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Unemployment in Saudi Arabia

Unemployment in Saudi Arabia

Introduction

Unemployment and inflation are some of the key economic challenges that countries have to tackle, they have to develop and implement policies that are objectively designed in reducing inflation and unemployment to the lowest possible levels. Inflation and unemployment rates are also used in measuring a country economic growth (Shimer, 2012). One of the characteristics of a country that is doing badly in terms of economy is high unemployment rates. On the same note, high inflation rates have also been linked to slow economic growth. It is the primary mandate of the government to ensure it brings down high inflation and unemployment rates of a country. The objective of this paper is to discuss the unemployment and inflation rate of Saudi Arabia.

Saudi Arabia economy

The Saudi Arabia economy is heavily dependent on oil and the government has retained control of most of the major economic activities of the county. The economy of Saudi Arabia is the biggest economy in Middle East and the largest exporter of petroleum products in the world. Saudi Arabia has the third largest reserves for natural resources that are valued at USD 34.4 trillion. According to the 2016 statistics, Saudi Arabia had an estimated population of 31.4 million people. The oil sector accounts for 92.5% of the total budget of Saudi Arabia and 97% of the foreign earnings. In addition, the oil sector accounts for 55% of the GDP. 40% of the GDP comes from the private sector (Gause, 2014).  7.5 million People working in Saudi Arabia are foreigners. Notably, the Saudi Arabian government has been encouraging foreign investors to invest in the country in order to reduce it’s over dependence on the oil sector.

Production output performance

Real GDP growth rates

The Gross Domestic Product (GDP) measures the economic value of all the activities within a country. GDP is the sum of all market values or prices of all the final goods and services produced within the country during a specified period of time.  GDP simply expresses the wealth of a country. Higher GDP is a clear indication of an economy that is doing well economically. In relation to unemployment, countries with high GDP has low unemployment rates, this is because; higher GDP is an indication of more production activities which translate to more job opportunities. As of 2017, the Saudi Arabia nominal GDP was USD 707 billion and it was ranked 20th in the world. In 2015, the GDP growth rate was 4.1% while in 2016; the GDP was estimated to have grown by 1.4% .The average GDP growth rate is 3.4% with a 5.0% 5-year compound annual growth. The GDP for Saudi Arabia fell for in the first quarter of 2017 when compared to the previous quarters. The year change for the GDP was -0.5% when tabulated against the year 2016 GDP results. In the first quarter of 2017, the GDP of Saudi Arabia was $ 171, 239 million and the country was ranked number 18 out of the 50 countries that used the same scale in calculating the GDP figures. The Saudi Arabia quarterly GDP was $4,983, which was higher than the last year’s figures by $ 434. Real GDP growth rate is defined as a percentage that shows the rate of change for a country’s GDP from start of the year to the end (n.a), (2017). The real GDP figures are used by the policy makers that formulate policies that will help the country recover from economic set-backs. The figures also show the areas of the economy that need to be improved by making the most justified adjustments.

Real GDP Per Capita

GDP Per capita is defined as the GDP divided by the mid-year population, GDP per capita is the sum of the total GDP added by the total production of all the country residents plus all the product taxes and less any subsidies that were not included in the value of the products. GDP per capita is calculated by not factoring deductions for the depreciating assets. Saudi Arabia GDP per capita in 2016 reached 23, 654.87 USD, this was a decrease compared to 2015 figures that were 25,208.24 USD.  The Saudi Arabia nominal GDP per capita reached 168.98 billion dollars. The deflator (implicit price deflator) increased by 3.52% in June 2017. The gross savings rate of Saudi Arabia was 34.53% in June 2017.

Overall, the government has engaged on a program to improve its economic production by expanding the economy. The government is encouraging private investors to invest in other sectors rather than oil industry. The government has put in place mechanisms to allow other economic sectors such as renewable energy to revive (Alshahrani & Alsadiq, 2014).

Labor market analysis

Unemployment in Saudi Arabia

Unemployment is defined as the state of a worker who is willing and able to work but cannot find work.  Unemployment is also defined as the condition of not having a job despite the fact that, the individual has the capability of working. Unemployment is more than lacking a job, it demands people actually looking for the job and in a situation whereby the people are unable to secure the job in totality; the unemployment t rates are calculated and tabulated as official figures. Employment opportunities are not limited to only the public sector; they are open to all sectors of the economy.  The level of unemployment usually varies with the prevailing economic conditions of a country. As noted earlier, unemployment is a critical indicator of the economic health of a country. There are no real benefits of unemployment; it often leads to over dependency and hence straining the economy. The unemployment rate in Saudi Arabia is all time high of 12.7%. This is in accordance to the official data released by the government agencies in first quarter of 2017. The trend is worrying if it continues in the next couple of years, the government has to do something to stop the unemployment rates from escalating.  Unemployment rate increased to 5.80% in the first quarter of 2017 from the 5.60 in the fourth quarter of 2016. On average, the unemployment rates in Saudi Arabia have been 5.54% from 1999 to 2017.

