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‘Can’t change one without the other’: Reforming labour immigration and labour markets in the Gulf States

Published 27 March 2012 / By COMPAS Communications

Photo by Tawhid Bahrain, COMPAS Photo Competition entry 2010

The Gulf Cooperation Council (GCC) States in the Middle East (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) have over the past fifty years been among the largest importers of migrant workers in the world. In recent years, these countries have been talking about the need to reduce their reliance on migrant labour? Why? And can it be done?

Labour migration to the Gulf

Since the dramatic increase in oil prices and revenues in 1973-74 and 1979, the GCC countries have admitted very large numbers of what are meant to be strictly temporary migrant workers. Migrants now constitute large majorities of the workforce in almost all GCC countries (ranging from just over 50 percent in Saudi Arabia to 95 percent in Qatar), especially in the private sector where relatively few citizens work.

The private sectors of Kuwait, Qatar and the United Arab Emirates (UAE) are effectively 100% staffed by migrant workers. In other GCC countries, the share of nationals in total private sector employment are higher but still less than 50% (Oman 48%, Saudi Arabia 46%, Bahrain 30%).

Although doing all kinds of work including many ‘high-end’ jobs in e.g. the oil industry, the majority of temporary migrants in GCC countries are employed in medium and low-skilled jobs in sectors such as construction, wholesale and retail and domestic services.

Key features of the Kafala (sponsorship) system for regulating labour immigration

The kafala system for regulating labour immigration in GCC countries is essentially an employer-led, large-scale guest worker program that is very “open” to admitting migrant workers but at the same time very restrictive in terms of the rights granted to migrants after admission.

The key feature of the kafala system is that to obtain a temporary work permit migrant workers require a kafeel (sponsor) who is given considerable control over the migrant. In addition to providing employment, the kafeel essentially takes financial and legal responsibility for the migrant after admission.

The temporary work permit requires the migrant to work for their sponsor only. Although illegal in many GCC countries, it is in practice common for sponsors to hold migrant workers’ passports and for wages for the same work to differ. Mechanisms for filing grievances are very limited. Migrants’ rights in the labour market and access to welfare benefits are significantly restricted. In most GCC countries, there is no opportunity to obtain permanent residence. Family reunion is possible but often quite restricted. Since migrants are primarily considered as strictly temporary workers, integration policies and projects are largely absent. In many ways, the kafala system is the world’s largest and strictest temporary migration programme.

Objectives …

The unique design and policies of the kafala system reflect four types of objectives that are broadly shared among all GCC countries:

to provide a cheap workforce for the low-cost provision of goods and services (including domestic services) in the private sector
(in some countries) to help fill vacancies in the public sector
to regulate the perceived impact of immigration on the culture and perceived national identity of the population
to address security concerns potentially arising from large numbers of migrants who outnumber citizens.

Overall, the kafala system has helped develop and maintain a unique economic and social model whose primary aim is to distribute the oil wealth (which in most GCC countries accounts for the great majority of government revenues) among citizens.

A key policy of this model has been to effectively guarantee citizens a job in the public sector where employment conditions and benefits are much higher and working hours much shorter than in the private sector. Large scale temporary labour immigration has thus been used to staff and develop the private sector and to do most or, in some countries, all of the low-skilled work - including the provision of domestic services - which citizens do not wish to do and, under the prevailing economic and social model, are not meant to do.

… and consequences

Given its unique design, the kafala system has had predictable consequences for the labour markets of GCC countries which have in recent years given rise to debates, and in a few countries first concrete steps, about policy reform.

By design not accident, the labour markets of GCC countries have become extremely segmented. There is a fundamental divide between public and private sector jobs as well as high levels of segmentation within the private sector. It is not uncommon for different jobs to be dominated by workers with different nationalities and for workers from different countries to be paid different wages. Given the easy access to migrant workers, wages and productivity levels in the private sector are often low.

In the context of highly segmented markets, the employment of citizens in the public sector has become a major policy issue, mainly because the public sectors of many GCC countries is unable to continue to absorb all citizens and employ them in a productive way. Citizens’ employment rates are very low (less than 30 percent in most GCC countries) and their unemployment rates are relatively high.

The policy response

Most GCC countries have responded to growing un- and under-employment of citizens with “localisation policies” aimed at increasing the share of nationals and reducing the reliance on migrant workers in specific high and medium skilled occupations but notably not in low-skilled occupations where it appears to be accepted that jobs will continue to be done by migrants. Although different countries have experimented with different types of localisation policies, most policies have focused on immigration policy changes such as quotas requiring a minimum share of nationals in employment in specific occupations. Unsurprisingly, the policy changes have so far had limited success.

Probably more so than anywhere else in the world, most GCC countries’ entire ‘economic and social model’ is designed based on the availability of a large number of migrant workers. So reducing the reliance on migrant labour will require far-reaching changes that go beyond changes to migrant admission policies.

The success of the GCC countries’ ‘localisation policies’ critically depends on reforms to other policy areas including, in particular, labour markets. While wages and conditions in the public sector remain significantly higher than in the private sector, and while private sector employers continue to exercise such a high degree of control over migrants, it is difficult to see how the share of nationals in the private sector will increase in any significant way. The real question that will decide whether the GCC countries can reduce their reliance on migrant workers in the long run is not simply whether they can make changes to immigration policy – but whether they are willing to change the fundamentals of their labour markets and other economic and social policies in exchange for fewer migrant workers.