Some of those measures pertaining to permanent residency are currently being considered by the Saudi Arabian government: http://gulfnews.com/news/gulf/saudi-arabia/saudi-arabia-mulls-permanent-residency-for-expats-1.1704716. 28 reduce recruitment costs from abroad; (iii) of the GCC that are seriously considering The Jobs Agenda for the Gulf Cooperation Council Countries increased retention of some remittances in introducing MSAs. Governments will also the country, which should increase domestic need to raise awareness and buy-in from key savings and capital formation; and (iv) stakeholders, including expatriate workers, Box 1: The Experience of Mobility Saving Accounts co-financing from employers, which levels firms, and relevant financial institutions. (MSA) in the GCC the playing field with citizens in the labor Achieving an MSA program would involve market. This would a win-win situation for designing and implementing a defined GCC economies, labor and employers. contribution (DC) type of scheme. To mitigate GCC labor markets are characterized by large numbers of expatriate workers, most of them staying Depending on each country’s objectives and the market risks to ensure the integrity of only a short time in the same job and even in the same country. Since some social insurance desired features for MSAs, different design prefunded benefits while smoothing the programs, in particular old-age pensions, traditionally require long contribution times before and implementation alternatives are available. economic cycle, the composition of portfolios beneficiaries can access benefits, a new, tailored approach might be required for expat workers in Options will depend on features related to backing expatriate workers’ related benefits the GCC. Some GCC governments have already introduced or are considering introducing innovative the MSAs’ structure, including voluntary and expatriate bank deposits could comprise mechanisms that would increase the welfare of expatriate workers while providing opportunities for and mandatory contribution rates and base, mostly foreign assets. This program would economic development. The main reasons for designing and implementing innovative mechanisms of the split between employer and employee optimize the reputation of the GCC countries social insurance for expatriates include the following: (i) the shortcomings of existing end-of-service- contributions, the eligibility trigger for mobility concerning honoring expatriate rights, and benefit (EOSB), and the need to consider longer-term savings provisions for expatriate workers; (ii) between employers, the validity of a self- at the same time benefit the GCC economies the need to improve the welfare of expatriate workers and provide incentives to attract and retain financed visa, and so on. Alternatives will also in several ways: (i) it would attract the highly skilled and qualified workers; and (iii) the opportunity to promote economic development by depend the availability and design features strong human resources, which will improve attracting larger institutional investors. of an RSA for long-term migrants that would labor productivity and the possibility for Mobility Savings Accounts (MSAs) represent a portable social protection instrument linked to build upon the MSA, such as the years of diversification of production; ii) it would smooth a Retirement Savings Scheme (RSS) and is financed through a combination of mandatory and stay that create eligibility of participation, the out economic cycles while reducing the risks voluntary contributions. The balance in this account might be used with more flexibility than normal mandated or voluntary character of the RSA, of financial sector illiquidity and insolvency pension products, but only upon exit from a job or leaving the country. Upon termination of the work the role of matching employers’ contributions problems; and iii) it would reduce volatility contract, employees may decide to leave the country and use their savings in their home country and the source of financing, and so on. in the real exchange rate (reduce pressure or they may use the savings balance to extend their stay in the country while searching for another A third set of decisions pertaining to MSA for the real appreciation of the GCC currency job. Upon retirement, an expatriate worker would be able to use the balance as a source of financial alternatives will depend on the provisioning during the accumulation stage, and contribute support during old age. of MSAs and RSAs via decentralized or to reduce the rate of depreciation at time centralized financial approaches; and finally, of withdrawal of funds), thereby increasing Dubai and Saudi Arabia are currently considering MSAs, whose key elements are based on objectives governments can consider the option of the competitiveness of the economy. that should be achieved sequentially and include: (i) an assessment of the initial situation and whether to implement MSAs at once, or Further steps toward a policy innovation analysis of reform options; (ii) the government’s commitment to reforms; (iii) raising awareness of the to initiated well-monitored and evaluated agenda would include: (i) discussion of reforms among stakeholders; (iv) seeking consensus among stakeholders; (v) enacting the necessary pilot MSA programs in selected sectors. objectives of the proposed policy innovations regulations; and (vi) implementation the reforms. To be effective, any policy instrument must with relevant policy makers for better focus; Implementation of a new scheme is always a challenge. Some GCC governments, like Dubai and have clearly focused objectives and a well- (ii) consultations with key stakeholders to Saudi Arabia, seem to be on the path towards successful implementation of schemes to increase selected design and implementation approach. gauge their interest in MSAs and obtain income protection for expatriate workers with limited marginal labor costs for employers. For policy relevance and stakeholder buy-in, feedback on options and alternatives; and The schemes would add savings to their economies and help to retain skilled and experienced workers. a number of knowledge and awareness (iii) exploration of different design and initiatives would be needed, including implementation options and development of a knowledge transfers from those economies communications strategy. 30 The Jobs Agenda for the Gulf Cooperation Council Countries Reform are needed that increase the “ productivity—and hence, wages and quality of jobs—of the private sector by shifting economic activity to higher val- ue-added sectors, more technology-in- tensive production, diversified and more sophisticated exports, technology-driven FDI, and by enhancing their admission policies to ensure that global talent comes and stays in the GCC countries. ” 32 The Jobs Agenda for the Gulf Cooperation Council Countries 5. Social and Labor Policies Most GCC countries have all-encompassing job in the public sector. The scheme provides social protection policies that effectively cash transfers to individuals who fall in eligible alleviate poverty and improve the well-being categories and enrolls able-bodied working age of their citizens. Strong social and economic beneficiaries in skills training and upgrading development outcomes in all GCC countries programs to support their reentry into the labor result from robust investments in health, market. The total number of beneficiaries education, and infrastructure, as well as reached 15,592 individuals in 2016, and reforms to the business environments. Human spending on social benefits comprised 0.04 development index scores have improved, infant percent of GDP. In Saudi Arabia, where mortality has decreased, expected years of poverty is deeper and more prevalent, the schooling have increased, and life expectancy government administers a large cash transfer has risen (Callen et al. 2012). program that amounted to US$5 billion in 2010 (about 1 percent of GDP) and that covered Cash transfers and non-contributory assistance approximately 1.1 million families (i.e. 33 represent one element of the GCC’s social percent of the total number of families). The protection programs, although the number majority of GCC countries provide citizens with and nature of programs may differ by country, universal subsidies that cover fuel, electricity, depending on the existing vulnerability and water, housing, food items, among others. poverty. In Qatar, where only 8 percent of Governments are nonetheless cognizant of the population falls below the calculated relative need to reform, with Kuwait becoming the latest poverty line,13 the government runs a relatively GCC country to raise patrol prices in August small noncontributory social assistance scheme 2016 as part of a package of reforms aimed at to protect the vulnerable and poor from financial alleviating fiscal pressures in light of the oil crisis. shocks. The scheme is well established and is mandated with only covering a relatively The key element of social policies across small share of the population by focusing on the GCC is the extensive use of public inactive groups who are unable to take up a employment, combined with implicit 13 In line with OECD and European Union (EU) practices, Qatar measures its relative poverty by its population’s current standards of living (SoL)—with the threshold of decent SoL (RPL) determined at 50 percent of the median value of equivalent income/consumption. Based on the 2012-2013 Household Income and Expenditure Survey (HIES), the threshold of decent SoL (RPL) has been calculated to be QAR 3,514 per month for Qataris. The percentage of low-income Qataris whose income equivalent is less than the QAR 3,514 is 8 percent. 