Table 1: Unemployment rates in Saudi Arabia from 2000-2010

Year Unemployment Percent change
2000 8.15 0.62
2001 8.34 2.33
2002 9.66 15.83
2003 10.35 7.14
2004 11 6.28
2005 11.52 4.73
2006 12 4.17
2007 11 -8.33
2008 9.8 -10.91
2009 10.464 6.78
2010 10 -4.43

 

Graph 1: unemployment rates from 1999 to 2013

From the graphs above, it is evident that, in the last ten years, the unemployment rates in Saudi Arabia have been fluctuating. They rates keep increasing and decreasing as the prevailing economic conditions dictates. All in all, the government of Saudi Arabia have been working so hard to ensure the unemployment rates are reduced to the lowest rates possible. The government have been encouraging the private sector to create more jobs. This is because, most of the people in Saudi Arabia depend on the public sector for job opportunities. There is a general belief that working in the public sector is more advantageous then working in the private sector.

Government’s Measures adopted to achieve full employment

In 2017, the unemployment rates remains all-time high, the sharp increase of the unemployment rates has been linked to the fact that, the economy of Saudi Arabia has been struggling after the decline of the global oil prices. The rising number of the unemployed people is the biggest challenge that the government is dealing with, it had promised to create more jobs but the current situation shows that the government has failed in creating more jobs for the nationals. According to the Saudi press agency statistics, “the total number of Saudis seeking jobs is 906,552, of which around 219,000 are men and 687,500 are women” (n.a), (2017).  The government plan is to cut the unemployment rates by 7% by the year 2030. The same report indicated that, the economy of Saudi Arabia is not creating new jobs for new entrants which makes the unemployment rates to swell by the day. The number of Saudi nationals graduating from colleges and universities has more than double in the past couple of years. The graduates cannot secure employment opportunities because there are limited. Job creation in Saudi Arabia remains a key economic challenge that the government has to deal with. Notably, the government has added more than 433,000 jobs a year but the foreigners take up the most positions. “The private sector is suffering from fiscal reforms and government spending is down. Despite the pressure on expatriates, we’re not seeing enough job growth among nationals to make up for their departure from the market”. The government and other authorities have been making restrictions on the number of foreigners working in the country. They aim is to reduce the 11 million foreigners working in the country so as to give more Saudi nationals more job opportunities.

The increasing unemployment rates in Saudi Arabia is a clear indication that the government economic reforms are failing. The government is unable to keep its economy on track, it is struggling to implement its economic recovery strategy that included creation of more jobs. The labor market is losing 42% of the job opportunities and the little job opportunities available are quickly taken up by the expatriates and hence leaving the Saudi nationals. Unemployment in women and the youth who make up the larger population is high. The government plans and intends to change the dynamics of the job market in order to realign its 2030 vision. The government of Saudi Arabia wants more locals to find works. It needs its people to be proactive in seeking for employment opportunities. The government has an agenda creating more jobs by 9% by 2020 for the Saudi nationals only (Dominic, 2016). More women are being encouraged to seek more jobs. Currently, 28% of the 20-29 years olds in Saudi are unemployed. Around 717,500 Saudis are expected to enter the job market in the next four years. If something is not done, the government will not be able to contain the escalating unemployment rates.

One of the reasons why the Saudi nationals find it difficult to secure jobs in the country is because, they face stiff competition from foreigners. This is because, the Saudi national are not as skilled as the foreigners and hence losing in the job market due to the lack of skills. The government has embarked on training programs that are aimed at making the nationals gain the relevant skills that are needed in the market (Sean, 2017). The government is also seeking to diverse its economy in order to reduce depending on the oil sector too much. The current unemployment problems are related to the downfall of the oil sector prices which led to massive job losses and slow growth of the economy and overall, creating less job opportunities.  The government is also expected to raise the value added taxes and raise fee on foreigners working in the country. The move is expected to discourage influx of foreigners looking for jobs in the country.

Types of unemployment in Saudi Arabia

There are three major types of unemployment in Saudi Arabia that are evident. They include the following; structural, frictional and cyclical. Both structural and frictional are the natural unemployment rates because they are not directly influenced by the forces of demand and supply of goods and services in an economy.

