VII. THE SAUDI LABOR FORCE AND PRODUCTIVITY

Few Saudi statistics are more controversial and politicized than those concerning the population and labor force. Many foreign scholars believe that official Saudi estimates exaggerate the size of the native population and labor force and underestimate the number of foreigners working in the country. The Economist Intelligence Unit has suggested that this has been done in order to minimize reports of Saudi dependence on both skilled and unskilled foreign workers, without whom the economy would grind to a standstill. Official statistics also aim to minimize the importance of the estimated 500,000 Saudi Shi'a, almost all of whom live in the vital eastern oil region. One of the fundamental problems in assessing Saudi demography is the difficulty of estimating the large numbers of illegal Yemeni, Egyptian, Sudanese, Pakistani, and other workers. Many come as pilgrims to Mecca and Medina and then remain illegally to seek jobs. Official statistics of those entering and leaving the country between 1987 and 1991 show a net positive balance of over 700,000. During the boom period between the mid-1970s and mid-1980s, the balance was even larger. Very few foreigners were granted Saudi citizenship (only about 2,000 to 3,000 annually) and most of them were females from Arab countries presumably married to Saudi nationals.

In the late 1970s, unofficial estimates of the total number of Saudi nationals (i.e., excluding all foreigners) ranged between 4 and 5 million. A study published in 1990 estimated the number of nationals at 4-5 million. A 1988 report by the U.S. embassy in Riyadh quoted an estimate of 5-6 million nationals and 3-4 million foreigners. The Saudi rate of natural increase is believed to be a very high 3.6 percent per annum. Therefore, the U.S. embassy's estimate of the number of Saudi nationals in the later 1980s is more or less consistent with the above estimate of 4-5 million Saudi nationals in the 1970s. These outside estimates contrast with much larger official Saudi estimates. Following a national census in 1992, an official announcement stated that there were 12.3 million Saudi nationals and 4.6 million foreigners, making for a total population of 16.9 million in 1992.

Similar discrepancies between foreign and official estimates exist in discussions of the Saudi labor force. The size of the labor force is a function of the population and the labor force participation rate, i.e., the percentage of the population employed or seeking employment. Since women are almost completely excluded from the labor force, the labor force participation rate of the Saudi nationals is 21-22 percent-very low by international standards. This would imply that the number of Saudis in the labor force in the late 1970s was about one million. Looney estimated that there were less than one million Saudis in the labor force in the late 1980s, including 48,000 women. However, official estimates were that there were 1.4 million Saudis employed in FY1979 (excluding the armed and internal security forces), rising to 1.8 million in FY1985. The official estimates also show the number of foreign workers growing very rapidly from 300,000 in the mid-1970s to 1.5 million in 1980 and then to about 2.5 million in 1985-86. Including accompanying family members, the number of foreigners in the country was much higher. In any case, even according to official estimates, the share of expatriates in total employment rose from 20 percent in the mid-1970s to over 50 percent in 1980 and almost 60 percent in the mid-1980s. Unofficial estimates, as well as reports from various labor-exporting countries, indicated that the number of foreign workers was far higher than reported by Saudi officials. Indeed, two American researchers estimated that in the early 1980s, foreigners accounted for as much as 80 percent of the total civilian labor force.

Saudi officials have often expressed concern regarding the country's extreme dependence on expatriate workers. As a result, the 1985-90 Development Plan placed great emphasis on achieving a sharp reduction in the foreign labor force from 2.7 million in FY1984 (the base year of the plan) to 2.1 million in FY1989, while the number of employed Saudis would rise from 1.8 million to 2.2 million. This implied that there would be an overall drop in employment of 226,000, of which 195,000 would be unskilled and semi-skilled foreign laborers, mainly in construction. The overall annual growth target was 4 percent. Achieving this target with a decline in the total number of workers implied a substantial growth in labor productivity (production per employed person) in 1985-90. This would be a major achievement, in sharp contrast to the first half of the 1980s, when employment rose by 46.9 percent while output (measured by value-added) rose by only 28 percent (according to official estimates), Implying an average annual decline in productivity of 2.7 percent.4 In reality, the average annual growth rate for GDP between 1984 and 1989 was a meager 1.4 percent and for non-oil GDP a paltry 0.5 percent. The oil sector is highly capital intensive, and employment in that sector accounted for only 1.5 percent of total employment in the mid-1980s.6 Since non-oil GDP was more or less stagnant, the total demand for labor should hardly have changed in the second half of the 1980s, assuming no change in labor productivity.

