CUENCA DEL RIO HUANCABAMBA

We now discuss Saudi policy responses in light of the market failures introduced above and offer preliminary suggestions for potential research areas to pursue. A detailed description of the policies discussed can be found in the Appendix. Table 1 shows the market failures in question along with the policies that will be discussed in connection with each.

While we have discussed KASP earlier, it is important to evaluate whether such an extensive

international educational subsidy program will help achieve some of the market failures identified here. While there are reasons to be hopeful that such a program can offer high quality education, by itself this program is unlikely to provide skills that are demanded by the market or help students make better informed educational decisions. Therefore, one needs to complement it with other initiatives, several of which are detailed below.

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Table 2: Market failures and related policies Policies Wage and training subsidies TVTC

/CoE CED OJT

Mini-

jobs/Saifi SSS Doroob Schools not providing in-

demand skills     

Students lack information

on training returns  

Firms and workers lack

incentives to invest in skills     

Education system provides

inadequate quality signals    

Lack of market diversity   

Wage and training subsidies include: Support Women’s Jobs in Factories, Women’s Employment in the Retail Sector, Telework, and Part-time Work.

Skills Market Failure: Schools Fail to Provide the Skills That Employers Demand

TVTC is the main vocational training institution offering a range of class-based secondary and tertiary

education programs. Colleges of Excellence (CoE) is one of the largest programs under the TVTC umbrella focusing mainly on tertiary education for technical and vocational studies. Since these programs focus on technical and vocational skills, they are more amenable to linking the skills provided to employer demands.

In addition, SSS, discussed in detail in chapter VI, can also help improve the quality of training in vocational training institutes by designing and accrediting curricula to meet the needs of the private sector. By gauging the needs of employers in major industries, SSS provides guidelines to institutions like

CoE to teach relevant skills. Programs like SSS help ensure that programs like CoE are relevant by basing

private sector needs on surveys of employer skill needs. These accreditation interventions can help further strengthen and regularize the links between the private sector and the skills market.

On the other hand, the On-the-Job Training (OJT) and Mini-jobs/Saifi programs provide practical training for young job seekers. These training programs aim to expose candidates to relevant, real life experiences in order to improve their skills and help them transition into permanent employment. To the extent that simply providing work opportunities while one is studying can help enhance the link to employers’ demands, these programs can be effective. However, this linkage can be further strengthened if schools can utilize these opportunities to help inform their curricula as well.

Finally, Doroob is a new policy that was introduced by the MoL in December 2014 to provide online training (mainly in classrooms supplied by TVTC) in order to offer practical general and sector-specific skills that can increase the employability of Saudi citizens. While still in the pilot stages, this initiative can also provide opportunities to link educational offerings to employer demands, and the online platform can allow for real-time linkages.

Skills Market Failure: Students Lack Adequate Information about Returns to Different Types of Training

Career Education Development (CED) explicitly provides job counseling and support for prospective job

changers in making career decisions. However, one concern is that the program may be less effective since it comes at a later stage in one's career. Given that many of its beneficiaries have already made their educational choices, they may be unable or unwilling to alter their career trajectories toward areas that are more relevant to the labor market. Therefore, extending such programs to earlier stages in one's educational acquisition can be beneficial. SSS can also help improve the quality of information for students in making their educational choices. This will be the case especially if skills accreditation can then help reveal the returns of the training for various skills. A challenge in all such programs, however, is deciding which form of information is most effective and relevant to students in impacting their career choices. Varying this information and measuring the impact on career choices can enlighten the

Skills Market Failure: Firms and Workers Lack Incentives to Invest in Mutually Beneficial On-the-job Training

As a result of the introduction of the Nitaqat program, private sector firms are mandated to hire more Saudi workers (and, in the case of the retail shops serving women, to employ only Saudi women). To make such steps more practicable, the MoL has introduced various training and wage-subsidy programs to improve the job-relevant skills and increase the employability of Saudi workers, especially women. These programs include Support Women’s Jobs in Factories (SWJF), Female Employment in the Retail