14 In some cases, like in Qatar, the state has also utilized the pension system to channel benefits beyond the value of the contribution flows, providing enormous work disincentives, particularly for women. 34 subsidies in the form of wages potentially public sector. The ratio is similarly high in Despite the implementation of employment and childcare services. Citizens who are better The Jobs Agenda for the Gulf Cooperation Council Countries above the marginal labor productivity14 Saudi Arabia (Behar et al. 2013). Females, quotas to raise the share of citizens in the private educated self-select into the private sector as a wealth distributing mechanism. especially, are overwhelmingly employed sector (such as the Nitaqat system in Saudi and remain only concentrated in high-paying This means that social and governance in the public sector. In 2015, 81 percent of Arabia), the segmentation in the labor market activities (oil industry and financial services) or policies in GCC countries are intertwined active females were employed in the public between the public and private sectors remains, take on supervisory roles in low-wage sectors and introduce considerable distortions and sector in Qatar, compared to 93 percent with only Kuwait and Oman having seen an (construction, trade, and transportation (Van work disincentives in their labor markets. in Kuwait. On the other hand, foreign labor increase in the proportion of employed citizens Ark et al. 2008). Figure 6 demonstrates how accounts for 80 percent of employment in in the private sector over the last decade. In for a given wage level, many more Kuwaitis are Supported by government spending, GCC job the private sector in all GCC countries. While essence, a combination of wage premiums, employed in the public sector rather than the creation for citizens has outpaced that of other the average annual percentage growth in expected low effort level, and job security private sector. In Saudi Arabia, the public-private countries over the last decade, with average private sector employment has far exceeded provides few incentives for citizens to participate wage gap has widened over time from 2.7:1 in national employment growth for Bahrain, that of the public sector from 2001 and in the private sector. In many of the GCC 15 2005 to 3.2:1 in 2010, and reportedly to even Kuwait, Qatar, and Saudi Arabia ranging 2012 in Bahrain, Kuwait, Oman, Saudi countries, public sector wages, particularly for higher levels after 2010 in the wake of the Arab between 4 and 5 percent, and reaching 9 Arabia, and Qatar, employment growth in low-skilled citizens, are often several times those uprisings.16 Similar patterns have emerged in percent in Oman (Behar et al. 2013). the public sector picked up in 2012 in the private sector, raising citizens’ reservation other GCC states, where civil service salaries However, created jobs were for the majority (Behar et al. 2013). In Qatar, the public sector wages and providing a disincentive to invest in were significantly increased prior to 2016. In concentrated in the public sector (Figure comprised 62 percent of net employment skills that are demanded by the private sector. 2012, Bahrain increased civil service and military 5). Public sector employment of citizens is increase for Qatari employment between 2012 In addition to this, the public sector provides a salaries by over 36 percent. Qatar increased particularly dominant in the wealthier and less and 2015. Overall, employment growth for conducive environment for female employment civil service salaries by 60 percent in 2011 and populated GCC countries of Kuwait, Qatar, foreign workers has been more volatile than with flexible work hours, paid maternity leave, salaries for those in the military by 120 percent. and the United Arab Emirates, where over for citizens and is influenced by oil prices. two-thirds of employed citizens work in the Figure 6: Percentage Distribution of Kuwaiti Wage Employees by Sector & Monthly Wage levels, 2015 Figure 5: Employment of Citizens and Foreign Workers by Sector (Millions) Less than 600 3 11 600–799 10 800–999 9 2 1000–1199 8 7 1200–1399 2 6 1400–1599 5 1 1600–1799 4 1800–1999 3 1 2000 or more 2 1 0 5 10 15 20 25 30 35 40 45 0 0 Private Public sector (government + government owned enterprises BA 001 BA 1 KU 01 KU 11 OM 01 QA 012 SA 001 SA 11 U 08 OM 011 QA 06 AE 2 20 20 N 20 U U TA 20 T 2 2 20 20 AB TA 2 20 H H W W AN AN DI DI RA RA AI AI 1 R R T A AR IN I Source: Kuwait Labor Force Survey, 2015 RA BI IA See the governance chapter for a detailed assessment of the incentives and public employment policies that skew citizens’ employment against the private sector. A 15 Foreign, private Foreign, public Nationals, private Nationals, public Al-Sheikh and Erbas 2012. The Saudi public sector wage bill increased by nearly 22 percent, from 10.6 percent for 12.9 percent, between 2010 and 2011. 16 In 2016, the IMF projected compensation to peak at 16.9 percent of GDP before gradually declining. See IMF Article IV Consultations, http://www.imf.org/ external/pubs/ft/scr/2016/ cr16326.pdf. Source: Behar et al., 2013 36 The GCCs’ generous wage premiums raise difference, this is very unlikely, and a detailed The Jobs Agenda for the Gulf Cooperation Council Countries citizens’ reservation wages, undermine their econometric analysis, requiring raw labor Figure 8: Monthly Average Wages for Bahrainis & Non-Bahrainis, by Education Level, 2010 competitiveness in the private sector labor force survey data would be necessary for market when compared with other expatriates such an analysis. As a result of the wage of similar education and occupation status, differential and the lack of incentives for Read, write, other and adversely impact citizens’ attitudes citizens to acquire skills for the private sector, University (MA, PhD) toward competition, meritocracy, and human employers in the private sector prefer foreign University (BA, High capital investment. In Kuwait and Bahrain, workers since they are less expensive, less Diploma) average wages for citizens are more than mobile, and more motivated since they rely Secondary double the wages of expatriates with the on employers for their legal status in the Intermediate same levels of education (Figure 7 and GCC. This is worrisome amid observed levels Figure 8). Although the higher productivity, of high national unemployment levels in Primary NON-BAHRAINIS skill levels, and experience of citizens could some of the GCC countries coexisting with Illiterate BAHRAINIS theoretically explain some of the wage rapid job creation for foreign workers. 17 Total Figure 7: Monthly Average Wages for Kuwaitis & Non-Kuwaitis, by Education 0 500 1,000 1,500 2,000 2,500 3,000 Level, 2015 MONTHLY AVERAGE WAGES (BAHRAINI DINARS) Source: Bahrain Labor Force Survey. NON-KUWAITIS For countries with relatively small national at 21.4 percent. Youth unemployment Primary and below KUWAITIS populations, namely Qatar and Kuwait, rates are also alarmingly high in Saudi Intermediate quasi-guaranteed public employment jobs Arabia, reaching 29.6 percent in 2013. Secondary have helped maintain unemployment levels These figures suggest that job opportunities in Above secondary and at very low rates. In other GCC countries, below university the public sector are insufficient to absorb the unemployment rates remain high. University and above rapidly growing youth and female segments of Among citizens, the unemployment rate the labor force, and unemployment could rise Total reached 12.1 percent at end of 2012 in in coming years among these groups unless Saudi Arabia, and 14 percent in 2009 in the they find jobs in the private sector (Behar et 0 500 1,000 1,500 U.A.E. Unemployment rates are particularly MONTHLY AVERAGE WAGES (KUWAITI DINARS) al. 2013).18 Econometric work presented by high for youth and females in larger GCC Behar and Mok (2013) finds that, on average, Source: Kuwait Labor Force Survey. economies. Female unemployment rates the creation of a public sector job comes at have risen alongside falling fertility rates the cost of a private sector job for citizens. and increasing numbers of female labor This kind of crowding out may occur for three force entrants, especially among highly reasons: (i) reduced private sector economy educated nationals. In Saudi Arabia, labor activity; (ii) citizens’ preference for a public force participation rates have improved from sector job due to the wage differential; and (iii) 14 percent in 2015 to 20 percent in 2016, citizens’ acquired skills are geared towards but female unemployment rates persisted finding a job in the public sector. 