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Strategy& is part of the PwC network
The case for flexible employment in GCC countries
Booz & Company
Abu Dhabi
Richard ShediacSenior [email protected]
Beirut
Chucrallah [email protected]
Chucrallah Haddad is a partnerwith Strategy& in Beirut. He focuses on large-scale socioeconomic developmentprograms, government restructuring and long-term plans, and modernization andturnaround strategies for public administrations.
Richard Shediac is a senior partnerwith Strategy& in Abu Dhabi. He specializes in financial-services and public-sector projects and has led and participated in various strategy, operations improvement, and organization projects in the Middle East, Europe, and Asia.
Moncef Klouche was a principalwith Booz & Company.
About the AuthorsContacts
Strategy&
This report was originally published by Booz & Company in 2010.
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EXECUTIVESUMMARY
The ongoing global crisis has made clear the critical role of not only sound economic and financial regulations, but also labor market rules and practices. The ability of businesses to adapt to changing economic conditions by hiring workers on a part-time or temporary basis could determine to a large extent the speed of their recovery—and by extension the recovery of their country’s economy. Although Gulf Cooperation Council (GCC)1 countries’ labor laws offer significant flexibility to employers, those regulations typically ignore part-time or temporary work arrangements, rendering such work contracts difficult, expensive, or impractical.
This gap inhibits the region’s economic competitiveness in three critical areas: labor participation, employment rate, and overall business agility. By adopting new laws and administra-tive policies promoting flexible work arrangements, the GCC countries could partially address these issues while strengthen-ing their economic resilience to future downturns.
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KEY HIGHLIGHTS
•FlexiblelaborstandardsandpracticeswouldallowbusinessesinGCCcountriestotapintoareservoirofinactive—andsometimeshighlyskilled—individuals.
•Suchpoliciescanalsohelpreducetheregion’sunemploymentrates,especiallyamongyoungpeople.
• Legaltoolsallowingflexibleemploymentwouldcontributepositivelytooverallbusinessagilitybyallowingemployerstoadjusttheirworkforcetomatcheconomiccycles.
• Toachievethoseobjectives,GCCgovernmentsshouldreformtheirlegalframeworktofullyrealizethebenefitsofflexibleemployment.
compared with their international peers; businesses in the GCC benefit from an environment in which hiring or firing is relatively easy and there are few constraints on minimum wages or pay level (see Exhibit 1). However, there is one area that is ripe for improvement: As a rule, GCC countries do not yet have policies in place to encourage work arrangements with flexible hours, such as part-time or temporary work. Such policies, which are common in Organisation for Economic Co-operation and Development (OECD) countries, offer significant advantages.
In the GCC, flexible work arrangements are largely ignored by laws and regulations, which focus mostly on full-time arrangements and therefore are impractical for flexible work. Outside of typical rules that limit the amount of work required of any employee or require a certain number of days off, GCC labor
As global economic rivalry intensifies, countries must take a hard look at the overall competitiveness of their regulatory framework. In particular, policies that encourage labor market flexibility can be a competitive advantage. Flexibility can be measured in several key ways: The ease with which employers can hire and fire employees; the rules regarding wage determination, minimum wages, and hours; and the types of work arrangements permitted.
GCC countries perform well on most of these dimensions when
THE MANY DIMENSIONS OF LABOR FLEXIBILITY
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LABOR MARKET FLEXIBILITY IN THE GCC AND SELECTED OECD COUNTRIES, 2008
Note:Thegraphratesthesefivemeasuresonascaleof1to10. Source: Economic Freedom of the World: 2008 Annual Report,FraserInstitute;“DoingBusiness2009,”WorldBank;“TheGlobalCompetitivenessReport2008–2009,”WorldEconomicForum;2008IndexofEconomicFreedom,Wall Street JournalandHeritageFoundation;Booz&Companyanalysis
Exhibit 1 GCC Countries Exhibit Labor Flexibility in All but One Key Dimension
0
2
4
6
8
10
Norway
IrelandRepresentativeGCC State
Ease of Hiring
Flexibility of WageDetermination
Flexibility of Hours
Flexibility ofMinimum Wage
Ease of Firing
regulations generally do not account for the possibility that employers or employees may want to work for short-term or part-time periods. Although these arrangements are not necessarily prohibited, many of the processes and fees associated with full-time employment—such as sponsorship rules—are required of part-time or temporary arrangements
as well. That, in effect, makes these arrangements difficult to consummate in a reasonable period of time, and the cost to set them up can significantly remove the financial incentive to set them up in the first place.
