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The Quest for Increased Saudization: Labor Market Outcomes and the Shadow Price of Workforce Nationalization Policies

Author

Listed:
  • Michael Lopesciolo

    (Center for International Development at Harvard University)

  • Daniela Muhaj
  • Carolina Ines Pan

    (Center for International Development at Harvard University)

Abstract

Few countries have embraced active labor market policies to the same extent as Saudi Arabia. In the aftermath of the Arab Spring, the imperative of increasing Saudi employment became paramount. The country faced one of the highest youth unemployment rates in the world while over 80 percent of its private sector consisted of foreign labor. Since 2011, a wave of employment nationalization efforts has been mainly implemented through a comprehensive and strictly enforced industry and firm-specific quota system known as Nitaqat. This paper assesses the employment gains as well as the costs and unintended consequences resulting from Nitaqat and related policies between 2011 and 2017. We find that while job nationalization policies generated significant initial gains in Saudi employment and labor force participation, the effects were heterogeneous across workers, firms and sectors. Moreover, our analysis suggests that the resulting unintended consequences far outweighed the benefits over time generating a less cost-effective and productivity inhibiting labor market composition.

Suggested Citation

  • Michael Lopesciolo & Daniela Muhaj & Carolina Ines Pan, 2021. "The Quest for Increased Saudization: Labor Market Outcomes and the Shadow Price of Workforce Nationalization Policies," CID Working Papers 132a, Center for International Development at Harvard University.
  • Handle: RePEc:cid:wpfacu:132a
    as

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    File URL: https://growthlab.cid.harvard.edu/files/growthlab/files/2021-07-cid-wp-132-saudi-labor-market-outcomes.pdf
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    References listed on IDEAS

    as
    1. Jennifer R. Peck, 2017. "Can Hiring Quotas Work? The Effect of the Nitaqat Program on the Saudi Private Sector," American Economic Journal: Economic Policy, American Economic Association, vol. 9(2), pages 316-347, May.
    2. Larry L. Howard & Nishith Prakash, 2012. "Do employment quotas explain the occupational choices of disadvantaged minorities in India?," International Review of Applied Economics, Taylor & Francis Journals, vol. 26(4), pages 489-513, August.
    3. Conrad Miller & Jennifer Peck & Mehmet Seflek, 2019. "Integration Costs and Missing Women in Firms," NBER Working Papers 26271, National Bureau of Economic Research, Inc.
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    5. Hertog, Steffen, 2014. "Arab Gulf states: an assessment of nationalisation policies," LSE Research Online Documents on Economics 57578, London School of Economics and Political Science, LSE Library.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    labor market; employment quotas; expatriate workers; workforce nationalization; Saudi Arabia; occupation; skills; labor productivity;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets

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