September 25, 2010

Making the Case for Flexible Employment in the GCC

In the aftermath of the last global crisis, countries around the world are not only seeking to revive their growth through massive rescue packages but they are also amending their regulatory frameworks to strengthen their economic resilience to future shocks. In particular, labor market reforms towards greater flexibility can significantly help absorb and soften the effects of economic fluctuations. In the GCC, where participation rate typically stands at 50 percent, and unemployment especially among young nationals—even prior to the crisis—is disproportionally high, adopting flexible employment could better address current labor woes but also prepare for unpredictable future turbulences.

The last global crisis has made clear the critical role of not only sound economic and financial regulations, but also labor market rules and practices. The ability of businesses to adapt to changing economic conditions by hiring workers on a part-time or temporary basis could determine to a large extent the speed of their recovery—and by extension the recovery of their country’s economy. Although Gulf Cooperation Council (GCC) countries’ labor laws offer significant flexibility to employers, those regulations typically ignore part-time or temporary work arrangements, rendering such work contracts difficult, expensive, or impractical. This gap inhibits the region’s economic competitiveness in three critical areas: labor participation, employment rate, and overall business agility. By adopting new laws and administrative policies promoting flexible work arrangements, the GCC countries could partially address these issues while strengthening their economic resilience to future downturns.


Why Flexible Employment?

Flexible employment has been credited with contributing to three main macroeconomic benefits:

  1. An increase in overall labor participation

  2. A reduction in unemployment

  3. A boost in overall business agility.


Benefit 1: Increasing Labor Participation

“In the GCC, where the labor force participation rate stands at around 50 percent—well below the 70 percent average in OECD countries—four main demographic segments could benefit from flexible employment arrangement; stay-at-home nationals, spouses of expats, students and retired nationals” said Chucrallah Haddad, partner with Booz & Company.

Stay-at-home Nationals
GCC female workforce participation is among the lowest in the world. “Even compared to the overall participation rate in the region, which dips below global norms at 55 percent, the rate of participation among women is especially notable: Out of roughly 8 to 9 million GCC female nationals of working age, no more than a third hold a regular professional position. The participation rates of women nationals in Saudi Arabia, the UAE, and Qatar stand at around 12 percent, 28 percent, and 35 percent, respectively. Cultural issues, such as the social stigma attached to women working in certain professions, may explain part of the gender gap. But some of these women would enter the workforce—especially in the private sector where schedules are typically more demanding than in public administrations—if they could limit their work hours during the day or tailor their work week to their duties outside the workplace,” said Haddad.

Spouses of Expatriates
Some countries in the GCC, such as the UAE and Qatar, have a substantial number of inactive expatriates. These inactive expatriates are usually sponsored by their spouses, and are technically forbidden from salaried activities unless they undergo a transfer of their sponsorship to a full-time employer. This could prove in certain cases lengthy or cumbersome and certainly does not account for part-time employment options. Fortunately, “In certain countries in the region, it is becoming easier for these inactive expatriates to enter the labor market. In 2008, Qatar allowed spouses of expatriates to work without transferring sponsors if they pay an annual fee. This could significantly reduce the need for additional foreign labor if ‘in-country’ inactive expatriates can easily fill certain much-needed part-time or flexible activities”, said Moncef Klouche, principal with Booz & Company.

Students
The overwhelming majority of students in the GCC cannot combine their studies with full-time employment. However, flexible arrangements could prove attractive for students.

Retired Nationals
Retirees are likely to have up-to-date skill sets and the work experience employers require, yet labor rules in GCC countries restrict their ability to work past retirement.


Benefit 2: Reducing Structural Employment

Beyond providing incentives for various segments of the inactive population to join the workforce, flexible employment could in some cases create the conditions that contribute to reducing part of a country’s structural unemployment. Traditional labor regulations—such as working conditions (e.g., mandatory rest days, standard hours), mandatory social program contributions (e.g., retirement or unemployment contributions), or lay-off protection programs (e.g., dismissal rules, severance packages)—are necessary to protect employees’ rights, but they do increase the cost of employment. With the costs of employment higher, businesses are inclined to focus recruitment and hiring on experienced and tested workers, thereby marginalizing certain demographic groups, especially young and elderly workers.

“Young people’s share of unemployment among nationals in the region is disproportionally high: For example, in 2008, 46 percent of the unemployed in Saudi Arabia consisted of youth, while they constituted only 12 percent of the overall workforce. In Qatar and the UAE 62% and 40% respectively of the unemployed consisted of youth. Given the approaching “youth bulge” in the populations of GCC countries and the reduction in the size of public administration (the default source of employment for many job entrants in the past), the challenge of finding work for young adults will need to lead public-policy agendas,” said Klouche.

Flexible employment in OECD countries has proven to be extremely beneficial to companies and the economy. “Denmark has encouraged young adults and employers to engage in mutually beneficial part-time internships—or “school-to-work” programs—prior to and after vocational studies. As a result, it has the lowest youth unemployment rate in its region (6 percent, against an OECD average of 13 percent in 2008); 55 percent of Danish youth are employed part-time, compared to an OECD average of 28 percent,” commented Haddad.


Benefit 3: Improving Business Agility

Flexible employment also helps businesses remain agile by providing the tools for them to react seamlessly to economic cycles. The option to hire people for specific periods of time means companies can adapt labor forces to the business cycle, hire a temporary workforce during peak periods, and adjust easily when workers are no longer needed. In fact, part-time work arrangements appear to be significantly correlated to business competitiveness, as measured by the World Economic Forum Global Competitiveness Index.

“Industries subject to seasonal demand, such as retail or hospitality, have a great need for flexible employment to calibrate their staffing levels throughout the year. In some Western countries, retailers realize up to 50 percent of their yearly revenue during the last quarter of the year. To adequately respond to this surge, employers hire workers for the quarter only. Managing through such seasonality, or similar peaks in labor demand, with a full-time workforce would not be possible for a competitive seasonal business. In addition, even if demand is held constant, labor force availability can sometimes fluctuate due to maternity leaves and extended sick leave or vacations,” added Klouche.


Approaching Flexible Employment

Although there have been efforts throughout the GCC to create a more welcoming environment for flexible work arrangements—such as the UAE’s 2009 announcement that it would issue regulations to let people, including expatriates, work part time—the region’s governments must take a more holistic and comprehensive approach and:

  1. Create standardized employment contracts for short-term, part-time, and temporary work assignments.

  2. Amend existing labor laws and infrastructure to accommodate flexible work arrangements.

  3. Review all ancillary laws that currently prevent the development of flexible arrangements.

  4. Develop supporting initiatives, such as public awareness campaigns, to promote flexible employment.


Conclusion

Developing a comprehensive legal framework for flexible employment in GCC countries will substantially improve the efficiency of labor markets by spurring greater participation of workers from previously underrepresented groups, contributing to a reduction in unemployment and an increase in overall business agility. This process will require an in-depth analysis of existing labor laws to make sure reforms create enough incentives for both employers and potential employees to engage in flexible work arrangements. The benefit of these reforms will be felt by those demographic groups—especially national and expatriate women, young adults, and seniors—now overlooked by potential employers. For companies, especially those subject to cyclical and seasonal changes in demand, a more flexible labor market would contribute significantly to their ability to compete and prosper.