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|09 October, 2018

Buy and sell: Tradeable work permits could be the answer for companies facing labour market challenges

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Image used for illustrative purpose. A labourer works at Dar Al-Arkan's Al Qasr project construction site in Riyadh October 25, 2009.

Image used for illustrative purpose. A labourer works at Dar Al-Arkan's Al Qasr project construction site in Riyadh October 25, 2009.

REUTERS/Fahad Shadeed

Governments in the Gulf Cooperation Council (GCC) should introduce tradeable work permits to address labour challenges, including those relating to nationalisation targets, according to a new report.

The report, by management consultancy Oliver Wyman, says that allowing companies to sell expatriate work permits to others would have several benefits, including assigning foreign labour to the areas of greatest market need and allowing companies to recoup the costs of training national citizens through the permit sales.

GCC governments have sought to address unemployment among citizens by imposing targets for employment of local nationals since 1993, when the first quotas for employing nationals were introduced in Kuwait. But this has been both a regulatory burden for governments as well as well as an administrative burden for firms, the report said.

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“A market approach that uses tradeable permits to control the aggregate supply of expatriate labour could offer the benefits governments seek while mitigating the harmful effects in terms of reduced competitiveness and increased regulatory burden,” it said.

The report, titled Tradeable Permits, A market driven approach to achieve national employment objectives in the GCC, added that these permits “would naturally allocate expat labor to the areas of the economy where it is most needed and minimise expatriate labour presence where credible alternatives exist.”

Abhishek Sharma, partner, public sector, at Oliver Wyman, said the industries for which a tradeable permit scheme might be of particular benefit varied between different Gulf states.

The construction sector, where there is still a heavy reliance on cheap foreign labour at the lower waged end of the sector was a good example, he said, as the availability of cheap labour is currently a disincentive for hiring local nationals, and also leads to slower progress in automation, which could be reducing the competitiveness of GCC companies on a global scale.

“Lower cost labour actually can slow the progress of automation, so you will see lower levels of it in places where cheap labour is available,” he said, adding that despite the perception that automation leads to job losses, in every event in history automation has actually led to an increase in jobs, and an increase in demand, as jobs under automated systems require higher skill levels.

The report estimates that between 1.2 and 1.6 million young nationals will enter the GCC labour market by 2019. It also cited a mismatch between the skillsets of the national labour force and private sector requirements as the third major challenge to the market.

Governments would need to be the ‘market makers’ in order to make the system work, Sharma said, settling on a ‘correct price’ for the permit sales.

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(Reporting by Imogen Lillywhite; Editing by Michael Fahy)

(Imogen.lillywhite@refinitiv.com)

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