As the Arabian Gulf countries look to generate private sector job opportunities for nationals, a common complaint among jobseekers is that the wages in many occupations are unacceptably low.
Certainly, earnings from working as a fast-food server, a janitor, or a furniture salesperson do not meet the expectations set by decades of cushy public sector jobs, which is a primary reason why these low-skilled positions are almost exclusively staffed by migrant workers in the Gulf.
Similar to their western counterparts, many of the Gulf’s jobseekers go on to argue that the solution lies in restricting the intake of low-skilled foreign workers, invoking the law of supply and demand: less competition means higher wages.
But is it that simple? The US’ experience with Mexican guest workers suggests that making it harder to hire foreigners can have a negligible effect on the wages and employment levels of nationals.
Before we explore the reasons why, it is worth addressing misconceptions regarding the willingness of Gulf nationals to perform low-status jobs. Prior to the oil-fuelled migration booms of the latter half of the 20th Century, Gulf nationals would perform all jobs commonly found in a western economy – and even worse ones, such as the physically arduous occupation of pearl diving.
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Rapidly increasing incomes allowed governments to offer their citizens a far more pleasant alternatives – public sector jobs. Any human would prefer a 7am to 2pm air-conditioned desk job to toiling in a field, especially if it pays multiple times the salary. New cultural norms appeared, reinforcing the desirability of white-collar jobs, but such norms are not fixed. In fact today, in Bahrain and Saudi Arabia in particular, simple economics has made ordinary citizens – and society – willing to perform jobs such as clothes retaiersl or telephone customer support. In all societies, for the most part, economic considerations swamp others, and cultural factors are ephemeral.
Therefore, in the present context, raising the wages of low-skilled jobs in the Gulf is likely to increase their uptake among nationals; can impeding competition from them help achieve that goal?
In a recent paper, Michael Clemens (Center for Global Development), Ethan Lewis (Dartmouth College) and Hannah Postel (Princeton University), seek to answer this question by analysing the US government’s 1964 decision to exclude half a million seasonally-employed Mexican guest workers from the labour force. It was a way to enhance both the wages and employment of US citizens who felt that their labour market earnings were being hurt by competition from foreign workers. The researchers gathered data on the wages and employment of nationals before and after the 1964 decision and examined how the evolution of these two outcome variables differed in two dimensions.
First, across counties, as some areas were heavily affected by the reduction in guest workers, while others were barely exposed. Second, across crops, as some, such as tomatoes, offered mechanisation alternatives to manual labour, while others, such as strawberries, were highly reliant upon human hands.
The researchers’ primary finding was that across all counties there was no discernible effect on the wages or employment of US citizens, contrary to the predictions derived from a rudimentary model of supply and demand. Therefore, if the goal was to improve the earnings of nationals who felt that foreigners were undermining their livelihoods, then the policy was a complete failure.
In particular, the study showed that in the crops where mechanisation was available, farms responded to the labour shortage not by raising wages, but by simply adopting capital-intensive technologies that economised the need for labour. And in the remaining crops, higher wages would have rendered the enterprise unprofitable, and so farmers responded to lower labour supply by simply lowering production.
While the US-Mexico 1964 ruling is only one example, a glance at the Gulf’s labour markets at present suggests that policymakers should be very wary of similar results if crude quotas are introduced for low-skilled migrant workers. Automation continues to reduce the need for human hands in many of the sectors dominated by foreign labour, such as retail or construction. Moreover, it would be unsurprising to see employers respond to decreased labour supply with parallel decreases in output, similar to their US counterparts.
It is natural to seek legislative shortcuts, such as immigration restrictions and minimum wages, for higher wages. However, decades of work by labour economists suggest that such interventions are typically ineffective. Instead, there is no substitute for improving the latent productivity of the workforce. Rather than trying to make it harder for Indians and Filippinos to compete with Gulf citizens, Gulf policymakers should focus on enhancing the education, training and experience of their nationals.
Omar Al Ubaydli is programme director for international and geopolitical studies at the Bahrain Center for Strategic, International and Energy Studies, and an affiliated associate professor of economics at George Mason University.
We welcome economics questions from our readers via email (omar@omar.ec) or tweet (@omareconomics).
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Liverpool v Manchester City, Sunday, 8.30pm UAE
NO OTHER LAND
Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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MATCH INFO
Euro 2020 qualifier
Ukraine 2 (Yaremchuk 06', Yarmolenko 27')
Portugal 1 (Ronaldo 72' pen)
Specs
Engine: Duel electric motors
Power: 659hp
Torque: 1075Nm
On sale: Available for pre-order now
Price: On request
Skewed figures
In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.
2025 Fifa Club World Cup groups
Group A: Palmeiras, Porto, Al Ahly, Inter Miami.
Group B: Paris Saint-Germain, Atletico Madrid, Botafogo, Seattle.
Group C: Bayern Munich, Auckland City, Boca Juniors, Benfica.
Group D: Flamengo, ES Tunis, Chelsea, (Leon banned).
Group E: River Plate, Urawa, Monterrey, Inter Milan.
Group F: Fluminense, Borussia Dortmund, Ulsan, Mamelodi Sundowns.
Group G: Manchester City, Wydad, Al Ain, Juventus.
Group H: Real Madrid, Al Hilal, Pachuca, Salzburg.
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If you go
The flights
The closest international airport for those travelling from the UAE is Denver, Colorado. British Airways (www.ba.com) flies from the UAE via London from Dh3,700 return, including taxes. From there, transfers can be arranged to the ranch or it’s a seven-hour drive. Alternatively, take an internal flight to the counties of Cody, Casper, or Billings
The stay
Red Reflet offers a series of packages, with prices varying depending on season. All meals and activities are included, with prices starting from US$2,218 (Dh7,150) per person for a minimum stay of three nights, including taxes. For more information, visit red-reflet-ranch.net.
It
Director: Andres Muschietti
Starring: Bill Skarsgard, Jaeden Lieberher, Sophia Lillis, Chosen Jacobs, Jeremy Ray Taylor
Three stars
THE SPECS
Engine: 6.75-litre twin-turbocharged V12 petrol engine
Power: 420kW
Torque: 780Nm
Transmission: 8-speed automatic
Price: From Dh1,350,000
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FFP EXPLAINED
What is Financial Fair Play?
Introduced in 2011 by Uefa, European football’s governing body, it demands that clubs live within their means. Chiefly, spend within their income and not make substantial losses.
What the rules dictate?
The second phase of its implementation limits losses to €30 million (Dh136m) over three seasons. Extra expenditure is permitted for investment in sustainable areas (youth academies, stadium development, etc). Money provided by owners is not viewed as income. Revenue from “related parties” to those owners is assessed by Uefa's “financial control body” to be sure it is a fair value, or in line with market prices.
What are the penalties?
There are a number of punishments, including fines, a loss of prize money or having to reduce squad size for European competition – as happened to PSG in 2014. There is even the threat of a competition ban, which could in theory lead to PSG’s suspension from the Uefa Champions League.
