GRM 2010 GRM 2011

Abstract Details

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Caught Between Fiat and Price Distortions: An Alternative Approach to Nationalization in the GCC
Paper Proposal Text :
Nationalization policies in the GCC region aimed at increasing employment of locals in their respective private sector have, at large, been ineffective in achieving their targets. A major cause of their failure to reach their stated target employment rates is imbedded in that, with minor differences such as in the case of Bahrain and Oman, these policies rely heavily on the imposition of employment quotas irrespective to prevalent market forces. This paper introduces an alternative policy approach to nationalization, which is market based. It is suggested to be targeting skilled workers, where locals and migrants are perceived to be imperfect substitutes by both workers and employers. The alternative policy approach is designed to reduce the price distortions existent in GCC’s private labor markets, where locals despite less endowed in terms of productivity-related characteristics, enjoy significant earnings premia over Asians and Arabs who constitute the majority of migrant labor in the GCC region. It proposes the introduction of a tax/subsidy scheme on private employers, who are assumed to be noncompetitive in the output market, competitive in the market for migrant labor and monoposonists in the labor market for locals. Mary The paper also provides empirical estimates of the locals-migrants earnings differentials in GCC’s private sectors. Results show that the premium for locals over the Asians and Arabs, who constitute the majority of migrants in the region, is fully attributable to the difference in the returns to productivity-related characteristics of workers, despite that both migrant groups are on average better endowed.