DEVELOPMENT WITH UNLIMITED SUPPLIES OF IMPORTED LABOR: A CASE STUDY OF THE KINGDOM OF SAUDI ARABIA

Saudi Arabia is self-described as a "capital-rich" but "labor-short" country. The Kingdom has chosen to correct this imbalance in its factor endowment by depending for development on imported labor. This study provides a critical analysis of the Kingdom's strategy and its impact on economic and social development, especially the development of indigenous human resources. The study finds that, in recent years, Saudi economic development has become almost completely dependent on imported labor, both skilled and unskilled. This has precipitated a drastic decline in the participation of Saudi labor in the development process through productive employment, a phenomenal increase in the proportion of Saudis who became state-dependent, and a rise of a dual labor-market segregated by the nationality of workers. A distict feature of Saudi modern development is that the rural sector, which contributes about one percent to the GDP, still retains over 50 percent of the indigenous labor force. Close to 90 percent of the workers in the modern sector, however, are expatriates. Rather than augment the indigenous labor force, imported labor has generally been substituted for it. These patterns of flow and allocation of labor are viewed as an outcome of the interaction between market variables (demand, supply and wages) and government policies and institutions. The model depicts an "open" economy with a perfectly-elastic, foreign-dominated supply curve of labor. Wages are determined by the supply prices of imported labor, influenced primarily by the wages prevailing in the exporting countries. The main hypothesis is that the availability of unlimited supplies of cheap, mainly unskilled, migrant labor, has kept market real wages constant at relatively low levels. At the same time, the welfare-oriented income distribution policies of the government tended to raise the supply prices of the unskilled majority of Saudi labor above market wages. The effect was to withdraw Saudi labor from industry, to increase unproductive employment, and to preserve the traditional sector with its massive surplus of Saudi labor. It is concluded that the Kingdom has failed to achieve its stated goal of developing its human resources. Whatever economic development that was achieved has primarily been at the expense of real social development.