2009

Establishing the Link:

Unemployment and the UAE
This paper is written in order to try and sum up the possible reasons behind
unemployment rates in the UAE.

Written By: Osama Eyad Abuarga

ID: 20510873
7/11/2009
Dedications and Acknowledgements:

This Report Is dedicated to My Parents who stood by my side and supported

me in every step in my life, Thank You…..

I would also like to thank my instructor Dr. Hussain Al Othman for his much
appreciated effort.

In addition I would also like to thank all my friends for giving me their time in
helping me achieve this report especially S.A.R…
Preface:
Unemployment in the UAE has become somewhat of a puzzle. As the pressure of demographic shifts in
MENA increase, the employment markets in the GCC and UAE are heavily impacted. The UAE is barely
coping with the provision of jobs to absorb the fast growing young generation; the strain of
unemployment is further amplified by the inflow of foreign workers who could be cheaper or more
skilled than the locally available labor. The recent trend in the UAE has been the shift of organizations
from being public companies to private hence the generation of profit is the ultimate goal. In the past
migration played the important role of easing the pressure on the local labor markets, however in these
times of international economic or political situations this method is no longer a solution; hence
alternative methods should be devised to reduce this escalating problem. To give us an idea on how to
go about solving this problem, this puzzle should be further understood and hence address the affecting
factors separately.

This structural imbalance is a result of scarcity of qualified citizens for certain positions or the refusal of
the citizen to work in a certain job or field due to various constrictions. Some methods used were to
falsely solve unemployment by the over employment of the public sector, which in-turn results in
increased budget deficits which in the future could result in overseas borrowings which can be especially
dangerous in the currently fragile economic state or the world.

Recommendations of the GCC was to focus on making nationals on becoming more of entrepreneurs
than just employees in order to further expand the private sector by local interests. Hence the UAE
would be better utilizing oil revenues by funding such initiatives rather than spending this money on
national unemployment security payments.

Unemployment of nationals is further fueled by the reluctance of corporations taking in nationals as

employees as a result of their lack of education and seriousness in the work environment in the sense
that if an employee feels unhappy at his current position or work environment he/she would not
hesitate to fall back on their government’s unemployment schemes and leave work unexpectedly.

IMF recommendations stress on further addressing employment of nationals through long term training
and education as well as appropriate wage policies covering the public and private sectors thus resulting
in competition which would further enhance the human resource market.
The Definitions:
Unemployment occurs when a person is available to work and seeking work but currently without work.
The prevalence of unemployment is usually measured using the unemployment rate, which is defined as
the percentage of those in the labor force who are unemployed.

Economic growth is the increase in the amount of the goods and services produced by an economy over
time. It is conventionally measured as the percent rate of increase in real gross domestic product, or
real GDP. Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to net out the
effect of inflation on the price of the goods and services produced. In economics, "economic growth" or
"economic growth theory" typically refers to growth of potential output, i.e., production at "full
employment," which is caused by growth in aggregate demand or observed output.

GDP (expenditure method) = consumption + gross investment + government spending + (exports −

imports)

Types of GDP and GDP Growth

1. Current GDP is GDP expressed in the current prices of the period being measured

2. Nominal GDP growth is GDP growth in nominal prices (unadjusted for price changes).

3. Real GDP growth is GDP growth adjusted for price changes.

Domestic Demand is aggregate spending in an economy that includes imports but not exports.

Capital Expenditure is payment by a business for basic assets such as property, fixtures, or machinery,
but not for day-to-day operations such as payroll, inventory, maintenance and advertising. Capital
expenditures supposedly increase the value of company assets and are usually intended to improve
productivity.
Private Consumption includes most personal expenditures of households such as food, rent, medical
expenses and so on but does not include new housing.

Government Consumption covers spending on goods and services (defense, judicial system, education,
etc); it therefore excludes the components of government spending that are transfers (such as
unemployment benefits, etc.). Government consumption is much less than private consumption.