Frictional unemployment

This kind of unemployment arises when the workers decide to leave their old jobs in search for news jobs (Layard, Layard, Nickell & Jackman, 2005).. There are number of reasons that make people leave their jobs, in most cases, people move from one job to the other in search of job satisfaction, it either the workers are looking for better pay or they feel it’s time for them to seek new challenges. In most cases, in Saudi Arabia, the frictional unemployment is common with new graduates who are looking for jobs, they keep moving from one job to the other. In some cases, it happens when the workers are fired or laid off due to unavoidable circumstances

Structural unemployment

Structural unemployment occurs when there are dynamic changes in the economy and leads to the mismatch of skills between the workers and the skills needed by the employers. In Saudi Arabia, the economy is heavily dependent on the oil sector but due to the recent changes in the economy and the government efforts to diversify the economy, a gap of mismatch of skills has been created and that the main reason why most of the Saudis are unable to find work due to lack of skills, matching the jobs available (Layard, Layard, Nickell & Jackman, 2005).

Cyclic unemployment

Cyclic unemployment happens due to changes of business cycle. During the peak seasons, more people are required to work but during the off peak seasons, only few jobs are available for the people. This is mostly evident in the hospitality industry. Workers are contracted for specific periods of the year while rest of the time, they remain jobless.

Price level analysis

Inflation on the other hand is the general increase of prices of goods and services in an economy. Inflation is measured as annual percentage. When the inflation is higher, the consumer purchasing power is usually low. This is because, people will spend more money on a few goods and services. There are two types of inflation that include; demand pull inflation and cost pull inflation. Demand pull inflation occurs when there is a general increase of demand of goods. This happens when a lot of people within an economy gain more purchasing power. Inflation is mostly caused by increased supply of money in an economy. Cost-push inflation on the other end happens when the costs of production sharply increase raising the prices of goods and services (Barro & Grossman, 2008). The increase in costs of production is mostly caused by economic instability associated with wars, political uncertainty and others. Lack of raw materials can also cause cost-push inflation.

According to the Phillips curve, inflation and unemployment are inversely related: this means that, the levels of unemployment decrease when inflation increases (Blanchflower, Bell, Montagnoli & Moro, 2014). Notably, the relationship is not linear, the graph takes an L-shaped form.

The Phillips curve shows the inverse trade-off between inflation and unemployment. As one increases, the other must decrease. In this image, an economy can either experience 3% unemployment at the cost of 6% of inflation, or increase unemployment to 5% to bring down the inflation levels to 2%.”

Conclusion

Unemployment in Saudi Arabia is a real challenge that the government has to deal with and failure to address the problem, the numbers will keep rising. Therefore, it is advisable for the government to take up actions immediately. From the discussions above, we have seen that the government is trying to implement an economic reform program that is designed to create more jobs in the coming years.  By equipping the Saudis with more and appropriate skills, they will be able to take up more job places and hence limiting the foreigners who have taken over the majority of the employment opportunities in the job market.

 

 

References

(n.a), (2017). GDP in Saudi Arabia dropped 3% in first quarter. Retrieved from: https://countryeconomy.com/gdp/saudi-arabia

(n.a), (2017). Saudi Arabia unemployment rate climbs to 12.7 percent. Retrieved from: http://www.aljazeera.com/news/2017/07/saudi-arabia-unemployment-rate-climbs-127-percent-170730163025234.html

Alshahrani, M. S. A., & Alsadiq, M. A. J. (2014). Economic growth and government spending in Saudi Arabia: An empirical investigation. International Monetary Fund.

Barro, R. J., & Grossman, H. I. (2008). Money employment and inflation. Cambridge Books.

Blanchflower, D. G., Bell, D. N., Montagnoli, A., & Moro, M. (2014). The Happiness Trade‐Off between Unemployment and Inflation. Journal of Money, Credit and Banking, 46(S2), 117-141.

Dominic Dudley, (2016). Rising Unemployment Suggests Saudi Government Reforms Are Failing. Retrieved from: https://www.forbes.com/forbes/welcome/?toURL=https://www.forbes.com/sites/dominicdudley/2016/12/08/saudi-unemployment/&refURL=&referrer=

Gause, F. G. (2014). Saudi Arabia in the New Middle East (No. 63). Council on Foreign Relations.

Layard, P. R. G., Layard, R., Nickell, S. J., & Jackman, R. (2005). Unemployment: macroeconomic performance and the labour market. Oxford University Press on Demand.

Sean Cronin, (2017). Youth unemployment one of toughest challenges for Saudi Arabia, IMF official says. Retrieved from: https://www.thenational.ae/business/youth-unemployment-one-of-toughest-challenges-for-saudi-arabia-imf-official-says-1.61693

Shimer, R. (2012). Reassessing the ins and outs of unemployment. Review of Economic Dynamics, 15(2), 127-148.

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