The region’s policymakers and private-sector leaders will miss out on significant benefits if they do not
smooth the path for the creation of part-time and temporary work arrangements. Flexible employment has been credited with contributing to three main macroeconomic benefits:
1. An increase in overall labor participation2. A reduction in unemployment3. A boost in overall business agility.
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What Constitutes Flexible Employment?
Flexibleemploymenttypicallyreferstothreetypesofjobarrangementsthatareafunctionofbothdurationofthecontractandthenumberofworkinghoursperdayordaysperweek(see Exhibit A).
Contractual employmentistypicallylimitedinduration:Itexpiresuponcompletionofspecificcontracttermsandoftendoesnotentailregularworkinghours.ExamplesofsuchworkintheGCCincludeadhoctranslationservices,after-classtutoringlessonsorchildcare,orconductingshort-terminventoriesandsurveys.MostOECDcountrieshaveputinplacelightandstreamlinedregulationstofacilitatesucharrangements.Usually,employersneedonlysendasimpleone-pagecontracttotaxandimmigrationauthorities(inthecaseofforeignworkers),toprovidethemwithbasicinformationabouttheservicetoberendered,thenatureofthework,andcompensation.IntheGCC,ontheotherhand,workpermitsprohibitexpatriatesfrombeingemployedbyanyoneotherthantheirsponsors,whichnaturallyprohibitsshort-termcontracts.
Temporary employmentisalsolimitedinduration,usuallytoafewweeksormonths.Unlikecontractualemployment,temporaryemploymententailsregularworkingperiods.Companiestendtousetemporaryworkerstomeetseasonalfluctuationsindemand.Thesefluctuationsoccurregularlyinhospitality,retail,oragriculturebusinesses.Temporarycontractsalsoallowcompaniestoreplaceabsentemployeesforafixedandpredictableduration,asoccurs
Source:Booz&Company
Exhibit A Flexible Employment Types
Tem
por
ary
Per
man
ent
Dur
atio
n o
f Wo
rk C
ont
ract
Limited Time
ContractualEmployment
Part-timeEmployment
Full Time
Time Spent Working per Day or per Week
TemporaryEmployment
Full-timeEmployment
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withmaternityorextendedsickleave.InOECDcountries,becausetemporaryworkerstypicallydonotqualifyforthefullhealthcareorseverancebenefitsrequiredforfull-timeemployees,companiesthatemploytemporaryworkerscanrealizesubstantialreductionsinadministrativeandfinancialburdens.IntheGCC,theonlyexamplesofsuchemploymentare“missionwork”permits,whichareusuallyvalidfor90daysinSaudiArabiaandtheUAE.However,eventhesepermitsarecostlyandtime-consumingtoprocure,andtheprivatesectordoesnotmakefulluseofthem.
Part-time employment doesnottypicallyhaveanendpoint,thoughitdoeslimitthenumberofhoursordaysperweektobeworked.Thesearrangementstendtobeusedmostoftenbyworkingmotherseagertoaugmentfamilyincomewithoutmakingafull-timecommitmenttotheiremployers,studentswishingtofinancetheirstudiesthroughextrawork,orolderworkerseithernearingretirementoraugmentingtheirincomeafterretiring.Aswithotherformsofflexibleemployment,part-timearrangementscomewithsavingstotheemployer:loweroverheadtosupportemployees,greaterflexibilitytoratchetdownorincreaseworkhourstomeetdemand,andreducedbenefitcosts.AlthoughtheGCC’sfull-timeworkpermitsdonotprohibitsucharrangements,thefeesandbenefitsrequiredbylawarenotadjustedtothetermsofthecontract,astheytypicallyareinOECDcountries.Asaresult,laborcostsofpart-timersaredisproportionallyhigherthanthoseforfull-timeemployees.