17 Even if the majority of foreign workers are low-skilled, evidence suggests that in some GCC countries, such as Saudi Arabia, their degree of substitutability 18 Job creation forecasts between 2012 and 2018 predict that unemployment could rise for all of the GCC countries, with the exception of the U.A.E., even if with citizens is likely to be higher than highly skilled workers. IMF country report no.13/230 (2013) documents the high levels of unemployment and low public sector hiring continued at its recent pace and private sector generated jobs for citizens of about 600,000 (which would constitute about one-half to one- levels of labor market participation among low-educated Saudis. third of the expected labor market entrants (Behar et al. 2013). 38 As a result, higher growth in the non-oil for youth and females, will continue to be a There are many examples of such benefits in The proposed social protection interventions The Jobs Agenda for the Gulf Cooperation Council Countries private sector does not quickly translate key concern for some GCC countries. countries of the Organisation for Economic would need to be implemented in conjunction into jobs for citizens (as estimated by an While Bahrain, Kuwait, Oman, and Saudi Co-operation and Development (OECD), with the main reforms associated with public employment elasticity of 0.45 in the short run) Arabia (the Hafiz program) have established 19 although they are relatively recent. One of the employment to make citizens indifferent to (Behar et al. 2013). Unless the distortions schemes to support the unemployed in first benefits of this kind was the U.S. earned private sector employment, reduce their that are skewing national employment the form of unemployment assistance, job income tax credit, which is refundable to the tax wage premiums, and hence their reservation towards the public sector are addressed search assistance, and training programs, payer in the form of a negative income tax. The wages, as well as promote competition in in a comprehensive manner to allow for there is insufficient information to assess benefit usually supports low- to medium-income the labor market. This would necessitate wider participation in the private sector, the impact of some of these programs, and earners and their families on the condition that reducing public sector wages to reflect actual unemployment among citizens, particularly unemployment rates remain relatively high. they have a job, therefore explicitly rewarding productivity; to ensure work requirements in work. The United Kingdom offers the Universal the public sector resemble those of the private Credit, which serves as a top-up to wages in sector; and to promote merit-based entry and 5.1 Reforming Social Benefits: A New Way to Distribute support of low-income earners and families.20 promotions.22 The unconditional cash transfers National Wealth together with an in-work benefit may serve to The unconditional cash grant could be As outlined above, the current labor and supplemented by design features like compensate citizens for losses due to salary embedded within the broader GCC social social policies that GCC governments use to an in-work benefit to guard against work cuts in the public sector and help reaffirm GCC protection systems, by introducing reforms to some extent as wealth-sharing mechanisms disincentives, is proposed to replace wage governments’ commitment to maintaining their other programs, such as the heavily subsidized introduce massive distortions and challenges premiums and other implicit subsidies. The wealth sharing strategies with citizens. This new pension system. While all GCC citizens can be that run counter to the GCC governments’ unconditional cash grant would work as a proposed scheme could be financed through entitled to receive a share of the unconditional stated objectives of diversifying their universal basic income scheme and give savings generated by public salary wage cuts cash transfer benefit by virtue of citizenship, economies and enhancing the human capital each citizen an entitlement by birth to a stake under various specifications and scenarios. the dividend could be differentiated by certain of their citizens. Additionally, from a fiscal in the national wealth. It would also ensure criteria. For example, a higher benefit could Figure 9 illustrates how such an in-work perspective, the wage bill of these policies adequate access to social services such as be paid to elderly people in the form of an benefit could work in detail. For demonstration in many of the GCC countries is relatively family support, affordable housing, and social old-age subsidy, as an explicit component purposes, the figure and accompanying high. Further increases in public sector care services for every citizen. The in-work of the unconditional cash transfer and in discussion present the scenario of a--rather employment to absorb an expanding and benefit would incentivize work and reward lieu of the heavily subsidized and overly unrealistic—cut in income due to public salary increasingly educated national labor force, those who work or contribute to society in generous old-age pension that currently and subsidy reform. It further assumes that particularly among females, may contribute other ways, such as volunteering. The in-work encourages early retirement, especially such an extensive reform would immediately be to increasing the non-oil fiscal deficit that benefit would be conditional on having a job in among women. Furthermore, the design rolled over to private sector employees as well may prove unsustainable in the near future. the private sector if wage differentials with the and targeting of existing social assistance via a reduced reservation wage. To compensate public sector remain, or in either the public or and cash transfer schemes could be further for the significant income loss, an in-work An equally effective social protection and private sector if there is no wage differential, improved and potentially streamlined under benefit is introduced. In the figure, this benefit wealth sharing mechanism entails de-linking and would ensure, at least until wage levels national wealth distribution strategies from the unconditional cash transfer benefit. compensates the income loss at a high level of in the private sector have risen sufficiently, public employment policies, as well as Saudi Arabia is already considering such a 80 percent for relatively low-wage earners. For that GCC citizens can compete with foreign wage- and perhaps pension-setting policies program that would reduce or eliminate 21 anyone earning less than this lower threshold, workers and still reap income comparable to (as in Qatar), which have introduced strong subsidies, cut public sector employment, and the in-work benefit would almost completely current levels. As opposed to wage subsidies, distortions for GCC citizens in the labor distribute oil revenues as cash transfer, in compensate for the losses from the reform and in-work benefits are paid to beneficiaries market. In this regard, a combination of an an attempt at enhancing efficiency while still income would remain almost unchanged. For and not to employers, limiting labor market unconditional cash grant for every citizen, sharing oil revenues with the population. anyone earning over the upper threshold after distortions and the potential for abuse. 20 Immervoll and Pearson (2009) provide a good overview and assessment of in-work benefits in OECD countries. 19 The Hafiz program, which was established by Royal Decree under King Abdullah Bin Abdulaziz, is an unemployment assistance program that aims at (1) financially supporting Saudi jobseekers during their job search, and (2) developing their skills and practical experience until they obtain jobs in the private 21 See http://english.alarabiya.net/en/business/economy/2016/12/22/Cash-transfer-program-for-low-income-Saudi-citizens.html. sector. 22 Refer to the Governance Section for more details on the proposed reforms associated with public employment. 40 the reform, the loss from the reform would In addition, workers, like everyone else, would benefits are potential tools to compensate even for a time while fringe benefits, like allowances, The Jobs Agenda for the Gulf Cooperation Council Countries be compensated at a much lower rate of 20 receive a possible unconditional cash grant for large salary cuts, such reforms might create are reduced or eliminated. The gradual percent in the figure. For anyone earning for themselves and each household member, too much uncertainty and too many losers and introduction of these benefits can help to between the two thresholds, the benefit would which could be an additional income boost. winners. A more realistic approach would be create a new tool to distribute national wealth be reduced gradually with the wage level. the gradual introduction of such policies, where that is independent of public employment, and future increases in public salaries are frozen therefore reduce distortions over time. Figure 9: Illustration of an In-Work Benefit in Combination with a Substantial Reduction in Public Salaries and Subsidies 5.2 Reforming Job Search Assistance, Activation, & Active Labor Market Programs Lower threshold Upper threshold 100,000 As GCC labor markets become more sanctions in cases of low job search intensity 90,000 competitive, more comprehensive job search and job refusals; and (iii) to strengthen social assistance and implementation of active protection systems such as unemployment 80,000 High compensation Gradual adjustment Low compensation for losses from of compensation for for losses from labor market programs (ALMPs) will become assistance and insurance schemes to protect public salery and losses from reforms reforms 70,000 subsidy reforms necessary to ensure that employers find workers’ income in case of job losses. 