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Volume :6 Issue : 21 1980      Add To Cart                                                                    Download

SOCIAL FACTORS AND EMPLOYMENT IN SAUDI ARABIA

Auther : Ramon Knauerhase

 
         Modern economic development theory de-emphasizes the importance of social and cultural constrains in the movement of labor from the traditional to the modern sector.  Despite the fact that sociologists and anthropologists point to numerous instances where these factors have been significant obstacles in the development process, most economists assume that adequate incentives, i.e. wage differentials, will guarantee a continuous and smooth flow of labor from the traditions to the modern economic sectors.  This paper shows that the inclusions of social and cultural factors in the supply curve of Saudi labor indeed affect employment, and that it explains the existence of under-employment and unemployment in the native labour force, while a chronic labour shortage requires the importation of nearly one million expatriate workers.
 
          Part one presents a discussion of the distinction between reality and value culture as well as a discussion of the social and cultural characteristics of the Saudi labour force.  Every culture can be divided into segments.  The reality culture and the value culture.  Reality culture deals with facts, i.e. the laws of nature.  Value culture is concerned with man’s relationship to God and the relationship among individuals.  The former is easily transferred from society to society and absorbed by the recipient.  The later is resistant to change, manifesting itself in an unwillingness to take advantage of the new opportunities created by economic development.  Based on the work of Horst Dequin, Motako Katakura and publications of the Saudi government it is shown that the value culture is an important constraint on labor force participation by native Saudis.
 
           Part two presents the theory underlying the analysis.  The Saudi economy is divided into a rural and an urban sector, consisting of several sub-sectors.    The flow of labor is from the rural to the urban sector.  To overcome the aversion to less desirable occupations workers must be paid premium.  The required compensating wage differential is determined by the strength of demand and the distribution tastes.  In the most extreme case the analysis shows that social factors can be so strong that equilibrium cannot exist in the labor market.  In the normal case equilibrium will be established, but owing to the high reservation wage of Saudi workers voluntary unemployment will result.  To meet total demand, foreign labor must be imported, but unemployment among Saudi workers will continue.  The theoretical analysis, further suggests that attempts to limit the number of expatriate workers will lower wages paid to all Saudi workers as well as raise Saudi unemployment. 

           Part three presents evidence that a large and growing informal labor market exists in the urban areas but is concentrated in trade and services occupations with low marginal productivity.  Given the known social preference for this type of employment among Saudis, it can be stated with confidence that the informal urban sector is absorbing seekers into low productivity, low wage, but socially acceptance occupations.  Based on these findings, as well as the evidence presented in Part One, it can be concluded that social and cultural factors have led to unemployment or underemployment of Saudi nationals as predicted by the theory.

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May 18, 2017

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