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The authors wish to thank Edward Gardner, Zubair Iqbal, and Philippe Callier for providing comments and useful suggestions on this paper. We also thank Patrick Megarbane for letting us reproduce parts of his paper.
The GCC countries are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
Labor statistics in GCC countries—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (U.A.E.)—are scant and vary significantly across countries in terms of coverage, quality, measurement, and timeliness. In addition, the data available are incomplete because information on military and security personnel is excluded. Statistics on unemployment are also not regularly collected.
The United Nations’ Arab Human Development Report 2002 projects for the GCC area a sharp increase in the population aged 0 to 14, from nearly 9 million in 2000 to 14 million by 2010.
In the United Arab Emirates, Goyal (2003) estimated that labor growth accounted for nearly one-third of non-oil growth in the 1980s and more than one-half in the following decade.
This phenomenon, known as Dutch disease, refers to the negative output and employment effects of an oil (or natural resource) boom on the non-oil sector of the economy, leading to an overall contraction in the country’s tradable sector.
In the 1970s and 1980s, most expatriate workers came from other Arab countries.
In most GCC countries, the retirement age for men is 60 and for women 55, but workers can retire with full benefits after 20 years of service. In addition, in all of these countries, employee contributions to the pension fund are relatively low (5 percent) or nil (Qatar). Expatriate workers are not covered by retirement benefits, but they usually receive a month’s salary for every year of service as compensation.
The reservation wage is the threshold wage at or above which national workers would decide to supply their labor services and below which they would not.
Illiteracy is concentrated among women and the population aged 40 and above. For instance, in Saudi Arabia, illiteracy among the female population was almost 29 percent in 2000, while it was less than 3 percent for the population below the age of 29.
According to Al-Lamki (2002), in Oman, the remuneration package in the government sector for unskilled and semi-skilled work is twice that of the private sector.
In Oman, the target for nationalization of the labor force (90 percent) was achieved only in the banking sector, reflecting the opportunity provided to nationals through education (a banking institute was created in the early 1980s) to acquire the skills required to promote their employability.
Goyal (2003) analyzed national employment in the U.A.E. using a simple labor demand and supply model.
The standard literature has focused on unemployment dynamics in the context of business cycles and the secular rise of unemployment in Europe.
Note that y also denotes average labor productivity.
This would constitute a one-time increase in levels of employment.
The fiscal cost will need to be less than the employment benefit for the policy to be welfare improving. These subsidies could be financed, for instance, by fees on skilled expatriate workers.
Such investment would increase output and productivity, y, and matching efficiency, A, and reduce the separation probability, s, and the cost of search, c.
Recall that the firm’s valuation of a vacancy is V = 0, owing to the zero profit assumption.