Sector (FERS), Telework, and Part-time Work, all of which seek to improve the supply of labor by

subsidizing training for up to 12 months of wages for two years. The rationale for these policies is the assumption that the training subsidies provided by the government will incentivize private sector firms to continue investing in the capacity development of these workers beyond the subsidized period. Similarly, the Mini-jobs/Saifi and OJT programs provide short-term subsidized work experience for young male and female job seekers, regardless of their skill level. Unlike the majority of the policies discussed above, these programs are not limited to specific jobs. Private sector firms are incentivized to hire Saudis because HRDF subsidizes the wages and training costs for these workers, who are then counted toward the Nitaqat quotas. Moreover, since training occurs on the job, firms are incentivized to target the training to the skills that are beneficial to the firm and can assess the employability of the worker when he or she has completed the six-month training period.

A broader challenge in programs that encourage firms to hire Saudi workers on a short-term basis is whether the firms will provide opportunities that will actually enhance the skill levels of the workers. To the extent that simply working in such firms builds skills, this may not be a major issue. But if the firms need to make extra investments to facilitate this skill upgrade, then these programs may want to link the subsidies to the firms to the quality of the skills given, especially in terms of future employability. Designing such quality-based incentives can offer promising areas for further work.

Labor Market Failure: Education System Provides Low Quality Signals of Skills and Ability

The SSS program is a credentials program aimed at improving the quality of the vocational skills signaled by job seekers to the labor market. However, there are no similar accreditation programs for difficult-to-

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measure non-cognitive skills, acquired through standard secondary and tertiary educational paths, to improve job matching and the transition of job seekers from education to the labor market. In this regards, OJT and Mini-jobs/Saifi can help provide such non-cognitive skills signals. While these programs are relatively short in duration, they may nevertheless provide the firm with a sense of the individual’s non-cognitive skills, especially if these skills are noted on a certificate that the individual receives at the end of the experience. An exploration of the types of skills, and corresponding forms of certification, that employers looking for presents a promising area of further work.

Labor Market Failure: Saudi Labor Market Lacks Diversity in the Public and Private Workforce

A long-term issue is that the Saudi economy needs to provide individuals with a more diverse array of job opportunities, but this is not just limited to the purvey of the MoL. There are no current MoL policies designed to diversify the labor market; rather, most of the current policies, particularly those that target women, constrain beneficiaries to particular jobs or job categories. Human capital efforts and investments, so far, have assumed that these skills are transferrable to the private and public sectors. Moreover, the current efforts of the Ministry are based on the premise that human capital development will lead naturally to economic development, even in the absence of strategic development mechanisms. There may, therefore, be a need to synergize efforts between the Ministry of Economy and Planning and the Ministry of Labor to develop policies that contribute effectively to diversifying the job market while promoting long-term, sustainable development that is compatible with the Kingdom’s goal of shifting toward a knowledge-based economy. This goal, in turn, calls for policies that increase innovation and promote the production of a variety of goods and services.

II. Employability and Unemployment

CHAPTER II:

E

MPLOYABILITY AND

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Taking into account both Saudi citizens and guest workers, the Saudi labor market employs roughly half the working-age population (approximately 10.6 million individuals). However, as non-Saudis need to be employed to obtain a visa for stay, unemployment is primarily a problem for Saudi citizens – there are 26,818 unemployed non-Saudis compared to the 588,431 unemployed Saudi citizens. This is also reflected in employment with only one third of the 13 million Saudi citizens of working age employed. Moreover, Saudi employment is concentrated in the public sector – in 2009, approximately 2.6 million Saudi citizens were employed by the civil service, compared to 1.17 million who were employed in the private sector.25

Saudi unemployment is recognized as an important social and policy problem. Rising unemployment is a particular concern among women (see Chapter IV), as is persistent youth unemployment (see Chapter V). This has led to the Kingdom introducing several policies. Important initiatives include unemployment assistance via Hafiz, incentivizing nationals to work in the private sector with Nitaqat, and providing employability-training opportunities through several educational initiatives.

Below, we first describe unemployment trends and use this to provide context for identifying the problem and making an initial diagnosis of policy issues within the framework of labor market failures. Next, we describe current policy interventions in light of the market failures discussed. We conclude the chapter by providing preliminary ideas on potential research areas.