Presentation at System Dynamics Colloquium @ MIT 04 December 2015

1. Raid Mahmoud Zaini
Can “Social Mobility” solve Saudi Arabia
Unemployment issue?
04 December 2015
image by: Stefano Viola
http://nalmusaibeeh.com/Ronza/index.html#locations
System Dynamics Colloquium @ MIT

2. Peter Senge
The Fifth Discipline the Art & Practice of The Learning Organization
You don’t get to be sailor who can sail in any conditions over night.
You don’t learn to sail by racing your boat across the pacific.
You learn to sail in some place that is safe.
You learn to sail where whatever might come up you are not liable to drawn.

3. Clarifications

4. Outline
❖ Objective
❖ What is the issue?
❖ Private sector, Small and Medium Enterprises (SME’s)
❖ What’s Next?
❖ Model
❖ Feedback
❖ Thank You

5. Objective
❖ Explore different intervention policies in order to reduce
unemployment in Saudi Arabia.

6. What is the issue?
❖ High unemployment rate among the
Saudis (12%).
❖ Total Saudi population 21 millions
❖ 646,854 (250,886 Male) 5.7% and
(395,968 Female) 32.8%
❖ Labor Force 5,591,563 (4,944,709
employed)
❖ Overall labor force participation rate
is 40%
❖ Males Labor force participation
rate is 64%
❖ Females Labor force
participation rate is 17.3%
0
1
2
3
4
5
6
0 2 4 6 8 10 12 14
Reference Mode
Current
Fear
Hope
Unemployment Reference Mode

7. What is the issue?
❖ 70% of the unemployed Saudis are between (20-29) years old.
❖ The highest unemployment in Saudi Males (50% high school)
(20% B.S)
❖ The highest unemployment in Saudi Females (70% B.S) and
(20% high school)
❖ 36%of Male Guest workers have primary education and
below, 20% intermediate, 18% secondary, 10% Diploma and
22% B.S degree and above
❖ 75% of female Guest workers have intermediate education

8. Population Trend
0
2,500,000
5,000,000
7,500,000
10,000,000
12,500,000
15,000,000
17,500,000
20,000,000
22,500,000
25,000,000
27,500,000
30,000,000
32,500,000
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Saudis Non-Saudi Total

9. Population and Labor Force History
-
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
-
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Unemployment
Total Saudi Employees (Male&Female) Total Non Saudi Workforce (Male&Female)
Total Saudi Unemployed (Male&Female) Unemployment % aKer StarLng Unemployment benefits

10. What is the issue?
❖ Despite the efforts (policies), initiatives, rewards and
penalties by the government, unemployment among saudis
still high, Saudis participation in the private sector is low
and the number of guest workers is increasing.
❖ Policies:
❖ Saudization program (replacing guest workers by saudis)
❖ Nitaqat ( Saudization % depending on the size of the
business)

11. Examples of Initiatives and Penalties
❖Initiatives:
❖Rewards
❖Penalties:

12. Private Sector
❖ Around 70- 75% of Saudis work in Government jobs (over
saturated) a trend can’t continue.
❖ According to Central Department of Statistics and
Information (CDSI) there are 785,407 SMEs (<20
employees) in Saudi Arabia which correspond to 97.4% of
the total establishments which employe 11% of Saudi labor.
❖ According to Ministry of Labor, the percentage of Saudis
working in the private sector is 25-30% only!

13. What’s Next

14. Current Saudi Labor Force Options
❖ So far the only available outlets
for employment are
❖ Government
❖ Large Businesses
❖ Traditional SMEs (TSMEs)
❖ OR the wrong way!

15. Alternative
❖ Create a new path for the
unemployed (Skilled or
unskilled) Saudis to purse
self-employment or
establishing new
entrepreneurial capital
instead of waiting for jobs.

16. Trying to match the unemployed local education and market requirements!

17. The Model
❖ The core structure of the model is based on Professor Khalid
Saeed “Saeed K. 2015. Urban Dynamics. A system thinking
framework for economic development and planing”
❖ SME is the main focus, large business and government sector are
excluded.
❖ SME’s
❖ Self-employment.
❖ Family businesses.
❖ Job Creation
❖ Education and skills should not be an obstacle.