60,000 CURRENCY the skills they need, and that workers find 50,000 the jobs that best suit their skills. This is particularly important for youth entering the 40,000 labor market for the first time, and whose 30,000 lack of work experience and professional 20,000 references means that they are more likely 10,000 to face difficulties signaling their skills to potential employers (World Bank 2010). 0 The priorities for reform to facilitate labor 1, 5, 10 15 20 25 30 35 40 45 50 00 00 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 ,0 0 0 00 00 00 00 00 00 00 00 00 mobility and job matching are: (i) to improve NEW MODERATE PRIVATE SECTOR SALARIES (CURRENCY) the matching of skills and jobs by enhancing Old level of income (incl. high public salery and subsidies) existing databases on job vacancies in both New in-work benefit public and private sectors so that job seekers New level of income (moderate private sector saleries, can get intermediate access to job vacancies, no subsidies but with in-work benefits) and to support job seekers in the form of Source: World Bank analysis. search counseling, such as developing job There are infinite ways to design such in-work benefits. If, in addition, private sector search strategies, presenting qualifications, in-work benefits and unconditional cash employment is highly valued, an additional and preparing for job interviews; (ii) to develop grants. Policy makers can choose the design private sector premium could be introduced, an activation model for working-age, non- depending on what they seek to emphasize. or alternatively, the in-work benefit could only contributory social assistance beneficiaries If an emphasis on work incentives be paid for private sector employment. that defines rights and obligations, including is considered unimportant, a simple financial assistance, obligations to look for As discussed in the governance section, large work intensively and accept suitable jobs, and unconditional cash grant would be sufficient. salary cuts in the public sector are rarely If work incentives matter greatly, as they implemented because of political economy should, more emphasis should be put on reasons. Although unconditional and in-work 42 The Jobs Agenda for the Gulf Cooperation Council Countries 6. Governance Many GCC citizens are unwilling to take Another implicit public sector perk that up private sector careers. Job seekers draws GCC citizens away from the private considering employment options typically sector is job security. Anecdotal evidence weigh three factors when choosing a career suggests that even poor performing employees path: (i) the total compensation package, maintain job security in the public sector including job security, allowances and since performance-based sanctions, such benefits; (ii) the level of effort required as pay cuts or contract terminations, are to obtain the compensation; and (iii) the rarely implemented. In some cases, weak availability of jobs in a particular career performers are merely asked to stay at home track. Unfortunately, on all fronts, existing while still being able to draw their substantial incentives in GCC labor markets are aligned government salaries and allowances. in favor of the public over the private sector. Such job security considerations lead many GCC citizens to turn down private sector Public sector wages in the GCC are much careers even in cases where their expected higher than those in the private sector, wages and benefits would be comparable especially for women and low-skilled workers. to or higher than in the public sector. In addition, employees are offered unmatched allowance and benefits packages. Some GCC Across the GCC, the public sector demands countries consume up to 9 percent of their less work effort overall than the private sector. state budget in allowances, offering partial or Two imperfect but indicative measures that full support for housing and transportation, can be used to look at this include hours as well as compensation for purchasing home worked and the importance of merit and furnishings or performing the Hajj. Public performance in recruitment and promotions. sector benefits are also more generous than The shorter and more flexible working hours in the private sector, and include items such within public sector agencies are a big as pensions, medical insurance, vacations, draw for GCC citizens, especially women, maternity and infant care leave, sick leave, who value the additional time with family. educational leave, and mourning leave.23 Credible data on actual hours worked by GCC 23 AME Info Business News 2015; Alkadry 2015. 44 civil servants is scarce, but existing data documented to work 22 percent less time de The Jobs Agenda for the Gulf Cooperation Council Countries suggests that the de jure hours are very low facto than their private sector counterparts. Figure 10: Favoritism in Civil Service Recruitment and Advancement by international standards (Table 1) and Some GCC states such as Saudi Arabia have 4.5 OECD de facto effort is lower still. In Kuwait, for attempted to reduce this gap by regulating MNA example, public employees work on average (reducing) working hours in the private 4.0 QATAR only around two-thirds the time of their sector. However, these policies may be SAUDI ARABIA American counterparts, which translates difficult to enforce, and would need to be 3.5 into almost four months of service forgone complemented by adjustments to public 3.0 per employee. In Qatar, employees are sector work schedules to be truly effective. 2.5 Table 1: Comparison of Working Hours in GCC & Other Countries 2.0 1.5 RS OU S AL AY RS S E H U D UR ID AV OU N E OL 1.0 AV LE KE HO RS AN H H LE AL Y OU SS OR L IC KL W TA L U BL O TA N EE TO COUNTRY GR AN PU TO W 0.5 H Hungary 40 2080 20 8 224 1,856.00 0 United States 40.1 2087 20 10 240.8 1,846.20 IMPORTANCE OF MERIT TO ROLE OF NETWORKS IN THE UPWARD SOCIAL MOBILITY SELECTION OF SENIOR Ireland 39 2028 24 9 257.4 1,770.60 LEADERS Source: Institutional Profiles Database, 2012. Spain 38.4 1996.8 22 14 276.5 1,720.30 Emirate of Abu Dhabi 37.5 1950 24 10 255 1,695.00 6.1 Reforming Public Sector Employment Policies United Kingdom 37.3 1939.6 25 8 244.7 1694.90 Given the objective of de-linking national attitudes toward competition, meritocracy, Sweden 37.1 1929.2 25 11 267.1 1,662.10 wealth distribution strategies from public and human capital investment. The proposed Germany 37.7 1960.4 30 10.5 305.4 1,655.00 employment and wage setting policies, there social protection reforms discussed in earlier France 35.6 1851.2 25 11 256.3 1,594.90 are at least three sets of recommendations sections (universal basic income scheme Saudi Arabia 35 1820 35 17 364 1,456.00 that can help promote competitive and together with the in-work benefit) can act in Qatar 35 1820 33 23 392 1,428.00 transparent public employment policies in the parallel as the GCC governments’ main wealth GCC. These can be instrumental in shifting distribution tool to minimize current distortions Kuwait 30 1560 39 12 306 1,254.00 the willingness of citizens to accept private in the labor market as well as buffer against Source: World Bank analysis. sector jobs and in positively influencing their political economy concerns downstream. Governments in the GCC also typically place have higher levels of favoritism in recruitment low or inadequate emphasis on performance and advancement than comparators in the 6.1.1 Reforming Public Sector Compensation Packages and merit in hiring and promotion decisions OECD and MENA region (Figure 10). related to public sector jobs. Studies show In addition, even when official channels are In terms of wage payments, while public sector reflect true productivity and are competitive that recruitment into the public sector often used to recruit new employees, subsequent pay should remain competitive to attract high with wages in the private sector. If this is not bypasses official channels and thus any promotions are often automatic and/or skilled workers, it needs to correspond with the case, reservation wages of GCC citizens vetting of qualifications. According to driven by seniority and relationships, actual productivity levels. GCC governments will remain high, and broad participation in the cross-national indices, GCC civil services rather than merit. should take steps to ensure that public salaries private sector is unlikely to be successful.24 24 Comprehending the degree to which citizens in different GCC countries are overpaid compared to their marginal product requires a detailed econometric analysis that accounts for differences in education levels, years of experience, sector, and occupation. 