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The Saudi labor market is segmented in several aspects, be it in wages, work hours or skills with unique challenges facing the employment of Saudis in the private sector. Data released by the Central Department of Statistics and Information showed that the overall unemployment rate in Saudi Arabia was healthy by international standards at 5.7% during the first half of 2015. This reflected the positive general employment stance of the non-oil economy and the private sector in particular. However, the challenge to the Saudi labor market is rooted in the over-reliance on non-Saudis occupying private sector jobs.
Labor supply
The total Saudi population will increase from 20.7 million in 2015 to 25 million in 2025, with annual average growth in the Saudi population slowing from 2.3% between 2004 and 2014 to 1.7 percent between 2015 and 2025. The Saudi working age will be increased from 13.5 million in 2014 to 17.9 million in 2025. This implies that working age Saudis will see their share of the total Saudi population increasing from 65% in 2014 to 72% in 2025, an increasing from 65% in 2014 to 72% in 2025. The increasing share of the working age Saudi population is also consistent with the United Nation’s (UN) estimates of slowing total population growth and falling fertility rates, though UN estimates are not broken down by nationality.
Together with Saudi working age population growth, the Saudi labor force participation rate will increase (the share of employed and unemployed Saudis of the total Saudi working age population) from 41.2% in 2014, to 45% in 2025. This should lead to an increase in the Saudi labor force from 5.6 million in 2014 to 8.1 million in 2025, equivalent to 226 thousand Saudis entering the labor force per year. The Saudi labor force participation rate is also consistent with our view that more Saudis will be encouraged to enter the workforce as more effective reforms continue to be implemented by the Ministry of Labor.
Labor demand
84 thousand new jobs will be created for Saudis per year between 2015 and 2025, compared to 103 thousand jobs created per year on average between 2006 and 2014, pressuring on the fiscal balance as a result of lower oil revenues, and a higher base effect lead to project slower growth in public sector employment.
As for the private sector, the Saudization ratio stood at 22.1% in 2014, meaning that the remaining 77.9% of jobs were held by non-Saudis. Between 2006 and 2014, the number of total jobs created in the private sector was on average 214 thousand per year. . This excludes 2010 as the employment growth from that year was inconsistent with the long-term trend.
On this basis, there are 3 different scenarios for Saudi employment growth in the private sector
No action scenario: The same number of average Saudi job is between 2006 and 2014, at 77 thousand jobs per year. Continuing such growth would cause the Saudi unemployment rate to rise up to 16.9% in 2025. The Saudization rate in the private sector under this scenario will still improve, rising slightly from 22.1% 2014 to 24% in 2025. The implication of this scenario is that even if the private sector succeeds in improving Saudization rates, it might not be enough to reduce the unemployment rate for Saudis.
Baseline scenario: the annual average employment of Saudis in the private sector is put at 156.4 thousand jobs per year. The private sector was able to improve annual hiring of Saudis from an average of 64 thousand between 2006 and 2010, to 92 thousand between 2011 and 2014. 59% of annual job creation should be going to Saudis, with Saudization in the private sector needing to improve from 22.1% in 2014 to 32.3% by 2025. Sectors with the most potential in having an improvement to their Saudization rates include wholesale and retail,construction and manufacturing. This is mainly because such sectors are the most labor intensive and have the potential of creating the highest number of jobs for Saudi.
Source: Middle East labor wordpress
Labor supply
The total Saudi population will increase from 20.7 million in 2015 to 25 million in 2025, with annual average growth in the Saudi population slowing from 2.3% between 2004 and 2014 to 1.7 percent between 2015 and 2025. The Saudi working age will be increased from 13.5 million in 2014 to 17.9 million in 2025. This implies that working age Saudis will see their share of the total Saudi population increasing from 65% in 2014 to 72% in 2025, an increasing from 65% in 2014 to 72% in 2025. The increasing share of the working age Saudi population is also consistent with the United Nation’s (UN) estimates of slowing total population growth and falling fertility rates, though UN estimates are not broken down by nationality.
Saudi labor force growth forecast
Together with Saudi working age population growth, the Saudi labor force participation rate will increase (the share of employed and unemployed Saudis of the total Saudi working age population) from 41.2% in 2014, to 45% in 2025. This should lead to an increase in the Saudi labor force from 5.6 million in 2014 to 8.1 million in 2025, equivalent to 226 thousand Saudis entering the labor force per year. The Saudi labor force participation rate is also consistent with our view that more Saudis will be encouraged to enter the workforce as more effective reforms continue to be implemented by the Ministry of Labor.
Labor demand
Employment growth forecast
84 thousand new jobs will be created for Saudis per year between 2015 and 2025, compared to 103 thousand jobs created per year on average between 2006 and 2014, pressuring on the fiscal balance as a result of lower oil revenues, and a higher base effect lead to project slower growth in public sector employment.
As for the private sector, the Saudization ratio stood at 22.1% in 2014, meaning that the remaining 77.9% of jobs were held by non-Saudis. Between 2006 and 2014, the number of total jobs created in the private sector was on average 214 thousand per year. . This excludes 2010 as the employment growth from that year was inconsistent with the long-term trend.
On this basis, there are 3 different scenarios for Saudi employment growth in the private sector
Labor market forecast in Saudi Arabia
High employment scenario: the target unemployment rate for Saudis is 0% by 2025. Under this scenario, the required number of jobs going to Saudis in the private sector needs to reach 200 thousand per year. The growth is consistent with reducing the Saudi employment rate to 0 % by 2025. This number of annual job creation for Saudis is significantly higher than the average for the period 2006-2014, a period which saw 77 thousand Saudis employed by the private sector each year.
No action scenario: The same number of average Saudi job is between 2006 and 2014, at 77 thousand jobs per year. Continuing such growth would cause the Saudi unemployment rate to rise up to 16.9% in 2025. The Saudization rate in the private sector under this scenario will still improve, rising slightly from 22.1% 2014 to 24% in 2025. The implication of this scenario is that even if the private sector succeeds in improving Saudization rates, it might not be enough to reduce the unemployment rate for Saudis.
Baseline scenario: the annual average employment of Saudis in the private sector is put at 156.4 thousand jobs per year. The private sector was able to improve annual hiring of Saudis from an average of 64 thousand between 2006 and 2010, to 92 thousand between 2011 and 2014. 59% of annual job creation should be going to Saudis, with Saudization in the private sector needing to improve from 22.1% in 2014 to 32.3% by 2025. Sectors with the most potential in having an improvement to their Saudization rates include wholesale and retail,construction and manufacturing. This is mainly because such sectors are the most labor intensive and have the potential of creating the highest number of jobs for Saudi.
Source: Middle East labor wordpress
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