The labor market of the Persian Gulf states and migration processes

The Gulf economies have been growing rapidly in recent decades. In order to maintain economic growth and fill labor gaps in key economic sectors, the Gulf States are heavily dependent on migrant workers, most of whom come from Southeast and South Asia.

The population of foreign background in the countries of the Cooperation Council for the Arab States of the Gulf in 2020 amounted almost 31 million people. This represents on average more than half - 53% of the total population of these countries. And in some countries, it even exceeds the local population at times. Thus, in the UAE 88% of the total population are foreigners, in Qatar (77%), Kuwait (73%).

The current context of employment in the regional countries

The world is increasingly running into technologically changing employment landscape. In recent years, the Gulf States - Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates - have been diversifying their economies into capital- and technology-intensive industries. Through these processes, they become destinations for migrants.

Through their work, migrants make a great contribution to the development of the countries in which they work, but also of their homeland, as they transfer money home and return with new social, financial and human capital.

Remittances from migrants as a percentage of GDP, for example in the main countries of origin of migrants, range from 3% to 24%.

There is a dual labor market in the Gulf countries where locals usually work in the public sector and migrants usually work in the private sector.

For citizens, employment in the public sector is more attractive in terms of wages and social benefits.

Migrants to the Gulf countries tend to occupy positions of low-skilled and semi-skilled workers, mainly in the construction and domestic sectors. They also account for a significant share of the labor force in agriculture, oil and gas production, manufacturing, hospitality and transport.

The Gulf economies are structurally similar and heavily dependent on the growth of the hydrocarbon sector.

Although the hydrocarbon sector was and remains the largest source of GDP in the region, its share has declined significantly over the past 20 years. Only Bahrain and the UAE were less dependent on natural resources, with less than 30% of their GDP coming from mining.

In 2019, this share fell to an average of 29% for the GCC countries, while all other sectors contributing to the economy grew.

Currently, the largest sectors aside from energy are finance and real estate; production (chemical and metallurgical industry); public administration and defense; wholesale, retail trade and hotel business, construction.

However, in fact, the share of employment in the oil industry in the Gulf countries does not correspond to the respective sectoral contribution to GDP.

The largest sector of employment in the countries of the region is the construction industry, not oil and gas. It is followed by wholesale and retail trade and public administration.

In Bahrain, the UAE and Saudi Arabia, the manufacturing sector also plays an important role and employs relatively more people than in Oman, Qatar and Kuwait. The real estate and business sector of the UAE stands out because it employs twice as many people as other Gulf countries.

What changes are expected in the labor market

Changes are taking place in all major sectors of employment in the Gulf countries.

Diversification of the economy at the expense of non-oil sectors has been a primary concern since 2014 following the collapse in oil prices, and the current COVID-19 pandemic is providing momentum in order to speed up this transition.

In fact, in recent years, all six GCC countries have adopted strategic development plans to ensure that the transition from oil dependence is done from the top, with sufficient resources, and with the aim of modernizing and further developing the private sector.

As a rule, these strategies aim to diversify the economy through the creation of high-value-added industries and the creation of a knowledge-based economy. This implies a transition from low-cost and labor-intensive industries to capital-intensive industries that require highly skilled work force.

The renewable energy sector is expected to grow and create more jobs in the GCC. These efforts are led by the UAE, which accounts for 70% of the renewable energy capacity of the Gulf countries, followed by Saudi Arabia (17%) and Kuwait (10%) (World Bank data for 2019).

The manufacturing sector, deeply disrupted by automation and digitalization, is another growth sector in the region.

The GCC countries are also turning to tourism in order to diversify their economies and seize the opportunities provided by their cultural heritage through investment in major transport hubs, historical and natural objects and festivals.

The financial sector across the region has mastered new technologies, namely Fintech − innovative technologies and platforms that either compete with traditional financial services or complement them.

Led by the UAE, this shift includes digital banking, crowdfunding platforms, robotic advisory and crypto-asset exchanges.

These expanding industries will require a more specialized workforce as they develop, but with a different set of skills than the previously dominant industries.

Digitization and automation are changing the employment landscape

Digitalization is the foundation of the economic transformation of the region in all sectors. The shift to automation, accelerated by the current pandemic, is another trend affecting the employment landscape. The trend is fueled by the availability of new technologies and the desire to be less dependent on external labor.

The potential for scaling up automation is high in the GCC, especially in sectors that rely on cheap, low- or semi-skilled migrant labor. This work will be replaced by machines leading to a shift in skills in favor of highly skilled workers.

The tasks that can be automated with the help of new technologies are mainly routine manual tasks such as working on an assembly line, and routine cognitive tasks such as counting and dispensing cash at a bank.

The share of work operations that could be automated with the help of modern technology was estimated at 45% for the GCC in 2018, which is in line with the US (46%) and European Big Five countries (47%).

However, the economic and health consequences of the COVID-19 pandemic may have mixed effects on automation across sectors. Given the various lockdown measures and the rapid transition to remote work, as well as the dire consequences for business and public finances, the desire for technological innovation can accelerate the transition to automation in various industrial sectors.