Can We Saudize the Labor Market without Damaging the Private Sector?

Steffen Hertog

Among all the economic challenges on the road to Vision 2030, job creation for Saudi citizens is the politically most important one—and after an initial focus on other Vision-related policy areas, it is increasingly taking center stage in the kingdom’s economic policy debate. However, a formula to guarantee sufficient, sustainable jobs for Saudi citizens is still missing: The Nitaqat employment-quota system has created significant employment since its introduction in 2011, but it has also imposed significant costs on business, and many of the Nitaqat-induced jobs appear to be unproductive or not even real. Relying on natural economic growth to put more Saudi citizens into employment will be insufficient: Not only has growth been muted due to ongoing fiscal adjustments, but whatever private jobs have been created have mostly gone to foreign workers instead. Finally, creating new government jobs is fiscally unsustainable and reduces incentives for Saudi citizens to seek more productive private employment.