46 Reforming public sector compensation have yet to develop fully operational, Conceptually, the problem can best be by a normal distribution curve in which The Jobs Agenda for the Gulf Cooperation Council Countries packages necessitates charting a policy centralized human resource systems that approached through the graph provided there are both high performers and low course that balances desired reform track public employee salaries and benefits. in Figure 11. One would expect that performers, with the vast majority of civil outcomes against what is realistically Developing such systems and instituting the performance of GCC citizens within servants falling somewhere in the middle. feasible in the local political environment. mechanisms to regularly monitor wages the public sector would be captured Depending on the context, directly reducing and/or other cash or in-kind compensation public sector wages may not be viable for could enhance overall transparency and Figure 11: Performance of Public Sector Employees some GCC governments. Instead, gradually help governments identify any misallocation restraining future wage increases may or potential employee misuse of wages prove more effective. Governments can and allowances, thereby creating a stricter Average worker develop mechanisms to regularly monitor culture of accountability in the public sector. NUMBER OF EMPLOYEES compensation trends and set fixed criteria for In parallel to these actions, GCC governments wage adjustments. This may be accomplished will need to trim the overall allowances by establishing a wage and productivity and benefits offered in the public sector commission that periodically studies and to bring them in line with those offered to Low performing High performing makes recommendations for the size of worker worker citizens in the private sector. Unlike wages, future wage increases to ensure that they selective reductions and/or consolidation in are in line with changes in inflation and are -30 -20 -10 µ 10 20 30 allowances and benefits can be politically benchmarked against private sector wages, CIVIL SERVANT PERFORMANCE feasible measures in the short- to medium- as well as regional and global comparators. term. GCC governments can therefore Given the high wage increases in recent strategically reduce public sector allowances Source: World Bank analysis. years, GCC countries may wish to allow for and benefits as a way to incentivize GCC some near-term salary erosion due to inflation citizens to accept private sector jobs. For various reasons, the primary public Governments will need to adopt rigorous before implementing these measures. When implemented in conjunction with the administration challenge for most GCC standards to ensure that transparent, GCC governments should also carefully track proposed social protection mechanism (i.e. governments will be to effectively manage competitive, and merit-based recruitment and make transparent the compensation an unconditional cash transfer combined both ends of the distribution curve. Although and promotions take place in the public and benefits already being offered in the with an in-work benefit), this reform can be most civil servants can be found in the middle, sector. As a first step, ministries and agencies public sector to stem any opportunities for achieved without compromising the overall the incentive structures at either end will should develop job descriptions that identify employee misuse. Several GCC countries welfare and income of GCC citizens. have a disproportionate impact across the the relevant skills and competencies needed public sector. At the high end, the principal for all public sector positions and categorize goal will be to develop available talent and functions within a transparent grading 6.1.2 Strengthening Meritocracy & Performance utilize it to its full potential. This would involve structure that is consistently applied across Management in the Public Sector strengthening meritocratic systems and the public sector. Subsequently, all public GGC governments must foster meritocracy resource management (HRM) and procedures in recruitment and promotion so sector positions should be filled based on and performance in the public sector human resource development (HRD) talented individuals do not feel ignored, under- the skills and abilities of the candidates, to ensure that hard work is rewarded processes in the public sector, and utilized, or passed by, therefore leading to a which must match the skills profile ministries and public employment is not seen as strengthening the quality of performance drop in morale. Other possibilities worthy of and agencies have identified for those a guaranteed entitlement for citizens. management by adopting formal tools. exploration would include the development positions. GCC governments may also This will require establishing new human of a senior executive service corps, as well consider introducing formal civil service as a fast-track career program for young exams for entry into the public service as civil servants entering the bureaucracy. an added measure to create a transparent, 48 merit-based recruitment system. Finally, perform at higher levels. One way for GCC 6.2 The Broader Political Economy of The Jobs Agenda for the Gulf Cooperation Council Countries once GCC citizens have entered the public governments to ensure that this does not Public Sector Reform sector, there should be an expectation of happen is to track employee absenteeism increased work effort and demonstrated merit rates and hours on the job. Monthly statistics The above mentioned reform measures run to earn promotions rather than automatic on absenteeism rates in ministries and contrary to decades of established practice career advancement or promotions based agencies can be circulated to all minsters, in the GCC and will need to be introduced on favoritism and personal relationships. thereby creating both formal and informal carefully and systematically. Elites may be incentives to enforce attendance rules. loath to relinquish their ability to use civil Similarly, governments will need to improve Based on this, a sanctions regime can service pay and employment as a mechanism the enforcement of existing work rules to be instituted to penalize staff for chronic for enhancing loyalty—even though evidence show that certain threshold standards of absenteeism, with penalties including suggests that the mechanism’s effectiveness performance are expected if GCC citizens proportional pay cuts and even termination is mixed at best. GCC citizens may resent wish to retain public employment. If basic in egregious cases. The imposition of efforts to foreclose job opportunities within work rules are not enforced, GCC countries sanctions and disciplinary procedures for the public sector, or to extract greater value will run the risk of poor performance seeping other work-related violations, combined and performance from the current workforce. into the broader public sector and impacting with remedial classes for chronic poor Despite these challenges, the task is not the behavior of staff who would otherwise performers, should also be pursued. impossible. Some GCC localities, such as Dubai and Abu Dhabi, have been relatively 6.1.3 Rationalizing the Size of the Public Sector effective in enshrining a performance ethos throughout their public sectors. To shift labor market incentives and ensuring an increased private sector activity, Other countries, such as Saudi Arabia, offer rebalance employment between the private is both vital from a fiscal standpoint as well proof that “islands of excellence” can exist and public sectors, GCC governments (at as from a service quality perspective. in some parts of the public sector. In a world least those with large national populations, of low hydrocarbon prices, the fiscal reality is GCC governments can also take progressive such as Saudi Arabia) must rationalize the that the traditional development approaches steps to contain the size of the public recruitment of citizens into the public sector. pursued by many GCC countries are simply sector without compromising on capacity. This does not mean cutting jobs for citizens no longer attainable. More perniciously, a Governments may choose to temporarily overnight, which could be politically difficult. reliance upon large, highly compensated or permanently freeze hiring in select Rather, it means moving away from the public sectors creates dysfunctional ministries and agencies or introduce previous policy of open recruitment, which incentives that will undermine their long-term voluntary retirement schemes under which has resulted in bloated and unproductive developmental goals. Unless addressed, some citizens may choose to take their administrations, towards a more deliberate these problems will become more acute. pensions early and exit the public sector. and targeted staffing strategy that identifies Ultimately, job preferences among citizens the best candidates for specific functions and and the attendant labor market segmentation administrative or service needs. Given the will improve not only when the terms of GCC’s rapidly growing populations and rising employment become less attractive in unemployment among some countries, the the public sector, but also when there are transition to this more deliberate rationalized less public sector jobs to go around. recruitment in the public sector, while 50 The Jobs Agenda for the Gulf Cooperation Council Countries Governance and social protection “ reforms are needed to alter the GCC countries’ current wealth distribution strategy, so citizens are incentivized to invest in their human capital, accept private sector employment, and access productive and merit-based public sector employment. ” 52 The Jobs Agenda for the Gulf Cooperation Council Countries 7. Education