The Interaction Between Government Budget, Demography and Labor in the GCC: Does Policy Consistency Matter?

This paper utilizes a schematic economic framework in order to evaluate the consistency of population and labor market policies with the mainstay goal of reducing dependence on foreign labor in GCC countries. It reviews recent demographic, labor and budgetary trends and develops a simple approach to trace linkages and impacts of various policy courses and reform measures. It shows that demographic, wage, retirement and public employment policies which anticipate continued oil boom are collectively inconsistent with the long-term goal of reducing dependence on foreign labor. Deployed policy measures largely ignore the fact that the budget is endogenous. That is, it influences demographic and economic relationships (fertility, wages, retirement funds, allowances, etc.) and is also itself influenced by changes in the same relationships. Hence, budget deficit is determined within the system. The paper concludes that policy consistency matters a great deal and that serious considerations must be given to the development of prudent, internally-consistent and market-friendly policy measures in the wake of rising budget deficits.