In the oil-producing countries of the Middle East, many members of the Gulf Cooperation Council (GCC) have developed labor markets that depend heavily onforeign labor. Can policymakers there look to Singapore and Malaysia for lessons in managing foreign labor in the context of persistent excess demand for labor concurrent with emerging unemployment among nationals?
The emerging economies of Singapore and Malaysia have labor markets with large foreign components because excess labor demand was for a long time met by foreign workers. Immigration policy to manage the inflow of expatriate labor in the two countries consists of highly regulated work permit systems that differentiate workers by nationality, skill level, and sector of activity. The associated permit fees vary across these parameters.
Has immigration policy effectively managed foreign labor flows? These two countries' containment of the foreign labor force at a time of rapid, sustained growth suggests that it has.
It is not enough to establish a stable macroeconomic climate with favorable investment incentives (as Kuwait has learned). In Singapore and Malaysia, complementary measures help make their immigration policies effective. Those measures include nationalization policies that limit opportunities for expatriates, institutional capacity to implement and enforce policy, a macroeconomic environment conducive to growth and job creation, and wage and employment policies that are mutually reinforcing.
Trends in employment composition in both Singapore and Malaysia support the assertion that foreign labor policy effectively targets workers with skills at both extremes of the scale to fill gaps in labor demand unmet by nationals.
But the news is not all good. A huge informal sector of illegal foreign workers in both countries suggests a degree of policy failure.
Household survey data from Malaysia show that foreign workers earn less than their citizen counterparts. Foreign labor shares in labor markets in the Gulf Cooperation Council (GCC) countries range from 50 to 90 percent of the total labor force in the context of persistent excess demand for labor concurrent with emerging unemployment among nationals. Policymakers could look to Singapore and Malaysia for lessons in managing foreign labor. But replicating Singapore's or Malaysia's immigration policies alone, without addressing existing employment and pay distortions, may have limited success, given the very different economies and institutional environments in the GCC.
This paper—a product of the Social and Economic Development Group, Middle East and North Africa Region—is part of a larger effort in the region to study labor issues affecting development and growth. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Alexandra Sperling, room H4-065, telephone 202-473-7079, fax 202-477-0432, Internet address asperling@worldbank.org. The author may be contacted at eruppert@worldbank.org. (38 pages)
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