and Skills Development Policies Current education policies in the GCC face U.A.E., whose assessments results are better higher order constraints stemming from the than its GCC peers but still underperform existing labor market distortions and near- internationally (Figure 12). Outcomes are guaranteed public employment policies that particularly low for young boys, who are not present perverse incentives for nationals performing as well as their female peers. against investing in their own human capital. For example, in grade four mathematics Building on the earlier discussion, a reduction achievement on TIMSS 2011, Saudi Arabia, (or at least limited future increase) in public Oman and Kuwait displayed the highest sector salaries to competitive levels and gender differences in average scores, with increasing meritocracy and transparency in girls outperforming boys by 16, 26 and 35 labor market conditions would ensure a less points respectively. Grade eight achievements segmented labor market and significantly in TIMSS reflect a reverse gender gap in improve incentives for GCC nationals to Bahrain and Oman, where girls outperform invest in their human capital and to accept boys by 43 and 63 points respectively. private sector jobs. If, at the end of a school Furthermore, as a result of public employment and university career, a guaranteed public policies and high reservation wages, sector job with low performance expectations specialization choices at the post-secondary awaits, incentives for students to learn and level are almost exclusively geared towards invest in their human capital are low. humanities and social sciences fields with limited focus on technical and scientific fields Weak incentives towards learning are generally demanded by the private sector. underlined by the outcomes for GCC students Figures from the United Nations Educational, in international student learning assessments, Scientific, and Cultural Organization such as the Trends in International (UNESCO) data show that between 66 to 72 Mathematics and Science Study (TIMSS).25 percent of GCC students choose education, They remain significantly below international arts, humanities, social sciences, or general benchmarks despite the high level of financial programs as their course of study (OECD investments in the sector; The exception is the 25 Trends in International Mathematics and Science Study (TIMSS) is a series of international assessments of the mathematics and science knowledge of students around the world. 54 2011). This compares to an average of 50 Towards Entrepreneurship and Productivity 7.1 Early Childhood Development The Jobs Agenda for the Gulf Cooperation Council Countries to 55 percent in the United States, United (STEP) suggests that skills needed for Kingdom, France, and Germany. This in turn productivity and economic growth require Developing technical, cognitive, and behavioral Improvements in ECD can help boost student creates an oversupply of graduates ready for a sequenced combination of education, skills in early childhood development (ECD) achievement through higher cognitive public sector employment but with limited training, and labor market activities involving is conducive to high productivity, and development and overall school readiness to no incentive in joining the private sector. five interlinked steps: (i) getting children off involves emphasizing the main domains on primary school entry, lower repetition to the right start through early childhood of a child development, including physical and dropout rates in the early grades, Building on governance and social and development; (ii) ensuring that all children (such as mother’s and child’s health and greater learning in school, and higher labor policy reforms outlined above, if the learn by building stronger education systems nutrition, breastfeeding, immunization), school completion rates (World Bank 2010). labor market is aligned to provide the right with clear learning standards, good teachers, cognitive, language, and socioemotional Research shows that the serious handicaps incentives for nationals to invest in their adequate resources, and a proper regulatory aspects. Early childhood interventions occur acquired early in life, when for example human capital, several supply-side education environment; (iii) enabling students to build at different stages of a child’s development, children are malnourished or insufficiently reform policies are needed to ensure that relevant skills that employers demand; beginning from the early stages of being stimulated, are difficult if not impossible to nationals are willing and able to competitively (iv) encouraging entrepreneurship and in utero to the ages of three or five. remedy later in life and that effective ECD participate in the private sector. A simple innovation; and (v) matching the supply of programs can have a very high payoff. World Bank conceptual framework titled Skills There is a need in the GCC to expand ECD skills with the demand (see section 5.2). interventions for pre-primary school children, ECD services can be delivered through various both in the area of ECD institutions like channels. The most common ones are center- Figure 12: International Comparison of Expenditure per Student & Student crèches, kindergartens, and preschools, and in based, such as preschools that focus on child Performance the area of informing parents about children’s development work with children and parents essential nutrients needs in their first 1,000 on all domains of ECD, such as cognitive 650 days of life and their need for early stimulation. stimulation through arts, games, and music, as TIMSS MATHEMATICS EIGHTH-GRADE SCORE 600 Korea, Rep. Aggregate years of schooling and enrollment well as on basic math and reading to prepare Japan rates in ECD are still low in relative terms children for elementary school. ECD should 550 Kazakhstan England Slovenia (Callen et al. 2014). Access to kindergarten also focus on good health, nutrition, and Hungary United Norway 500 Lithuania Australia OCED States averages at 49 percent net enrollment in the hygiene through parent and caregiver training. New Zealand Malaysia Italy United Arab GCC, lagging behind OECD countries where Public health centers measure areas related 450 Georgia Emirates Iran, Islamic Thailand Qatar access is near universal for pre-primary to linguistic and socioemotional stimulation. Republic Chile 400 Oman Kuwait students. Variation exists among member Additionally, social workers can counsel Morocco Jordan Saudi Arabia countries, for instance, it is as high as 83 parents and provide training on the methods 350 per cent in the U.A.E. but only 13.5 per cent for proper children feeding, the process for 300 in Saudi Arabia. The U.A.E. has recognized immunization, and the provision of cognitive 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 kindergarten as part of the mandatory development either via center-based services EXPENDITURE PER STUDENT AT LOWER SECONDARY SCHOOL IN years of education, and has developed an or at homes. Other important counseling and CONSTANT PURCHASING POWER PARITY (PPP) (DOLLARS) attractive pre-primary market, with nearly training services include peer-to-peer learning 405 nursery schools in 2013 showing overall to share information among community Source: TIMSS 2011, UNESCO Institute for Statistics, 2011 attendance rates surpassing those of many members about the various forms of care, as OECD countries. In contrast, Saudi Arabia’s well as media campaigns to share information pre-primary education is yet to take off, as about proper care and stimulation of children kindergartens are not part of the official with a broad and dispersed population. educational system; however, the government’s Vision 2030 has set expansion of pre-primary education as a top priority area. 56 7.2 Reforms in the Education System teacher absenteeism as a moderate or serious whether for merit or sanction. For example, in The Jobs Agenda for the Gulf Cooperation Council Countries problem, compared to the OECD average of the case of teacher absenteeism in Oman, a As previously mentioned, GCC student past initial entry into the profession. 