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Note:Part-timeworkreferstojobsthatrequirefewerthan30hoursperweekfromemployees. Source:OrganisationforEconomicCo-operationandDevelopment;Booz&Companyanalysis
Exhibit 2 Greater Part-time Employment Correlates with Greater Participation Rates
PART-TIME EMPLOYMENT / PARTICIPATION RATE IN OECD COUNTRIES, 2008 (15–64 AGE GROUP)
0 5 10 15 20 25 30 35 40 45 50 55 60
84
80
76
72
68
64
60
24
Part-time Work (Percentage of Total Employment)
OECD
G7countries
Europe
U.S.United Kingdom
Switzerland
Sweden
Spain
SlovakRepublic
Portugal
Poland
NorwayNew Zealand Netherlands
LuxembourgKorea
Japan
88
Ireland
Iceland
Hungary
Greece
Germany
France
Italy
Denmark
CzechRepublic
Canada
Belgium
Austria Australia
Finland
Par
ticip
atio
n R
ate
(%)
BENEFIT NUMBER ONE: INCREASING LABOR FORCE PARTICIPATION
Establishing flexible terms for employment can attract traditionally inactive segments of the population to the labor force. With a tailored work schedule, individuals more easily balance their at-home responsibilities, schoolwork, and other life activities with the demands of employment, which entices them to participate more regularly in the workforce. In fact, OECD countries with higher percentages of part-timers in the workforce exhibit higher overall labor participation (see Exhibit 2).
In the GCC, where the labor force participation rate stands at around 50 percent—well below the 70 percent average in OECD countries—four main demographic segments could benefit from flexible employment arrangements: stay-at-home nationals, the spouses of expatriates, students, and retirees.
Stay-at-home Nationals
GCC female workforce participation is among the lowest in the world (see Exhibit 3). Even compared to the overall participation rate, which is low at 55 percent, the rate of participation among women is notably low: Out of roughly 8 to 9 million GCC female nationals of working age, no more than a third hold a regular professional position. The participation rates of women nationals in Saudi Arabia, the UAE, and Qatar stand at around 12 percent, 28 percent, and 35 percent, respectively. Cultural issues, such as
the social stigma attached to women working in certain professions, may explain part of the gender gap. But some of these women would work if they could limit their work hours or work week to accommodate their duties at home. Allowing them to do so would benefit the GCC economies as a whole by tapping a substantial pool of potential talent, as women in the GCC have on average a higher level of education than men.
Spouses of Expatriates
Some countries in the GCC, such as the UAE and Qatar, have a substantial number of inactive expatriates. These inactive expatriates are usually sponsored by their spouses, and are unable to work on a full- or part-time basis unless they undergo a lengthy and costly transfer of their sponsorship to a full-time employer. These individuals, many of whom have attained significant levels of education and professional skills,
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Note:KuwaitandOmandataisfrom2005,BahrainandQatardataisfrom2007,UAEandSaudiArabiadataisfrom2008. Source:“LabourForceStatistics1998-2008,”OECD,2009;BahrainLabourMarketRegulatoryAuthority;SaudiArabiaMinistryofEconomyandPlanning;UAEMinistryofEconomylaborforcesurvey,2008;Booz&Companyanalysis
Exhibit 3 OECD Countries Outpace GCC Countries in Labor Participation
39%
45%
46%
50%
52%
59%
65%
71%
73%
77%
78%
79%
80%
81%
82%
85%
73%
Bahrain (Nationals)
Saudi Arabia (Nationals)
Japan
Norway
Switzerland
UAE
UAE (Nationals)
Qatar (Nationals)
Turkey
Oman
Bahrain
Korea
Kuwait
Germany
Australia
U.S.
