MOST GCC countries are facing important challenges linked to their demographic evolution and their oil-dependent economic structure. Kuwait and Saudi Arabia fit in this description. The national population – and therefore the labor force - of both countries is expected to keep growing fast, putting pressure on their economies to create a vast amount of jobs for newcomers. The shape of their population pyramids -distribution of population by age group- will flatten, due to reduction of birth and mortality rates, which will ultimately lead to an increase of senior dependent citizens in both countries, as their weight on the total population rises. Last but not least, the traditional reliance on public sector job for Kuwaiti and Saudi nationals might be coming to an end. Governments will not be able to absorb the growing labor force without threatening fiscal sustainability. In Saudi Arabia, the national population is expected to increase from 20.7 to 27.5 million in the next 15 years. The working age population will grow at an even stronger rate, leading to a sizeable demand for new jobs. Saudi authorities have been aware of this problem for many years, and developed several “Saudization” initiatives of the labor market. The most important measure is the Nitaqat, which establishes a system of national employee quotas. Companies with a high percentage of Saudi workers enjoy preferences in visa processing, while non-compliant firms are banned from transferring workers and obtaining new visas. However, Nitaqat raised criticism, as companies in some sectors feared they would not be able to meet the requirements or it would have a negative impact on their profitability. So far, the percentage of Saudi national employees working in the public sector has fallen by 3.5 percentage points in the last five years to 35.8% in 2014, suggesting some success of the implemented measures. Kuwait's situation is similar to Saudi's. The size of the national Kuwaiti labor force will double from now to 2030, due to demographic factors and an improvement in the participation rate. However, Kuwait's dependence on public sector jobs is more intense than in Saudi Arabia, with 75.8% of Kuwaiti employees working for the government. The approach that Kuwait took to nationalize its private labor market coincides with the one in Saudi: establishing minimum levels of Kuwaiti employees in each company, but with the difference that the law takes into account the nature of different sectors. Additionally, restrictions in the outstanding amount of visas have been under consideration, although authorities seem to be holding measures back for now. The percentage of national workers in the public sector has also evolved positively, since it was as high as 82% in 2008. Systems of quotas set the incentives of the companies in the direction to increase the presence of national workers in the private labor market, but they are only a partial solution and they could backfire in several manners. Productivity of companies could be under threat, since companies could be deprived from necessary skills, national workforce could be less affordable and legal overprotection of national employees could remove their incentives to become more efficient. Moreover, the private sector could be unable to match the generous retribution and conditions in government jobs, leading to substantially worse labor conditions in the private sector, a potential source of social discontent. Policies to reduce the dependence on public sector jobs must be integral, acting not only on firms but on national employee incentives to perform and trying to prevent the public-private duality in the labor market. *The writer is an economist at Asiya Capital Investments Co.