Consumer Price Index (CPI) is a measure of the average price of consumer goods and services purchased
by households. A consumer price index measures a price change for a constant market basket of goods
and services from one period to the next within the same city (or in the Nation). It is a price index
determined by measuring the price of a standard group of goods meant to represent the typical market
basket of a typical urban consumer. The percent change in the CPI is a measure of inflation. The CPI can
be used to index (i.e., adjust for the effects of inflation) wages, salaries, pensions, or regulated or
contracted prices.

Current Account is the sum of the balance of trade (exports minus imports of goods and services), net
factor income (such as interest and dividends) and net transfer payments (such as foreign aid).

Hence
The Findings….
Over the last few years or the past five years precisely, the GCC in general and the UAE specifically has
been on a streak of significant successes, these successes would be highly attributed to the strong oil
windfall and associated strong economic growth. This has resulted in a notable increase the number of
job openings and opportunities as the private sector flourished and expanded, thus generally enabling
GCC countries to succeed in the combating of unemployment and correspondingly increasing the labor
participation rate among nationals considering the rapid growth in labor forces.

Due to laws and regulations of the GCC countries it is meaningless to use unemployment methods of
measurements to expatriates this is due to regulations forcing them to leave the country when they
become unemployed. Latest data figures regarding employment in the GCC has reached an
extraordinary 14 million, 18% of which are nationals. Statistics published in 2007 have placed the GCC
unemployment rate at 3.6% which was further reduced 0.04% in 2008 making it 3.2% according to
preliminary estimates by the GCC. In the UAE the unemployment rate dropped to 6% compared to 12%
in 2006.
 Employment Trends in GCC (2007 est.)

With the current world economy looming in comparison to previous years the labor market in-turn is
taking a strong hit as market evidence from member states suggest private sector labor markets are
shrinking in size particularly in the UAE, but also in Kuwait and Saudi Arabia.

Despite the efforts put forth by GCC member states to curb national unemployment through methods
such as nationalization laws, labor markets still face the dilemma of structural imbalance as the public
sector absorbs a much higher percentage than that of the private markets. It has been found that
almost 90 percent of Qataris, 50 percent of Saudis, 86 percent of Emiratis and 84 percent of Kuwaitis,
worked in public sectors. With such figures in existence this is an indication that public sector
employment will no longer be a viable option for new national job applicants as the public sector would
have reached its upper bounds of employment.

However with the existence of figures regarding the public sector, there is sunshine between the clouds
as data indicates that in recent years the private sector has been able to establish new job opportunities
for nationals, as data shows an average annual rate of employment in private sector rose at the rate of
8% over the last 5 years, while the average annual rate of employment in the private sector grew by
2.8%. This shows a shift of the national employment scheme to be more diversified between the public
and private sector however to what this change might be attributed is not clear as it could be caused by
the nationalization programs which came into effect recently or the shift in the general youth trend
towards education and employment.
Employment in the private sector has benefited from the nationalization programs adopted by many
gulf countries, however according to the IMF and World Bank such programs are considered only as
temporary cure as they are neither effective nor viable in the long run underlining that in-order for GCC
countries to improve there would have to be an increase on the emphasis of deploying highly developed
educational programs that would increase the educational level of national as it would provide them
with the tools necessary for the private sector

The Driving Change:

As the UAE demographics profile continues to represent a youthful population the further need for job
positions is a dire priority. This priority becomes the main responsibility of the private sector as the
public sector has reached it upper capacity. While the private sector is the major source of
development and employment in the economy, in the long run it would be beneficial; however in the
short run it may seem impossible especially with the current economic situation. In an attempt to foil
this prevailing problem the UAE has turned to the raising of the nationalization quotas in the private
sector. Other attempts were banning the private institutions from firing nationals unless the company
can provide valid evidence towards making the employee redundant, following the anticipated layoffs as
a result of declining business as are direct implication of weakening economic situations and financial
crisis, which is putting further strain on companies as it might also lead to such companies filing for
bankruptcy if the government is not to put forth attractive incentives. Such moves are also not
significant for employments sake as such applications and restrictions could result in more bad than
good for the economy as it would cause private sector firms to go back into their shells and avoid
expansion projects and investments meaning that the private sector would go into hibernation, which is
quite detrimental to the economy since the private sector is the most important driver of the economy.
Hence in order for government to better combat such downfalls is by removing restrictions from the
private sector and instead think up of strategies that would further heighten the private sectors input
into the economy.

