The UK recently announced the suspension of visas for low-skilled immigrants. Emulating this policy might seem attractive to Saudi Arabia, which is striving to create jobs for nationals, but doing so would be counterproductive.
There are three basic reasons for the popularity of restrictions on low-skilled immigrants. First, they supposedly decrease the wages of low-skilled nationals. Second, they create pressure on public goods, such as health and education, and contribute to elevated housing prices. Third, large-scale immigration threatens the host country’s citizens’ sense of identity, such as the denudation of the country’s language.
These claims may seem self-evident to opponents of immigration, but in fact, the empirical evidence is nowhere near as decisive, and often points in the opposite direction. For example, extensive studies of the impact of low-skilled immigration on the wages of low-skilled nationals often find zero effect.
While this may seem impossible to reconcile with the law of supply and demand – surely more people competing for the same number of jobs must push wages down – the dynamics are more complex. In particular, low-skilled migrants spend their earnings on the sorts of goods and services that are provided by low-skilled nationals, and so the worker supply boost caused by their arrival is typically matched by a worker demand boost.
Regardless of the veracity and scientific validity of immigration critics’ claims in the UK, the situation in Saudi Arabia is very different due to the fundamentally different structure of the economy. As a consequence, Saudi policymakers should largely avoid the rhetoric espoused by the likes of Donald Trump and Marine LePen.
In Saudi Arabia, low-skilled foreign workers are guest workers who do not bring their families with them, and who live in designated neighborhoods that are completely unattractive to nationals. Moreover, since they are typically men of working age, they are generally in good health. Accordingly, their demand for housing, education, and health services is materially inconsequential for nationals. That is not to say that there are housing and educational challenges in Saudi Arabia – they exist, but they are not the product of low-skilled immigration. And, unlike the UK, Saudi Arabia has one of the lowest population densities in the world, further limiting the impact on housing.
Moreover, since these guest workers are not on a track for permanent residency or citizenship, unlike their UK counterparts, in general, their culture does not present a sustained challenge to the indigenous culture.
Do they undermine the wages of low-skilled Saudis? Here the picture is more complicated. For a large range of jobs, the answer is definitively “no,” simply because they are jobs that Saudis refuse to do on cultural grounds, such as refuse collectors and domestic helpers.
But for jobs such as sales assistants and flight attendants, there is definitely head-to-head competition. However, unlike advanced economies, since the guest workers are unable to bring their families, and do not plan on settling permanently in Saudi Arabia, they remit most of their income home, meaning that the increase in worker supply is not matched by an increase in demand for the goods and services produced by low-skilled workers.
Moreover, the sheer volume of migrant workers – who account for over half of the workforce – far exceeds the corresponding levels in the advanced economies where studies have found little effect.
This line of thinking underlay the Saudi government’s recent efforts at boosting job creation for citizens by banning migrant workers in certain sectors. This policy has not resulted in the anticipated levels of job creation, due to the need to improve the performance of the education system, and also because the economy has become so reliant upon the low wages of migrant workers. When nationals start up businesses, such as beauty salons or restaurants, their commercial viability depends on the ability to employ migrants at low wages, and cutting this channel off abruptly is hugely disruptive.
The UK government’s statement included the claim that it is “urging employers to move away from relying on cheap [foreign] labor … and to invest in retaining staff and developing automation technology.” This is something that the Saudi economy needs to do, albeit more gradually, and with active government investment support. One of the reasons that the Saudi economy exhibits low levels of innovation and investment in research and development is the abundance of low-cost labor: why toil on developing a new product when you can just hire guest workers for low wages?
The Kingdom’s goal of motivating business to be more innovative, which is nothing to do with the parochialism and xenophobia causing much of the world’s anti-immigrant sentiment, is ultimately a common point with the UK. But it remains too early to close the door on low-skilled labor in Saudi Arabia.
Omar Al-Ubaydli (@omareconomics) is a researcher at Derasat, Bahrain.