Saudis Launch Unemployment Insurance... To Encourage Job Creation?

Tyler Durden's picture

With Washington fighting over whether to stop emergency unemployment benefits in the US, the Saudi Arabian government has re-written their economic textbooks with some wonderful new logic. In an effort to encourage its citizens to seek jobs in private companies (as opposed to the majority in government jobs - which the IMF sees as unsustainable), the Saudis are introducing compulsory unemployment insurance for all citizens with jobs. As Reuters reports, "It may not be the most cost effective solution in the near term but if it helps normalise the labour market it is a price worth paying." With unemployment at 12%, and only 30-40% labor force participation, the costs could be significant.

 

Via Reuters,

Saudi Arabia will introduce compulsory unemployment insurance this year for all citizens with jobs, the world's top oil exporter said on Monday.

 

Saudi Arabia, an absolute monarchy that has no income tax, is trying to push more citizens into work to tackle long-term unemployment that officials see as unsustainable in light of high population growth and uncertainty over future oil revenue.

 

The introduction of unemployment insurance is designed to make it more attractive for young Saudis to seek jobs in private companies, where the starting salary and other benefits are less generous than in government jobs.

 

While the official unemployment rate is around 12 percent, economists say only 30-40 percent of working age adults participate in the labour force. Most Saudis who do not have jobs are financially supported by a relative.

 

Most of those who work are employed by the state, but the government cannot support such a large wage bill in the long term, and the International Monetary Fund has warned that the private sector must meet future job demand.

 

"If there is a guarantee of income, particularly when that is connected to the level of previous earnings, it should make people more comfortable with taking positions in the private sector," said Paul Gamble, director, sovereign group, Fitch Earnings.

 

...all Saudi workers in both the private and public sectors will be charged one percent of their monthly salary as a subscription...Their employer will pay the same amount into the scheme

...

Those who lose their jobs will be entitled to up to 12 months of compensation, set at 60 percent of the average salary they earned in the previous three years for the first three months and then 50 percent for the following nine months.

...

Riyadh has raised spending on social benefits in the past three years in response to the 2011 "Arab Spring" uprisings. While Saudi Arabia escaped mass protests, its leaders were uncomfortably aware that unemployment spurred demonstrations elsewhere.

...

 

It is not yet clear if the payments Saudis will make into the scheme will cover the cost of insurance payments.

 

"It may not be the most cost effective solution in the near term but if it helps normalise the labour market it is a price worth paying," said Gamble.

 

Besides the new unemployment insurance, Saudi Arabia has also introduced tough new quotas for companies to employ Saudi nationals as well as foreign workers, who are cheaper and easier to fire.

 

It has also introduced a fee that companies must pay for each expatriate they hire over the number of Saudi workers, and has cracked down on visa irregularities to reduce the number of foreigners looking for jobs inside the kingdom.