18. Model Assumptions
❖ In this model Entrepreneurial Capital (EC) depends totally on local labor (in reality
some are mixed) while Traditional Capital (TC) depends mainly on guest workers.
❖ Competition between the two sectors is not modeled through feedback loop in the
current model. Competition could be started by changing the unit price by the TC
which could eliminate EC due to the difference in cost/wages structure.
❖ Wage rate (wr)
❖ Guest worker wr< TC local labor wr < EC local labor wr
❖ EC local labor wr can solve the affordability issue of day care and transportation.
However, Saudi has to overcome the obstacles for “women driving issue”
❖ TC local labor wr is constant and it will not escalate unless Guest worker wr > TC
local labor wr (policy test)
❖ EC local labor wr subject to escalation (0.5 initial offered wage > wr < Profit per
Entrepreneurs

19. Model Assumptions
❖ EC cost > TC cost (for a better working conditions)
❖ EC unit price = TC unit price
❖ EC is funded by the Government
❖ Saudization target = 10%

20. Storytelling
Forrester JW. 1969. Urban Dynamics. MIT Press, Cambridge, MA.
Saeed K. 2015. Urban Dynamics. A system thinking framework for economic development and planing

21. The Main Social Mobility Structure
Saeed K. 2015. Urban Dynamics. A system thinking framework for economic development and planing

22. Feedback
❖ Missing important feedback loops
❖ Economic indicators?

23. Thanks You!

25. Government Regulation

26. Traditional Capital

27. Guest workers

28. Effect of Wages Attractiveness on Females Decision

29. Working conditions, Effect of guest workers on Working
Environment and Mixed Gender issue

30. CLDs

31. Entrepreneurial Capital
Growth Loop

32. Wage effect on
Entrepreneurial Capital

34. Traditional Capital Growth
Loop

35. Traditional Capital Reinforcing
and Balancing Loops

36. Balancing Loops for Traditional
Capital Labor Hiring

37. Competing Over Labor

38. Competing Over Land

39. Leveling the playing Field
An increase in
Guest worker
wage will trigger
this loop
Success is not guaranteed
in attracting local labor due to
other factors

40. Traditional Capital Switching from
Guest Workers (TF) to Local Labor

41. Entrepreneurial Capital Creative
Destruction (taking Traditional Capital out)
Loop

42. Traditional Capital Price War
TC profitability is 56% while EC profitability is 12.6%.
A price war by TC could starts EC destruction

43. Backup slides

44. Clarifications
❖ Important clarifications
❖ The objective of this research is to understand the unemployment
among Saudis in a country that is hosting more than 8 millions
temporary foreign labor. it is not about discrimination or racism
against any nationalities, religion, race or color.
❖ I don't like the following terminologies:
❖ “Importing labor”, import typically for goods and not for
human (at least in Arabic).
❖ “Cheap labor” i would rather use low paid or unskilled labor
but this is what the literature uses.

45. Social Norm
“Social norm–type hysteresis in unemployment
underlines the importance of prompt labor market
intervention before a new social norm of higher
unemployment becomes established”
Clark, A. Unemployment as a Social Norm: Psychological Evidence from Panel
Data. Journal of Labor Economics, Vol. 21, No. 2 (April 2003), pp. 323-351

46. Causes of Unemployment in Saudi Arabia
❖ The government sector is saturated (at least 65-75% of the
Saudis are working in government jobs)
❖ Offered wages (salaries) by the private sector/SMEs are
below Saudis expectation/needs.
❖ Working hours/days in most SMEs are (12-14/6) more than
the government sector (6-8/5) and the large businesses.
❖ Woking environment is less than adequate (Cleanness,
safety, attractiveness) since most of these businesses are
built around the availability of guest workers.

47. Possible Causes of Unemployment in Saudi Arabia
❖ Skills and education mismatch between Saudi labor and
private sector specially SME’s. Or mismatch between
private sector SME’s and Saudi labor skills and
education!
❖ Job Status or Job label
❖ Attitude of some Saudis towards work!