This problem puts forth a major chain reaction as it would put forth 3 major problems starting with the
tightening around credit conditions making financing more difficult as it had become limited and scarce
this problem brings about the second problem which is the rising uncertainty in the global market hence
forcing organizations to scale down on operations, thus resulting in the most critical factor which would
result in the reduction of consumer spending due to lack of liquidity, hence causing firms to reduce
production and in turn making employees redundant. Since the expansion of business activities is one
of the main propellants of the economic growth and job generation such a slowdown in the economy
clearly signifies the downturn in labor markets.
Combating Financial Crises to ease unemployment:
In times of economic instability many methods of combat are inexistence such as the method advocated
by the Keynesian economics which is countercyclical policy which is a situation in which it works against
the cyclical tendencies in the economy which in-turn help cool the economy when it is in an up-swing
and stimulate the economy when it is in a downturn. However other schools of economic thought such
as monetarism and new classic macroeconomics school who favor the use of a laissez-faire fiscal policy.
Due to the several press releases issued by the UAE government officials, one comes to understand that
the chosen method by the UAE is the use of the countercyclical policy. The reasoning behind this is
quite clear, expansion results as a byproduct of domestic demand and foreign demand. In the GCC
domestic demand accounted for 70% of GDP in 2006 within this was the percentage directly attributed
to private consumption which stood at 45% which is more than double of that of the government
consumption. Investments made by the private sector and the government total to 30%. As a result of
the economic downfall the private consumption is sure to fall drastically however the only capable body
would be the government hence the only powerful tools that could be used to steer the economy to the
desired direction is through the usage of Government Consumption and Government Investment.

The benefit of using such tools was acknowledged by the member states of the GCC and hence
monetary policies have been adjusted accordingly bearing this in mind in early 2009 government
expenditure has received a significant boost as part of the budget in countries such a Kingdom of Saudi
Arabia, UAE, Oman and Bahrain however Qatar and Kuwait announced its intention to boost spending
but has not posted any physical figures.

Overall the upcoming set of years is set to be a challenging year for the UAE and a test of fiscal stamina
of the respective country, which considerations taken into mind the fiscal constraints pose as a
challenge for the ability to increase job opportunities or even keep currently existing jobs. We also come
to relies that whenever there is growth, unemployment is reduced and when there is recession
unemployment grows.
Economic Statistic of the GCC member countries:
Unit 2005 2006 2007
Bahrain
GDP USD bns 13.5 15.8 18.4
GDP % 19.8 17.6 16.5
CPI % 2.6 2.1 3.3
Current Account USD bns 1.5 2.2 2.9

Unit 2005 2006 2007

Qatar
GDP USD bns 42.5 56.8 71
GDP % 33.8 33.7 25.1
CPI % 8.8 11.8 13.8
Current Account USD bns 7.5 9.5 10.4

Unit 2005 2006 2007

Kuwait
GDP USD bns 80.8 101.6 112
GDP % 34.7 25 8
CPI % 4.1 3 5.5
Current Account USD bns 34.3 51.6 47.5

Unit 2005 2006 2007

Oman
GDP USD bns 30.9 35.7 40.3
GDP % 24.8 15.5 12.9
CPI % 1.9 3.4 5.9
Current Account USD bns 4.9 5.1 1.9

Unit 2005 2006 2007

Saudi Arabia
GDP USD bns 315.3 356.2 381.5
GDP % 26 12.9 7.1
CPI % 0.7 2.2 4.1
Current Account USD bns 90 98.9 95
 Unit 2005 2006 2007
UAE
GDP USD bns 139.7 170.1 198.7
GDP % 32.7 21.7 16.8
CPI % 6.2 9.3 11.1
Current Account USD bns 24.4 36 37
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