December 20, 2016

Easing Labor Market Restrictions in the Gulf

Laborers head back to their housing at the end of their workday, in Doha, Qatar. (AP Photo/Maya Alleruzzo)

Labor markets in the Gulf Cooperation Council states are notoriously rigid: in their protection of nationals in public sector employment, in the preferential treatment of nationals in ownership structures of private firms, and in the tight regulation of foreign workers’ mobility. There has been mounting pressure on Gulf states to loosen this system, emanating from both external and domestic sources. First, in recent years, pressures from rights and migrant groups have highlighted worker conditions for the millions of foreigners, many in low wage positions, who depend on work in the Gulf states to send remittances to their home countries. Second, domestic pressures from declining oil revenue and tighter fiscal spending have prompted states to devise ways to squeeze revenue in fees from foreign labor forces, and to improve the competitiveness of domestic labor markets so that, eventually, more citizens might take on the jobs foreigners do to relieve the state from its heavy public sector salary expenditure.

There is gradual movement in labor market regulation in the GCC now.

Bahrain has been active recently in amending its rules on foreign labor, in efforts to raise revenue from visa fees, and more importantly, to try and reshape the quality and quantity of foreign labor within the country. New changes allow a flexible work permit, which allows foreign workers already inside Bahrain to switch employers without needing to return home and reapply for a position (and sparing the expense of a costly intermediary manpower firm). This also allows firms more flexibility in selecting employees, as more competitive, experienced workers will be available in country, reducing hiring costs.

From a rights perspective, workers in transition between jobs will be legal, that is, they will have the ability to take on short-term contracts without falling victim to the informal or black market, which preys on vulnerable workers overstaying their visas. Foreign workers on a standard work visa are still required to notify their employer if they plan to be away from work (or travel abroad) for 15 days or more.

One of the weaknesses of the new flexible visa system is its cost. The 200 Bahraini dinar application fee, approximately $530, is often the equivalent of a month’s salary or more for a service sector or domestic worker. According to the Bahraini Labour Market Regulatory Authority, the 200 dinars per month average foreign worker’s salary, in key service sector industries (hotels and restaurants, construction, trade), is still less than half of a national’s salary. Private sector salaries for Bahraini nationals are protected by higher minimum wage provisions.

In Qatar, a new labor law, Law No. 21 of 2015, went into effect on December 13. The reforms are timely, but among its GCC peers, Qatar still has some of the strictest provisions on foreign labor, including requirements to notify employers before leaving the country. The new law retains restriction on freedom of movement. Workers (with the exception of foreign residents on special “investor” visas) must notify their employers if they intend to leave the country, whether on holiday or for a family or medical emergency. If the employer denies leave, a foreign worker may petition to a new grievance committee, which is supposed to consider the request within three days. Foreign workers are also required to obtain a letter of no objection at the end of a contract to remain in the country and take up a position with a new employer. For many workers, the costs of returning home and securing transportation and engagement with a new employer can set them back years in debt repayments.

Saudi Arabia has made recent efforts to reform its labor regulations, but more in efforts to protect nationals in the private sector. Royal Decree No. M/46 of 05/05/1436H came into force on October 18, 2015, guaranteeing a range of benefits for nationals including maternity leave, end-of-contract compensation, and leave entitlement while serving out a notice period. For foreign workers, the law guarantees protections for workers to retain control of their passports, be paid on time, and receive a copy of a work contract.

The United Arab Emirates amended rules in 2015 for the termination of contracts, in part to protect workers who have not received their salaries for 60 days or more. The ability to exit a labor contract ensures that a worker will be able to secure a new position legally, or even to leave the country.

The next phase of foreign labor regulation may include provisions for longer-term residency, similar to the U.S. Green Card model. In Saudi Arabia, the plan is meant to stimulate local spending and investment by foreign workers, disrupting remittance flows. In all of these cases, there is an effort to recalibrate the relationship between foreign workers and Gulf national economies, in both the reliance on foreign labor and the downward pressure it has on service sector salaries. Additional goals of labor market reform include making GCC states less sites of transit, abuse, and the traffic of people. The ability to capture more of foreign workers’ incomes through government fees while also making their time between employers more productive and less prone to unregulated work and abuse would mark important improvements in governance.

Market Watch is a blog conceived by AGSIW Senior Resident Scholar Karen E. Young seeking to provide insights from the crossroads of Gulf politics and finance.