Shifting Non-Work related Benefits to Work-Related Benefits to resolve the Unemployment of Locals in a Typical Oil-Rich Gulf Country
The government of the United Arab Emirates (UAE) is sharing the oil wealth with the local population through various generous subsidies. Most nationals work for the government and compared to the private sector their salaries are far better, they have better working hours and more vacation days. A large pool of low wage migrant workers is active within the country. These two combined lead to unemployment of locals as they cannot compete in the private sector with the low wage migrant workers. Unemployment in 2008 amounts to 38, 186 Emiratis, out of the Emirati labor force of 468, 215. There is no unemployment of non-nationals as they leave the country if they are out of a job and cannot find another job. We conduct a possible cost-neutral policy experiment aimed at increasing the low levels of employment of nationals. Part of the non-work related benefits to the local population are shifted to work-related benefits. The general subsidy to nationals is reduced by 1.0% and this allows for a wage subsidy of 0.9%. The effects of this experiment are analyzed using a multi-sector forward-looking dynamic computable general equilibrium (CGE) model and lead to an immediate drop of unemployment by 4.26%. Over time unemployment settles at a value that is 4.37% lower than its base run value. This is the first attemp to create an forward-looking multisector model for the Gulf region.
Vellinga, Nico, "Shifting Non-Work related Benefits to Work-Related Benefits to resolve the Unemployment of Locals in a Typical Oil-Rich Gulf Country" (2011). Working papers. 49.