In 1985, the government issued strict new rules in order to restrict or reverse the growth of the foreign labor force. According to these regulations, the Ministry of Labor was authorized to ascertain whether local labor was available to fill jobs before companies were permitted to employ foreign workers. These regulations coincided with the mid-1980s recession, when many Saudi employers began to feel the effects of rapid over expansion in terms of employment and began to cut back, including dismissing many workers. The decline was especially marked in construction, where the labor force is overwhelmingly foreign. Despite official policy, Saudi employers still preferred foreign labor, and especially Asians, who were viewed as "harder working and better trained" than Arab or African workers. Apparently, Saudi officials also favored Asians over foreign Arabs for non-economic reasons. Arab expatriates were viewed as a potential source of "social turmoil," whereas non-Arabic speaking Asians were more isolated from the local populations

Without reasonably accurate data on the labor force at the end of the 1980s, one cannot fully assess productivity changes in the second half of the 1980s. The estimates of employment for FY1989 seem way out of line. The sharp rise in employment in construction is not plausible in view of the sharp drop in construction activity in the latter half of the 1980s. According to one estimate, plans to reduce the foreign labor force during the second half of the 1980s had little effect. It is estimated that in 1989 the number of foreigners in the kingdom in 1989 was 3.5-4 million, including accompanying family members. But for the most part, the kingdom did not allow low-wage foreign laborers to bring their family members with them. The large majority of foreigners were in the labor force, in contrast to the low labor force participation rate of the Saudi populations The estimated number of Yemeni workers in 1989 was 1-1.5 million. Another report suggested that there were 3 million foreign workers in Saudi Arabia at the end of the 1980s, about two-thirds of the labor force. One report of the Economist Intelligence Unit suggests that there was a major decline in the number of foreign workers during the second half of the 1980s, mainly due to the recession, and yet another report suggests that there was an increase. The official Saudi statistics cited earlier indicate that the number entering the country exceeded the number leaving in each year between 1987 and 1991-with a net gain of over 700,000. Given such contradictory evidence, all that can be said with reasonable certainty is that the goal of sharply reducing the number of foreign workers by replacing them with Saudis during the second half of the 1980s was not realized. The Financial Times noted in 1988 that there was a slight decline in the number of foreign workers. But as construction workers left, they were replaced by "armies of sweepers and maintenance men, while the number of domestic servants has [also] increased.

Saudi dependence on foreign labor is not confined to the skilled, technical, and professional categories. In fact, the majority of foreigners are unskilled and semi-skilled laborers. The reasons for this are not limited to the very small size of the Saudi labor force. Evidently, an inordinately large share of the Saudi work force is averse to manual occupations, and the proclivity of the growing number of more educated Saudis is toward white-collar jobs. As a result, Saudi nationals are heavily concentrated in the civil service, commerce, and other white collar occupations.

Despite the drop in construction activity in the 1980s, one British scholar asserted in 1986 that Saudi Arabia and other countries in the region would continue to require a large number of foreign workers simply for operations and maintenance of the huge and complex infrastructure built in the 1970s and early 1980s. Moreover, few Saudis are willing and able to replace foreigners in the industrial, agricultural, and some service sectors. According to this study, employers constitute a strong pressure group for permitting the entrance of foreign labor, and landlords and merchants (almost invariably Saudi nationals), interested in rental income and sales pressure the government to ease restrictions on foreigners.

As for the distribution of the labor force, one must distinguish between the private and government sectors. Official surveys of private establishments (excluding agriculture) show that in FY1980 foreigners accounted for 82 percent of the labor force, and that this ratio was unchanged in FY1987. In the latter years foreigners accounted for 95 percent of private sector employment in construction, 84 percent in manufacturing, and in services as a whole, close to 80 percent. A survey of employment conducted by the Jeddah Chamber of Commerce in the early 1990s found that 80 percent were foreigners. It was estimated that about one-third of the Saudi private sector labor force was in jeddah.

Labor force surveys of the economy as a whole (including government and agriculture) show that there was a continued growth in agricultural employment, though it declined as a percentage of total employment in the 1970s and 1980s. The continued growth in agricultural output, noted earlier, was due to heavy subsidization. Excluding an estimated 300,000 nomads, employment in the modern farm sector rose from about 200,000 in the early 1980s to 350,000 in 1986. Except for the owners, the managers and workers are almost all foreigners.

Employment in manufacturing peaked in the mid-1980s and then declined. Much of the decline was in the production of construction-related materials. On the other hand, the production of petrochemicals expanded rapidly, but this is a highly capital intensive industry requiring few workers. The share of manufacturing in total employment was 8-9 percent in the mid1980s. Employment in the oil sector (including exploration, extraction, and refining) rose rapidly until the mid-1980s and then declined. This reflects the overall sharp decline in Saudi oil output between 1982 and 1987. There was a small upturn in the late 1980s, but oil production remained far below the peak levels of 1979-81. On the other hand, oil refining was expanding in the 1980s. The oil sector as a whole employed only about 2 percent of the labor force in the mid-1980s. On the other hand, employment in public utilities (electricity, gas, and water) continued to expand. Like agriculture, public utilities are very heavily subsidized. Farmers receive water at no cost and industry and households pay nominal rates. Electric power rates are also only a fraction of the cost of production. As a result, demand rose far beyond what had been projected by the planners. The Development Plan for 1980-85 had projected that employment in this sector would rise from 32,000 in FY1979 to 47,000 in FY1984. In reality, it rose to 147,000 in FY1984 and 162,000 in 1986, accounting for 4 percent of total employment in the latter year.