48. Possible Causes of Unemployment in Saudi Arabia
❖ Obstacles for female employment outside the government
sector:
❖ Mixed gender at workplace. Considering most of the
businesses in Saudi were built around males, some females
could accept totally mixed environment, some will accept
“somehow mixed” and some will not accept any mixing at all
❖ Working conditions (working hours)
❖ Transportation issues (availability and cost)
❖ Availability of Day care for potential working mothers

49. Unemployment, Government Expenditures History
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
70.0
80.0
90.0
100.0
110.0
120.0
130.0
140.0
150.0
160.0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
General Index Food and non-alcoholic beverages
Housing , Water, Electricity, Gas, and other fuels Total Expenditures
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
34.0%
35.0%
36.0%
37.0%
38.0%
39.0%
40.0%
41.0%
42.0%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Total Saudi Labor force Par>cipa>on rate Saudi Unemployment %

50. Where to start
Industrial
transformation!
What about
Political
Economy
Cheap low skills
Guest workers
What about
Ethnic
Economy
What about
Ethnic Competition
in work place
Social
networks
What about
Social
normsUnemployment
Proxy
Businesses
Rent
Seeking
Entrepreneurial
Activities

52. Unemployed Saudis and Education Status

54. Unemployed Saudis Age Group
Unemployed Persons
Age Group Male Female Total
Pct%
19-15 13,585 3,702 17,287 2.7%
24-20 112,791 99,240 212,031 32.8%
29-25 75,982 167,983 243,965 37.7%
34-30 30,352 82,498 112,850 17.4%
39-35 10,485 31,883 42,368 6.5%
44-40 4,250 7,052 11,302 1.7%
49-45 2,338 2,933 5,271 0.8%
54-50 1,103 677 1,780 0.3%
59-55 0 0 0
64-60 0 0 0
65+ 0 0 0
Total 250,886 395,968 646,854

55. Saudi Females LFPR and Unemployment

56. Saudi Males LFPR and Unemployment

57. Stock and Flow
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
New labors enter labor market Employed new labors (Saudi's)
Total Saudi Unemployed (Male&Female)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Total Employed (Job created) Saudis Share from total jobs

58. Labor Force Participation Rate
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Total Saudi Labor force Par>cipa>on rate Saudi Male Labor force Par>cipa>on rate
Saudi Female Labor force Par>cipa>on rate

59. Unemployed Saudis and Guest Workers
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
Guest Workers Unemployed Saudis
2015 CDSI InformaBon

60. Employment distribution
7.9%
7.7%
8.1%
7.6%
6.7%
7.5%
6.4%
6.5%
7.1%
7.0%
10.1%
9.0%
10.1%
10.6%
11.1%
12.2%
9.4%
11.8%
13.0%
14.5%
12.6%
12.5%
12.4%
12.7%
12.1%
11.8%
11.7%
10.9%
11.7%
11.7%
15.1%
15.8%
14.4%
14.5%
16.1%
16.1%
15.8%
17.2%
17.8%
16.7%
19.2%
19.5%
20.0%
20.5%
19.0%
18.6%
18.9%
18.9%
16.1%
16.2%
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%
1999
2000
2001
2002
2006
2007
2008
2009
2011
2012
Petroleum & Minerals Real Estate & Business Services
TransportaDon, Storage & CommunicaDons Agriculture, HunDng, Forestery & Fishing
Manufacturing ConstrucDon
EducaDon Wholesale & Retail Trade
General AdminstraDon

61. 635487
661011
646235
678206
888177
712871
756774
611386
805826
735782
649312
658331
363562
334251
319374
338669
516633
601831
638558
659435
931879
912244
948783
972189
352966
432308
390609
397486
669582
751687
763666
883136
1241771
1216075
1287727
1306171
371697
360067
374671
343244
432113
468270
457715
593319
781421
830792
969688
1012412
160550
97233
140802
125477
181819
183444
172010
159382
253855
281503
256435
270153
284895
299124
337070
349043
404301
440887
455733
483439
759051
831998
919540
1046025
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Temporary Foreign Labor (Male) and EducaConal aDainment
illiterate Read&Write Primary
Intermediate Secondary or Equivalent Diploma
Bachelor Degree Higher Diploma/Master Degree Doctorate

62. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Temporary Foreign Labor (Female) and EducaBonal aCainment
illiterate Read&Write Primary
Intermediate Secondary or Equivalent Diploma
Bachelor Degree Higher Diploma/Master Degree Doctorate

63. 98,544
118,039
100,419
99,019
122,972
144,577
137,462
134,502
23,740
29,614
22,182
31,168
43,418
44,986
35,277
30,574
33,505
22,018
35,750
41,563
32,813
30,578
42,614
52,092
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
2006
2007
2008
2009
2011
2012
2013
2014
Unemployed Saudis (Male) and EducaAonal ACainment
illiterate
Read&Write
Primary
Intermediate
Secondary or Equivalent
Diploma
Bachelor Degree
Higher Diploma/Master Degree
Doctorate

