The Central Department of Statistics and Information (CDSI) recently released unemployment figures for the past two years. CDSI data traced unemployment rates in Saudi Arabia during 2012 and 2013, ending with the third quarter of 2013 for men and women, Saudis and expatriates.
The numbers show that unemployment has remained stubbornly high, not much affected by rapid economic growth or by the generous programs that have been introduced over the past two years to lower unemployment among Saudis. Saudi Arabia is not unique in facing “stubborn unemployment,” the phrase that has been coined to describe a phenomenon of high unemployment during times of economic prosperity. Its causes are complicated. They include structural changes in the economy, laissez-faire labor and migration policies, and slow responsiveness of educational and training programs. Several countries are facing this situation, both among highly industrialized developed countries and developing poor nations.
However, Saudi Arabia is different from most of those countries in that it has experienced especially high growth rates of its economy and has allocated tremendous resources to tackle this problem. For it is certainly remarkable that high unemployment has persisted at around 12 percent despite the fact the country is in the midst of a boom. Saudi GDP has more than doubled in the past five years, growing from $369 billion in 2009 to over $745 billion in 2013. Government expenditure has also risen sharply during that period, from $147 billion in 2009 to $247 in 2013.
According to CDSI, overall unemployment in the third quarter of 2013, the last quarter for which figures were listed, rose slightly but remained basically unchanged at 5.6 percent, compared to 5.5 percent in the third quarter of 2012. For Saudis, the rate of unemployment remained also unchanged at around 12 percent.
Since the employment incentive programs target only Saudi nationals, let us disaggregate the indicators by gender and nationality and focus on Saudi job seekers, to see if those programs have made a noticeable difference. For Saudi men, for example, unemployment remained the same in the third quarter of 2013 at 6.1 percent; it was exactly at the same level in 2012, according to CDSI. There was some relatively good news for Saudi women, where there was a slight drop in the unemployment rate, from 35.7 percent in the third quarter of 2012 to 33.2 percent in the third quarter of 2013. However, despite this slight improvement, their rate of unemployment remains extremely high compared to the other groups covered by the data.
The revolutionary program of employment incentives for Saudis, Hafiz, was introduced in early 2012 by the Ministry of Labor. The word hafiz in Arabic has a double meaning of “incentive” and “motivator.” Under the program, job seekers are being paid SR2,000 ($553) monthly, provided they meet certain conditions. Millions have applied for the program over the past two years. About one million were accepted in the first year alone. As admission into the program and termination of its benefits are done on a rolling basis, the numbers keep changing almost constantly.
It was clear that the program’s main objective was to facilitate job seekers’ entry into the labor market. For that reason, the ministry set up strict conditions to qualify for stipends and many applicants were turned down for not meeting those conditions.
While providing the monetary assistance went on more or less smoothly in the very popular program, the new CDSI figures, if accurate, show that the main objective of the incentive program may not have met the same degree of success. The program may have fallen victim of its own early success. By raising expectations of discouraged unemployed Saudis, the number of active job seekers has grown, as they became more optimistic about finding jobs. As the numbers of its beneficiaries grow, the program’s cost escalated beyond expectations.
But for the program to achieve its objectives, and to avert the financial squeeze that could result if the number of beneficiaries keeps growing, more has to be done to find jobs for Saudis. Its main objective was to help Saudis become gainfully employed, as soon as possible.
If accurate, the recent CDSI figures should raise the alarm that Hafiz may have failed to reduce unemployment. It is not clear how many jobs Saudis have filled as a result of the program. Unless the program succeeds in reducing unemployment, it could turn into another welfare or entitlement program, if it has not already.
As other countries have found out, fixing “stubborn unemployment” may not be easy, because it requires new tools. The roots of the phenomenon I mentioned earlier do not lend themselves to easy fixes. Economists have had to revise their models to try to come up with solutions. They have jettisoned old, Walrasian-type notions of perfect markets, where an auctioneer matches job seekers with jobs, perfectly clearing the market from excess unemployment (or excess jobs) by changing wage structures. Economists trying to tackle stubborn unemployment start, at the outset, with recognizing that goods and labor markets are not “perfect.” They further require direct labor market policies where governments take an active role in managing the labor market and equipping job seekers with the skills they need to compete, be they technical and knowledge skills or behavioral. In addition, foreign labor recruitment is managed hand-in-hand with domestic labor policies, at the sectoral and firm levels.
Alternatively, we can cling to the hope that CDSI figures are wrong and that the situation is much better than its data reveal.
