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Studies 05 March, 2012

Discrepancies in Public and Private Sector Pay in Jordan, Qatar and the UAE

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Hazim Rhahla

A Jordanian national born in 1975, Hazem Rahahleh earned his PhD in Economics from the Dramstadt Technical University in Germany in 2005, who presently sits on the Board of Directors for the Jordanian National Hardship Fund. He worked as an Economic Adviser to the General Director of the Public Institution for Social Security in Jordan, also serving as a Director for the Research and Development Unit within that same body. He further served as an Economic Adviser to the Ministry of Labor, and as an Economics Lecturer at various Jordanian universities. He further worked as a Primary Adviser to the World Bank in Jordan on Social Security reforms, in which capacity he helped to formulate the first system of unemployment benefits in Syria. He has written and published several works which deal with social security and financial stability, as they relate to economic crises within the European Union.

Abstract

This study examines the challenges the labor market faces in a number of Arab countries with rentier economies - namely, Jordan, the United Arab Emirates and Qatar. One of the major challenges the labor market in these countries faces is the local population's weak involvement in the labor market: the notably low participation of women and the high levels of unemployment, especially in Jordan and the United Arab Emirates. This is particularly significant in light of increasing job opportunities in the aforementioned countries that would be capable of resolving the issue of unemployment if these job opportunities were engaging the local workforce.

Moreover, despite the noticeable development of the job market in all three countries - both in terms of diversifying production and the increased participation of the private sector in the economy - this study demonstrates that the workforce is concentrated in the public (government) sector. This is evident in the high level of demand for public sector jobs in comparison to private sector jobs and jobseekers' preference for governmental positions as opposed to private sector employment.

In light of this, the present study examines the nature of the discrepancy in private and public sector salaries and the extent to which salaries vary between different sectors of the economy, in an attempt to explain the high demand for public sector employment as well as to shed light on the reasons behind jobseekers' preference for jobs in particular sectors of the economy and not others. The study shows that the local / national workforce tends to seek employment in sectors with relatively high incomes whereas demand is significantly low - or absent - in sectors offering salaries lower than the reservation wage rate for local workers. The study also sheds light on some of the important factors driving jobseekers' preferences in the three countries examined and its impact on demand for jobs in particular sectors of the economy - for example, working hours, in-kind benefits and so on.

More significantly, the study shows that the average wage in public sector jobs in the countries examined in this study tend to be higher than wage rates offered by the private sector. However, comparative statistical data indicates that there is a reverse trend in higher echelon and managerial jobs in Jordan, whereby private sector salaries for managerial positions increased in 2009. With private sector salaries for managerial positions almost 30% higher than their public sector counterparts in Jordan, this poses a threat to the public sector and reduces its ability to attract the skills and competencies required for a modern, efficient and competitive public administration and civil service.

The study concludes with a number of recommendations that include increasing salaries in the non-tradable goods sector due to their impact on the competitiveness of exports in these sectors. The study also recommends a revision of labor laws and legislation organizing the labor force and working conditions so as to establish a labor market more attractive and more suitable for the desires and expectations of the local workforce.

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