64. 115,504
106,302
138,664
156,826
227,273
183,798
257,222
274,356
623
678
458
1,177
1,465
2,707
3,274
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
2006
2007
2008
2009
2011
2012
2013
2014
Unemployed Saudis (Female) and EducaAonal ACainment
illiterate
Read&Write
Primary
Intermediate
Secondary or Equivalent
Diploma
Bachelor Degree
Higher Diploma/Master Degree
Doctorate

65. Unemployment in several countries
12.4%
6.4%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
KOR SGP JPN DEU CAN GBR USA FRA SA
Unemployment % for several countries 2011

66. Employment %
87.6%
93.4%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
KOR SGP JPN AUS DEU NZL CAN SWE GBR ITA USA FRA
Employment % from Total Labor Force 2011

67. Guest Workers % from Total Labor Force
0.9
50.2
0.0
10.0
20.0
30.0
40.0
50.0
60.0
JPN CAN KOR FRA GBR DEU SGP SA
Percentage of Guest Workers in several countries 2009

68. 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Agriculture, Hun9ng, Forestery &
Fishing
Banking & Insurance
Community & Social Services
Construc9on
Educa9on
Electricity, Gas & Water
General Adminstra9on
Health & Social Services
Manufacturing
Petroleum & Minerals
Real Estate & Business Services
Restaurants & Hotels
Transporta9on, Storage &
Communica9ons
Wholesale & Retail Trade
1999
2012

69. Labor Force Participation Rate
34.0%
35.0%
36.0%
37.0%
38.0%
39.0%
40.0%
41.0%
42.0%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Total Saudi Labor force Par>cipa>on rate
❖ While unemployment in Saudi Arabia is an issue in itself, the low labor force participation
❖ rate is a bigger one in my opinion
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
THA
SWE
IDN
BRA
NZL
CAN
SGP
AUS
USA
PHL
GBR
RUS
KOR
DEU
HKG
JPN
FRA
SA with NS
ITA
SA
Labor Force ParLcipaLon Rate for Several Countries

70. Trying to match the unemployed local education and market requirements!

71. Urban Dynamics
❖ Urban Dynamics presented three different categories for
labor force composition (Manager, labor and
underemployed). In addition, Urban dynamics
provided a possibility for “carrier mobility”.
❖ Professor Saeed representation of Schumpeter model’s
provided a cleaver way to overcome the skills and
education mismatch and provided an open path “social
mobility” for unemployed and employed labor to
pursue an entrepreneurial role.

72. “Professor Forrester, on the other hand seemed to view developing countries to have
already grown to capacity and he saw their underdevelopment as a function of a low
welfare homeostasis that had materialized from the growth of competing activities under
capacity constraints. This homeostasis manifests in antiquated infrastructure,
underemployed workforce, inefficient and decaying industrial organization, lack of
innovation and entrepreneurship, and little room to grow – a scenario pretty much
similar to the stagnation experienced at the end of the growth cycle in Urban Dynamics.
Recovery from that state of stagnation to one with a healthy economy in this scenario
would require destruction of old infrastructure and institutions to make room for the new
ones.”
Saeed K. 2011. Dynamics of Income Distribution in a Market Economy: Possibilities for
Poverty Alleviation. In Meyers R (Ed.). Complex Systems in Finance and Econometrics.
Springer Verlag, New York. pp 163-189

73. “Forrester’s Urban Dynamics model moves away from the criteria of
maximizing output growth, productivity and efficiency. It instead attempts to
seek transformation from a problematic composition of workforce and
infrastructure that is creating stagnation to a productive composition that
delivers a progressive environment. Since transformation cannot occur without
clearing the obsolete infrastructure and institutions, creating incentives to pull
them down should be an important part of any development strategy”. Saeed K.
2015. Urban Dynamics. A system thinking framework for economic development
and planing.