9 percent, with the highest figures in Kuwait principal’s ability to sanction noncompliance is achievements on international assessments Shortages of subject specialists in math (69 percent), Oman (63 percent), and Saudi very limited. In terms of financial autonomy, are significantly below international average and science persist in GCC countries and Arabia (52 percent). schools in the GCC have almost no control benchmarks despite substantial financial affect instruction. These findings suggest over the resources allocated to them and have Minimal autonomy and discretionary powers investments in education. GCC countries that a large portion of teachers either are minimal discretionary powers on how to use at the local level make it difficult to incentivize invested 11.8 percent of total government not specialized or are specializing in over those resources. providers to improve performance. Greater expenditure from 2005 to 2014 on education, saturated subject areas that are not leading autonomy can give schools the flexibility Finally, little information on the quality of which is comparable to average annual to positive gains in learning outcomes. to empower teachers and parents, thus services is collected, reported, and made OECD spending of 12.3 percent from 2005 Furthermore, teaching methodologies improving teacher morale. Education systems publicly available. High-performing countries to 2014. The main challenges to enhance remain teacher-centered. Many teachers in in the GCC are highly centralized with use information to focus constantly on system performance in the GCC relate to the GCC do not utilize skills and practices planning and management of school budgets improvements over time. In contrast, schools the need to improve the teaching force, characterized by good practices, which and personnel all controlled centrally. Local in the GCC are regularly inspected but policies to establish and enforce proper include: adapting and modifying goals to governments at the regional level are not information on individual or organizational qualifications, as well as the provision suit individual diverse learners; presenting involved in the decision making process. performance is typically not shared throughout of an integrated system of incentives, challenging objects; maintaining better At the school level, principals have limited the centralized education system, receives no rewards, and sanctions for performance. classroom climate; sensitivity to context; ability to motivate or incentivize teachers follow-up, and is not made available publicly.29 Evidence suggests that teachers have monitoring learning more effectively and minimum educational background providing feedback to students; and 7.3 Reforms in Improving Job Relevant Skills to Facilitate requirements and unsubstantial levels of demonstrating good problem-solving Transition into the Labor Market subject knowledge mastery. The majority of strategies.26 Instead, on average 56 percent teachers (Saudi Arabia 95.2 percent, Oman of teachers in the GCC27 report that they Transitioning successfully from the education English, etc.); 19 percent agree the education 94.6 percent, Bahrain 73.6 percent, U.A.E. always or almost always include questions system into a stable job in the labor market system is preparing students with the right 70 percent and Qatar 67.8 percent) in GCC based on recall of facts and procedures in requires graduates to be equipped with attitude and behavior; 16 percent agree schools hold at minimum a degree from a their mathematics tests or examinations for relevant job skills through pre-employment education equips students with specific and three-year program at a tertiary institution grade eight students, while 53 percent of skills development (offered by public core skills required by industries; 16 percent (International Standard Classification of GCC teachers, compared to 30 percent of institutions, such as the Technical and also agree the curricula are in line with needs Education statistics). The proportion of OECD teachers, ask students to memorize Vocational Education and Training (TVET) of the private sector. Students similarly are teachers with four-year degrees, advanced rules, procedures and facts every or almost programs and tertiary institutions). Other not confident (54 percent in Saudi Arabia, degrees and sciences subject specializations every mathematics lesson taught.28 services include on-the-job training, as 58 percent in Qatar, 68 percent in the U.A.E. wanes in comparison (17 percent of grade well as skills certification systems. and Oman, 69 percent in Bahrain and 72 Accountability to improve learning also seems eight mathematics teachers on average percent in Kuwait) their education is equipping weak. Asked if it was easy to understand GCC youth believe they are inadequately in GCC countries versus 28 percent in them with the right skills and training for their their math lessons, 10 percent of grade prepared for employment. In addition, in OECD countries). These degrees are largely chosen career.30 eight students in Bahrain and Qatar highly 2014, only 29 percent of employers agree that unsought by national teachers given that disagreed, versus 8 percent of OECD the education system prepares students with differentiation by education background students. In the GCC, 43 percent of grade relevant technical skills (computer literacy, is minimally recognized or rewarded four math students are in schools that report 29 In Dubai, the Knowledge and Human Development Authority (KHDA) has established clear accountability mechanisms that transparently inform parents of the 26 See Hattie and Anderman 2013. performance of each private school in the Emirate. In Kuwait, since 2013, a number of schools within the “School Leadership” pilot program have successfully 27 Excluding Kuwait. implemented the practice of sharing general teacher attendance and absenteeism data. These are charts displayed publicly at the schools—with names of 28 See TIMSS 2011. individual teachers removed—to indicate to parents and the community the degree of teacher attendance and absenteeism within the school. 30 Parthenon-EY, 2015. 58 Similarly, private sector employers believe working in origin country can further ensure Finally, if GCC countries expect to succeed in The Jobs Agenda for the Gulf Cooperation Council Countries GCC nationals lack the skills and work the development of human capital among transitioning to highly productive, knowledge- experience needed to succeed in the nationals. Some schemes already exist in based economies, they must develop a workplace. A recent survey of GCC nationals GCC countries, with scholarships programs system that can transform existing learning found that 50 percent of employers in targeted at nationals to study abroad. In to growth-inducing innovations. In this Saudi Arabia and Qatar reported that some cases, GCC states imported a Western regard, policies that encourage creativity, youth lack work experience. A third of model of higher education instead of entrepreneurial skills, and innovation-specific survey respondents identify behavioral sending students abroad to invest in local specialties through improved access to attributes, such as communication skills, talent.31 Modules focusing on work-based information, communication technology, discipline, commitment and attitudes learning programs as part of countries’ finance, and greater spending on research toward employment as major constraints skill development sectors have also been and development remain essential (Callen to retaining nationals. Finally, just under a introduced recently in some middle and et al. 2014). Additional policies may quarter of employers cite a lack of required low-income countries in partnership include scholarships for math, science, skills or qualifications—evidence that a with public institutions, private sector, and business students to earn degrees in shortage of technical training is a challenge and technical and vocational schools. external research programs and bring the to young people’s career progression. knowledge home, financing innovation Furthermore, career guidance services spaces in public universities, as well as Some of the weaknesses that underlie the for secondary and tertiary students play providing publicly funded incentives for skills development sector include a weak an important role in supporting them in greater collaboration between universities TVET sector, where there is a definite sense making an informed decision about their and the private sector (World Bank 2010). in the GCC that it remains a “second-choice, fields of specialization, career choices, and second-rate” option, an alternative for the needed job-relevant skills to invest. In those who cannot succeed academically or the GCC, 72 percent of young nationals who cannot be accommodated by higher rely heavily on friends and family for advice education. Evidence shows that, over the and career information. Fewer than 30 past decade, student demand for TVET percent of GCC students (13 percent in in the Middle East and North Asia region Oman, 22 percent in the U.A.E., 24 percent (MENA) has declined, while the opposite in Saudi Arabia, 39 percent in Qatar, 41 trend is observed for upper secondary and percent in Bahrain, and 42 percent in tertiary education. In terms of the tertiary Kuwait) say they have sufficient information education system in the GCC, a critical about job opportunities, qualification part of a skills building system, schemes requirements and application processes. that offer students incentives and support to complete undergraduate and graduate studies conditional on returning to and 31 GCC states imported a Western model of higher education to meet national reform agendas and invest in local talent and human capital. This model has taken diverse forms, ranging from American-style institutions (e.g. American University of Kuwait), to branch campus (e.g. Carnegie Mellon University in Qatar), or to a full-fledged replica liberal arts campus (e.g. New York University, Abu Dhabi) 60 The Jobs Agenda for the Gulf Cooperation Council Countries 8. How the World Bank Supports GCC Countries The World Bank is a well-positioned partner to In particular, the World Bank can provide support GCC governments in achieving their goals technical and analytical assistance as well as of diversifying their economies away from oil and program design and implementation support increasing the participation of GCC nationals for GCC