The Political Realities of Economic Reform in the Gulf Monarchies

In a nutshell • Economic diversification in the Gulf Cooperation Council monarchies requires labor market reforms. • The current conventional wisdom, from international institutions at least, requires recommends reducing citizen employment in the public sector, cutting wage differentials between the public and private sectors, and improving citizen education. • In this Policy Brief I argue that these steps will fail in the absence of serious steps to address prevailing low wages for less-skilled labor in the Gulf economies. It is not politically feasible to push low or modestly skilled citizens onto the low-wage private sector job market. Given the overwhelming preference of employers for foreign labor the only real alternative for most Gulf regimes is to bifurcate the job market, creating enclaves where citizen labor can be used productively. This requires, first and foremost, strong state institutions capable of fairly and consistently imposing labor market regulations on businesses. • The creation of these institutions is the central challenge facing GCC states in their efforts to make productive use of citizen labor.