Michael Lopesciolo

Few countries have embraced active labor market policies to the same extent as Saudi Arabia. In the aftermath of the Arab Spring, the imperative of increasing Saudi employment became paramount. The country faced one of the highest youth unemployment rates in the world while over 80 percent of its private sector consisted of foreign labor. Since 2011, a wave of employment nationalization efforts has been mainly implemented through a comprehensive and strictly enforced industry and firm specific quota system known as Nitaqat. This paper assesses the employment gains as well as the costs and unintended consequences resulting from Nitaqat and related policies between 2011 and 2017. We find that while job nationalization policies generated significant initial gains in Saudi employment and labor force participation, the effects were heterogeneous across workers, firms and sectors. Moreover, our analysis suggests that the resulting unintended consequences far outweighed the benefits over time generating a less cost-effective and productivity inhibiting labor market composition.
 

This paper analyzes the changes in Saudi employment and unemployment between 2009 and 2018 and argues that a supply-demand skill mismatch exacerbated by insufficient job creation, and prevalent Saudi preferences and beliefs about employment underpin the high unemployment problem that coexists with low Saudi employment in the private sector in the country.