governments that build on identified in the private sector, as well as improving challenges in each of the six reform priorities productivity, innovation, entrepreneurship, and highlighted above. human capital investment. The Bank has In the area of fiscal policy, the World Bank can a comparative advantage in designing and offer analytical and advisory assistance to GCC utilizing rigorous analytical tools and research governments to promote policies leading to better methods, as well as an extensive experience functioning labor markets that meet long-term supporting over 120 countries in policy and growth objectives, while also addressing fiscal program implementation as they relate to jobs sustainability concerns. The main analytical and labor markets. tools utilized include: (i) a macro-econometric The World Bank currently engages with GCC structural model to analyze the rich set of governments on a Reimbursable Advisory interactions among sustainable development, Services (RAS) program that encompasses key labor and population. This model develops cross-sectoral areas as they relate to the jobs a baseline forecast and considers alternative and employment agenda, namely: fiscal policy, population and development trajectories focusing competitiveness, admission policy, social and on the long-run sustainability of the envisioned labor policy, governance, and education and population futures, as well as the productivity skills development. It provides comprehensive of employed resource; and (ii) an overall support that addresses each cross-sectoral area macroeconomic and structural transformation in a fully integrated manner, such as assistance analysis to examine aggregate trends in with the Second National Development Strategy employment and productivity and factors in Qatar and with the 2030 National Vision in behind GDP per capita and labor productivity Saudi Arabia. in the GCC countries. 62 The main analytical products delivered include and bilateral and multilateral trade agreements, systems developed in other advanced strengthening meritocracy and performance The Jobs Agenda for the Gulf Cooperation Council Countries country-specific economic memoranda, public and relevant recommended policy measures economies that aim to attract and retain highly management, and rationalizing the size of the expenditure reviews, tax policy analyses, job to enhance trade. In a series of engagements, skilled workers. Emphasis can be placed on public sector. In addition, the World Bank can diagnoses, systematic country diagnostics, and the World Bank team helped the authorities policies towards permanent residency, which conduct a political and economic assessment support to national development strategies. of one GCC country determine the feasibility many GCC countries are starting to consider. of the feasibility of public sector reforms of special economic zones (SEZs). This Quantitative and qualitative tools such as in the context of the new proposed wealth In the area of competitiveness policy, the involved developing a methodology for site employer and worker surveys, as well as key redistribution mechanism. The World Bank has World Bank can offer a range of analytical selection criteria and weighting, collected data, informant interviews can be utilized for a better experience in conducting distributional impact services that can inform sound policies to visited and analyzed sites, and producing assessment of country context. The World Bank analyses of proposed reforms to determine support firm growth and job creation. A sector/ a comprehensive report with site ranking, has provided tailored support on this agenda winners and losers, as well as develop strategic industry value chain diagnostics is one tool recommendations, and action plans for to the U.A.E. and the Saudi Arabia in reviewing and well-tailored communication plans. that examines subsectors with potential for job prospective sites. The World Bank also provided their systems and assessing reform options. creation and the types of constraints affecting Finally, in the area of education and skills support to the economies of the East African their development and growth, as well as pilot In the area of social and labor policies, the World development policy, the World Bank can support Communities on regional growth dynamics, interventions. With regards to sectors, the World Bank can offer rigorous analytical assessments GCC governments in reviewing policies and transport needs through spatial growth and Bank has strong experience in supporting to determine the suitability of universal basic regulations pertaining to the financing process for transport policy analyses, infrastructure and agribusiness, information and communication income schemes, as well as in-work benefit education provision across all levels. This would ICT assessments, modelling the effects of technologies (ICT), manufacturing and tourism. designs in the GCC context. In this regard, include reviews of policies, official processes, regional integration, and a study looking into the World Bank can draw on its international funding mechanisms, and other formal guidelines Secondly, a competition assessment helps the feasibility of special economic zones. experience in supporting countries’ reform that influence the education finance system. to address the question of how to make the Innovation diagnostics are also an important of their social assistance program design, as This assessment would give policymakers a private sector more competitive; it would analytical tool to address how to bring about well as address work disincentives stemming holistic understanding of the relations between include benchmarking analysis as well as improvements at the firm level and the from receiving cash transfers in the GCC. budgeting, expenditures and learning outcomes. quantitative price analysis, in addition to adaptation of technologies to new markets. addressing competition and regulatory In addition, the Bank can provide analytical Additionally, support can be provided in GCC governments have expressed a desire to reforms in two to three specific sectors. assessment as well as policy design and designing and implementing policies, laws prioritize innovation, but relevant policies are For example, the World Bank is currently program implementation support for facilitating and regulations regarding early childhood lacking. GCC countries would benefit from providing technical assistance to establish labor mobility and job matching to assist job education. Engagement can also be targeted an innovation diagnostic and the necessary a competition protection authority in one seekers and the unemployed. The World towards identifying the reforms and programs follow up. This is a topic the World Bank GCC country. Components of the technical Bank has supported many countries over that will have the largest benefit for gender Group is engaged in on a reimbursable basis assistance include: (i) legal review and the years in implementing and rigorously equality, given the reverse gender gap throughout the world. For example, the World amendments of the competition law; (ii) evaluating active labor market programs concerns in learning outcomes in the GCC. Bank assisted the government of Bulgaria in the institutional set-up; (iii) establishing a to reduce the risk of unemployment by upgrading the policy and legal framework of Throughout the different reforms, the World regulatory and procedural framework for enhancing labor supply (through training), its National Innovation System, establishing Bank can support the institutionalization of mergers, authorizations/cartel exemptions, increasing labor demand (through public effective mechanisms for policy coordination, robust monitoring and evaluation systems and market definitions; (iv) competition works or subsidies), and improving the identifying and enhancing flagship projects, through regular data collection efforts, the advocacy and sector specific regulations; functioning of the labor market (through and preparing an action plan to deliver implementation of impact evaluations for pilot and (v) cooperation modalities with sector employment and intermediation services). services to commercialize innovation. reforms to assess impact and decisions for regulators and other public institutions. In the area of governance policy, the World scale-up, and the development of a system In the area of admissions policy, the World Analytical and advisory support also includes Bank can provide comprehensive reviews assessment and benchmarking tool. Bank can provide a review and assessment of areas of trade competitiveness of goods and and assessments of international experiences international experiences regarding immigration services, non-tariff measures, trade facilitation regarding public sector employment reforms, 64 The Jobs Agenda for the Gulf Cooperation Council Countries References Al-Sheikh, H., S. N. Erbas. 2012. “The Oil Curse and Labor Markets: The Case of Saudi Arabia.” Economic Research Forum: Working Paper Series 697. Ayyagari, M., A. Demirguc-Kunt, V., Maksimovic. 2011. “Small vs. Young Firms across the World: Contribution to Employment, Job Creation, and Growth.” World Bank Policy Research Working Paper no. 5631. Washington, DC: World Bank. Behar, A., C. 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