74. Interesting !
❖ “Having a public counterpart that is organized and
predictable makes it much more likely that the business
community moves from merchant-capital strategies of
“buying cheap and selling dear” to a more developmentally
desirable Schumpeterian strategy of confronting risk and
making long-term investment” Peter Evans

75. Portes 1998 (X)
“Ethnic niches emerge when a group is able to colonize a particular sector of employment in such a way that
members have privileged access to new job openings, while restricting that of outsiders”
Portes, A. (1998): Social Capital: Its Origins and Applications in Modern Sociology. Annual Review of
Sociology, 24: 1-24.
Adrienne Millbank, 2008
Employers make decision based on assumptions that migrants will continue to be available. They consequently resist
innovation and change or investment in labour saving technology.
Epstein, G. S., Hillman, A. L., & Weiss, A. (1998)
The increase in the legal market wage will lead to less demand for workers, which will, in turn, lead to a smaller illegal
market, ceteris paribus
Raymond KH Chan (1999)
“It might also reduce companies motivation to upgrade the level of technology and the value of the product they were
making”
Bartram, D. (2000)
“to understand what Japanese employers and the government did, instead of importing labor, to resolve the problem of labor
shortages.
Solutions actually advocated by the government and adopted by employers included automation and other means of
increasing worker productivity and output”

76. Bartram, D. V. (1998).
“Resorting to cheap Palestinian labor had the usual effects on the sectors in which they were employed in
particular, it delayed technological advancement In addition, many jobs in both sectors have come to be
considered "Arab work," so that on the basis of status considerations alone many Jews prefer
unemployment, even without benefits.”
“Israeli employers in some sectors built their enterprises on the basis of cheap Palestinian labor to such
an extent that, when access to that labor was interrupted in the late 1980s, Israelis were unwilling to
accept the types of jobs, working conditions, and low pay such employment offered, even as unemployment
increased drastically. Employers thus pressured the state for permission to import other foreigners”
Mellahi, K., & Hinai, Al, S. M. (2000)
The society in GCCs holds a negative image of manual jobs. One of the main contributory factor is the
association of these jobs with low-paid expatriate
Hans G. Bloemen and Elena G. F. Stancanelli (April 2001)
“We conclude that financial wealth has a positive impact on the reservation wage and a negative impact
on the employment probability. Higher levels of wealth result in higher reservation wages, and higher
reservation wages are associated with a lower employment probability.”

77. Philip Martin’s well-known formulation: there is ‘an iron law of labor immigration:
there is nothing more permanent than temporary workers’ (1994: 86).
Martin, P.L. (1994) ‘Germany: reluctant land of immigration’, in Cornelius, W.A., Martin, P.L. and Hollifield, J.F. (eds) Controlling
Immigration: A Global Perspective. Cambridge: Cambridge University Press, 8399
Shimono Keiko**
“It is mainly small companies that are experiencing a labour shortage, a fact which has not received enough attention, As a
result, they employ a lot of foreign workers, whether they are legal or illegal”
Bartram, D. V.
“ We should expect to see government efforts to control rent-seeking behavior in particular when that behavior creates programs
(e.g., foreign labor) that inhabit precisely the kind of structural changes the developmental state is typically attempting to bring
about in the first place”
International labor migration, foreign workers and public policy
“There are two main problems with the emergence of immigrant sectors. First, in a segmented labour market, such sectors are
often afflicted by lowered wages and deteriorating working conditions. As a result, the sectors which have been targeted for
temporary migrant worker programmes eventually develop a “structural demand” for foreign workers and thus suffer from
permanent versions of the very shortages of natives the migrants were imported to cure.”

78. Model Assumptions
❖ In this model Entrepreneurial Capital (EC) depends totally on local labor (in
reality some are mixed) while Traditional Capital (TC) depends mainly on
guest workers.
❖ Competition between the two sectors is not modeled through feedback loop in
the current model. Competition could be started by changing the unit price by
the TC which could eliminate EC due to the difference in cost/wages structure.
❖ Wage rate (wr)
❖ Guest worker wr< TC local labor wr < EC local labor wr
❖ TC local labor wr is constant and it will not escalate unless Guest worker wr >
TC local labor wr
❖ EC local labor wr subject to escalation (0.5 initial offered wage > wr < Profit per
Entrepreneurs

79. Model Assumptions
❖ EC cost > TC cost
❖ EC unit price = TC unit price
❖ EC is funded by the Government
❖ Saudization target = 10%

80. Wages and Working hours/ days
Sectors
Working
Hours
Working
Days
Wage Rate Profitability
TradiPonal Capital 12-14 6 21.6 56%
Entrepreneurial
Capita
8 5 54 12.50%
Government 6-8 5 45-50 -