Globalization comes with both benefits and costs. One cost is that host countries have to comply with international labor laws and nondiscriminatory wage levels. This issue is of particular concern for the Gulf Cooperation Council, where an estimated 12 million foreign workers and their families live, and some of them make up more than 80 percent of the total population in some GCC countries. How these guest workers are treated, and how they compete with national workers, will become an issue of increasing importance in the years to come, with a direct impact on national industries and their competitiveness.
The GCC political leadership is fully aware of this conflicting pull, and the recently concluded 2006 GCC summit in Riyadh discussed a proposal to limit to six years the stay of expatriate workers in the GCC, a somewhat symbolic move that could pre-empt International Labor Organization or other external pressure to improve guest workers rights by granting them long term residency. At the same time, some of the GCC countries are taking their own steps to liberalize their domestic labor market, and Saudi Arabia announced the liberalization of sponsorship transfer in September 2006.
According to a decision by the Labor Ministry, a worker should complete at least one year with his present employer to avail himself of the new flexibility to transfer his sponsorship. Conditions still apply, however, before a freely mobile labor market evolves in the Kingdom, as expatriates are not allowed to apply for jobs restricted to Saudis, and the firms recruiting them should have fulfilled the necessary “Saudization” conditions. Despite these shortcomings, the new labor liberalization decision should help Saudi companies make use of the more skilled foreign manpower now available in the Kingdom, and attract Foreign Direct Investment, as one of the main obstacles of foreign companies coming to Saudi Arabia has been the lack of skilled manpower to launch their projects. With the Kingdom going fast forward in establishing new mega — economic cities all over the country, the liberalization of sponsorship transfer has come in time to ensure that there is an internal flow of labor supply, without creating wage or supply bottlenecks.
It is not only in the Gulf countries that the issue of migrant labor and their impact has been hotly debated. Some countries are now setting restrictions after opening up their economies to semi-skilled labor, and the United Kingdom is one prime example of a country that seemed to have been overtaken by the number of Polish and other former East European migrants wanting to come to the UK after their countries EU accession. Barriers have now come up for late joiners such as Romania and Bulgaria.
What is the benefit and cost of this massive world labor migration? For the labor exporting countries, the inward remittance flows helps to sustain local economies and create a base for saving, investment and economic development. It has been estimated that the amount returned to developing countries by expatriate workers, at more than $160 billion for 2005, is far higher than the total aid budget spent by the developed world on such countries, which runs at around $100 billion a year.
Becoming an “economic migrant”, however, sometimes comes at great social and human cost, as many migrant workers live outside the law. These have been estimated at around 20 percent of the immigrant population worldwide. For Saudi Arabia it manifests itself in the yearly roundup of “overstayers” in the Kingdom after the Haj period. Regulating migrant labor and ensuring that minimum wage levels are applied equally can, however, attract the appropriate skill level of foreign workers, and also ensures competition and the raising of labor standards of nationals. Ireland is a classic example of a country that, not too many years ago, was a net “exporter” of labor. Today it is a net “importer” of labor who has risen the standard of living and productivity of the country, to rank Ireland as the “Celtic Tiger” of Europe. For countries in the Gulf though, the issue of introducing a minimum wage level is a quandary. Many local industries continue to benefit from low expatriate wage levels, which are not attractive enough to national labor. The issue of raising the local minimum wage has been debated as a tool to attract more local labor entrants to jobs that were previously rejected by nationals. In the era of globalization and international labor treaty obligations, the same minimum wage level would have to be offered to foreign workers, creating a vicious cycle.
Local companies would choose that labor that are deemed more productive, or more compliant, and foreign workers might be hired, albeit at fewer numbers and at a greater cost to local industries. Countries that have introduced minimum wage levels have seen the two effects in action — a reduction in labor demand and higher costs in the short run, but which hopefully can be translated into higher labor productivity in the long run. But real life is more complicated. For a start, if the minimum wage level is raised for all companies, then their competitiveness with each other is not affected by the same degree. A higher minimum wage can actually increase employment in some circumstances, by attracting someone to take a job that was previously “economically inactive” or not employed at all, as is the case for many semi-skilled jobs in Saudi Arabia.
For the Gulf countries, the present status quo will still most probably be maintained, managed by a combination of administrative labor “localization” decries, but aided by long term educational and skill development for the national labor force. In this way, a balance will be struck between a productive labor supply and industry demand that will not differentiate between race, creed or color.
— Dr. Mohamed Ramady is visiting associate professor, Department of Finance and Economics, King Fahd University of Petroleum and Minerals, Dhahran.