Kingdom’s labor market picture points to expanding economy

Kingdom’s labor market picture points to expanding economy
Updated 08 March 2016

Kingdom’s labor market picture points to expanding economy

Kingdom’s labor market picture points to expanding economy

JEDDAH: Private sector net employment of Saudi nationals fell for the first time last year since labor market reforms began in 2011, according to a research report.

Jadwa Investment’s latest update on the labor market in Saudi Arabia also showed that the unemployment rate in the Kingdom fell slightly from 11.7 percent in 2014 to 11.5 percent last year.
This fall was mainly attributed to a decline in Saudi labor force participation rather than higher employment growth, as job creation for Saudis have actually slowed during the year, according to the report.
“Looking ahead, we expect the private sector to be the main source of new jobs for Saudis, supported by continued labor market reform,” Jadwa researchers stated.
The labor force grew by 46,000 during 2015, its slowest pace since records began in 1999, according to the report.
During 2015, total net employment in the Kingdom saw a rise of 417,000, compared with 339,000 in 2014.
During 2015, the overall picture of the labor market in Saudi Arabia continued to point to an expanding economy, as total net employment rose by 417,000, its fastest pace in three years.
However, the majority of new jobs went to non-Saudis, while net new jobs created for Saudi nationals reached 49,000, increasing at its slowest pace on record.
“We see these trends mainly reflecting a delay in implementing the Nitaqaat quota system. In fact, the private sector employed, on a net basis, 369,000 non-Saudis during the year, while net employment of Saudis in the private sector fell by 43,000,” stated the report.
“We believe that the Ministry of Labor is trying to first fully implement the wage protection system in order to have more effective monitoring prior to commencing with Nitaqaat,” added the Jadwa researchers.
The report said that public sector net employment of Saudi nationals rose by 93,000, year- on-year, but continued to show a slowing trend in newly created government jobs.
Public sector labor productivity remained significantly lower than productivity in the private sector during the same period, the report added.
The slowdown in public sector hiring could also be due to the narrowing differentials in work hours between the private and public sectors, which renders public sector jobs less attractive than before.
“We think the implementation of the new program for public sector worker efficiency will contribute in improving worker productivity in the public sector, particularly since the program emphasizes on the need to reward public sector employees on a merit-based system, rather than the traditional automatic promotions and pay rises based on the length of period served. We also believe that implementation of the program will potentially include an increase public sector work hours and a more selective employment process,” said the researchers.
According to the report, the Saudization ratio in the private sector fell from 22.1 percent to 20.7 percent between 2014 and 2015.
Nearly all sectors within the private economy saw negative changes to their Saudization rates, as the number of net job additions offered to non-Saudis rose significantly from 68,000 in 2014 to 369,000 in 2015, while net employment of Saudis in the private sector fell by 43,000 during the same period.
The highest number of net job additions offered to Saudi nationals came from administration and support (40,000), followed by utilities (14,000), science and technology (13,000), and agriculture (5,000).
The report said that manufacturing, one of the most labor intensive sector in the private economy (8 percent of total employment), saw a significant increase in net employment of non-Saudi nationals, while Saudi net employment in the sector fell by 2,000, leading to a notable decline in the sector’s Saudization ratio (from 24 percent in 2014 to 20 percent in 2015).
The report added: “We maintain our earlier view that there is a skill mismatch between private sector needs and Saudi job-seekers, which will continue to be a major obstacle in reforming the labor market. Also, the segmentation between Saudis and non-Saudis in wages, work hours, and skills remain a key factor in the private sector’s tendency to hire non-Saudis.”