The growth in employment has been most rapid in the broad category designated as "other services" (excluding transportation), rising from 568,000 in FY1974 (37 percent of total employment) to 1.1 million in FY1979 (44 percent of total employment), and doubling again to 2.1 million (50 percent of total employment) in 1985. Within this broad sector, employment in trade, finance and business services peaked in FY1984 and then declined in response to the downturn in overall economic activity in the second half of the 1980s. During the recession, there were numerous reports of business failures. The above-mentioned survey of private establishments indicated a small (1 percent) decline in employment in "other services" in FY1987. However, there was continued growth in employment in community and social services, largely in the public sector. Employment in this sector rose from I million in FY1979 to 1.3 million in FY1984. While in other sectors employment began to drop in 1983 and 1984 in response to the recession, there was continued growth in community and social services to 1.6 million in 1986, accounting for 34 percent of total civilian employment. Civil service employment rose from 400,000 in FY1979 to 469,000 in FY1984. Full-time teaching staff in state schools at all levels rose from 161,000 in FY1985 to 215,000 in FY1990, with foreigners accounting for 30 percent in the latter year. The number of health personnel (physicians, pharmacists, nurses, and other technicians) employed by the government rose from 46,000 in FY1985 to 57,000 in FY1990. Foreigners accounted for 83 percent of the staff in the latter year.

The 1985-90 plan projected that the employment of Saudis would rise by 3.9 percent per annum. The stated goal was that public sector employment would be frozen, and only the replacement of foreigners by Saudis would be sanctioned. The bulk of the planned growth in Saudi employment would be in the private sector. The planners were aware of the obstacles: "Saudis entering the labor market will have to possess the education and skills required by the private sector, while their remuneration, motivation, and attitude to work will have to reflect the realities of the private sector." In other words, government planners recognized that Saudi workers would have to put far greater emphasis on the acquisition of technical skills, work harder, and be prepared to accept lower wages and salaries. The planners also noted that the government had established a variety of training programs but that the number of Saudis enrolling was "insufficient." As far as higher education was concerned, planners underscored the fact that the fields of study chosen did not match "the high-level manpower needs implied by technological advances and the diversification of the economy. In short, there were too many Saudi university graduates and too few plumbers, electricians, and other skilled workers. And among university graduates, there were too few with specialized expertise in the more technical fields.

The surveys of private establishments referred to above indicate that between January 1985 and December 1988 the number of Saudis employed in the private sector rose from 290,000 to 328,000, while the number of foreigners increased from about 1.39 million to nearly 1.54 million. Instead of the planned reduction in the number of foreign workers, the private sector increased its expatriate labor force by more than 10 percent in four years. This reflects trends in Saudi education, a continuing reluctance of Saudi nationals to accept non-white collar jobs, and a lingering aversion of Saudi employers to hiring Saudi labor in the belief that they often have "a poor work attitude, inflexibility, low skills, and bad [punctuality]. Moreover, employers often argue that the costs of employing a Saudi are prohibitive, in that they demand higher salaries than foreign workers and their training is very expensive.

The problems associated with unemployment among university educated Saudis are potentially acute. In recent years, education has expanded on all levels, especially university education. There are no tuition fees and even study abroad is highly subsidized. The number of university students rose from 75,000 in 1982 to 130,000 in 1987. This was followed by a decline to 114,000 in 1990. In that year, an additional 3,500 Saudis were studying in universities abroad at government expense. As the U.S. embassy in Riyadh reported in 1989, the cumulatively large number of high school and university graduates, combined with the poor economic outlook of the recession years, left many educated Saudis with no work. They were searching for an "appropriate" position-i.e., a white collar job, preferably in the private sector, but the job did not exist. According to the embassy, the graduates had "expectations based on the boom years, not present realities. Perhaps the poor employment prospects for university graduates was a significant factor in the drop in university enrollment in recent years.

Because of intense pressures to ease the freeze on civil service hiring, partially as a result of the large numbers of unemployed university graduates, in January 1990 the Saudi government announced an expansion of armed forces personnel by 26,000 and of civil service personnel by an additional 20,000. These measures were clearly aimed at reducing unemployment and social unrest. 3 @ile alleviating one problem, however, enlarging the government bureaucracy only aggravated other problems.