As their economies continue the path of diversification, all six Gulf countries have prioritised job creation for their citizens. And while traditional government interventions have been fairly successful, recent research suggests that providing job seekers with accurate information about the best opportunities can help strengthen labour market outcomes at a modest cost.
The question of how to optimally approach the task of job creation has vexed most governments since the late 1800s. In the first half of the 20th century, in the wake of the Great Depression, the British economist John Maynard Keynes and his contemporaries espoused a suite of policies known as “macroeconomic interventions”. These include the now-familiar dyad of fiscal and monetary stimulus. The Gulf governments have used these interventions regularly, especially following sharp and unforeseen declines in oil prices.
A second set of policies that rose to prominence during the 1970s and 1980s involved structural labour market reforms. These include the reduction of regulatory barriers to hiring and firing, and recalibrating taxes to improve incentives for work and hiring. The spirit of these “neoclassical” policies is evident in the Gulf countries’ visions, leading to significant labour market deregulation over the past decade.
The third major class is known as “active labour market policies”, which are interventions that seek to improve the rate at which job seekers are matched with job openings. The career guidance offices that exist in every Gulf university are a manifestation of this approach, as are the wage subsidies that many Gulf citizens benefit from when they enter the labour market following graduation.
A recent paper by Dr Michele Belot (Cornell University) and her colleagues builds on the policy community’s considerable experience using active labour market policies by demonstrating a novel intervention that is both effective and cheap to implement. The study begins by noting that one particularly difficult problem that exists in all labour markets is pockets of job seekers stuck in “slack sectors”. These individuals are looking for work in occupations with few or dwindling vacancies per job seeker, placing them at great risk of becoming quasi-permanent job seekers.
While traditional interventions such as macroeconomic policy or wage subsidies can help in principle, the only sustainable solution is to get them to shift their focus away from the dying occupation and commit wholeheartedly to a new, growing sector. Forcibly training them in the skills required for a new sector is also unlikely to yield the preferred outcome if the job seeker is not convinced that this is the right way to go.
Dr Belot and her colleagues addressed these challenges by providing job seekers in slack sectors with several important pieces of information. First, a personalised visualisation of their primary occupation’s poor prospects by comparing the number of seekers to the number of vacancies. Second, a series of alternative occupations based on common previous transitions (based on the job seeker’s CV) and in jobs that had good employment prospects.
Remarkably, this seemingly innocuous intervention resulted in the employment rate, hours worked and labour income of the job seekers increasing by about 6 per cent after 18 months. More importantly, the cost of the intervention was negligible, since it involved little more than relaying existing data through email. In contrast, traditional instruments such as fiscal policy or wage subsidies cost at least thousands of dollars for every job seeker and frequently have weak and transitory effects. This isn’t to say career and life-changing conversations don’t take place at an individual level, particularly in personalised contexts, but it would help to have a formal structure that facilitates such interactions.
In the context of Gulf labour markets, it is common to see job seekers fixating on their pursuit of a public sector job due to the security and comfort of such occupations. While opportunities do still exist in the government, in general, they are limited when compared to the demand for them expressed by job seekers. Moreover, all of the Gulf economic visions explicitly convey a desire by the state to reduce its role in the economy and to transition from a producer to a regulator, implying a long-term contraction in the size of the public sector workforce. This makes Gulf job seekers who are looking for work in the public sector potential candidates for an intervention inspired by the work of Dr Belot and her colleagues.
Naturally, the Dutch labour markets – where the study was conducted – differ considerably from those of the Gulf, affirming the need for local researchers to reproduce a homegrown version of the original study. However, even if the Gulf version ends up being half as effective as its Dutch progenitor, it would still constitute a striking success for labour market overseers.
In the meantime, the region’s job seekers would do well to heed Keynes’s famous words: “The difficulty lies not so much in developing new ideas as in escaping from old ones.”