Canada
60%
63%
65%
65%
77%
82%
83%
84%
85%
85%
85%
86%
86%
88%
89%
89%
91%
94%
Bahrain (Nationals)
UAE (Nationals)
Qatar (Nationals)
Saudi Arabia (Nationals)
Turkey
Korea
Oman
Germany
U.S.
Canada
Norway
Australia
Kuwait
New Zealand
Qatar
Switzerland
Japan
UAE
12%
25%
27%
28%
30%
35%
51%
52%
67%
71%
71%
72%
74%
76%
79%
79%
42%
Turkey
UAE (Nationals)
Bahrain (Nationals)
Qatar (Nationals)
Kuwait
Italy
Japan
Germany
Australia
U.S.
New Zealand
Saudi Arabia (Nationals)
Oman
Canada
Switzerland
Norway
UAE
OECD
GCC
Total Workforce Participation(In % of Total Population Ages 15+)
Male Workforce Participation (In % of Total Males Ages 15+)
Female Workforce Participation (In % of Total Females Ages 15+)
LABOR FORCE PARTICIPATION RATE IN OECD AND GCC COUNTRIES, 2008
would likely be willing to work on a part-time or temporary basis if given the opportunity.
In certain GCC nations, it is becoming easier for these inactive expatriates to find employment. In 2008, Qatar allowed spouses of expatriates to work without transferring sponsors if they pay an annual fee of 500 Qatari riyals (US$140). Similarly, in the UAE, the federal government has announced plans to allow the country’s expatriate spouses to work without changing sponsorship. However, these measures are unusual, and do not constitute the kind of comprehensive legislation that would enable part-time work.
Opening work to spouses of expatriates would not necessarily help increase participation rates, but such moves would reduce pressure to import more expatriate labor. That, in turn, would ease some regional tension regarding the demographic imbalance between the number of expatriates and nationals in the population. Students
The overwhelming majority of students in the GCC cannot combine their studies with full-time employment. However, flexible arrangements could prove attractive for students. Work arrangements could include contractual work (e.g.,
off-hours contract-based work), part-time work (e.g., a regular after-class job), or temporary work (e.g., a summer vacation internship).
For student nationals, such an arrangement would have an immediate impact. GCC education systems are often criticized for failing to adequately prepare students for the requirements of the labor market. GCC countries could address this criticism by providing the opportunity for young nationals to participate in compensated internships during secondary school, trade school, or university. These opportunities would give them exposure to the workplace and
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1 Twenty-fivehigh-incomeOECDcountriesand11MENAcountrieswereselected. Source:“PensionsataGlance,”WorldBank2007;Booz&Companyanalysis
Exhibit 4 MENA Workers Retire Earlier Than Those in OECD Countries
Men
RETIREMENT PENSION AGE IN MENA VS. OECD COUNTRIES, 20071
Women
MENA
OECD
13%
74%
13%
0% 0%0%
40%
60%
0%
20%
40%
60%
80%
60 676555
Retirement Pension Age (in Years)
13%
78%
9%
0% 0%
10%
80%
10%
0%
20%
40%
60%
80%
55 60 65 67
Retirement Pension Age (in Years)
Per
cent
age
of C
oun
trie
s in
Reg
ion
Per
cent
age
of C
oun
trie
s in
Reg
ion
better prepare them for full-time employment when they finish their schooling.
For expatriate students in the GCC, part-time work would carry the added benefit of supplementing their income, which can affect their decision to stay in the region for school or immediately after school. Achieving this outcome would require changes in the rules that generally bar them from any salaried activity. For instance, in Singapore, businesses are allowed to hire foreign students at specific universities, with little
administrative overhead, for a maximum of 16 hours per week.
Retired Nationals
Retirees are likely to have up-to-date skill sets and the work experience employers require, yet labor rules in GCC countries restrict their ability to work past retirement. In many other industrialized markets, retirees are allowed to work part time without forfeiting their benefits, under certain conditions. For instance, in Sweden, individuals who are close to retirement age and would like to reduce their working
hours may receive a portion of their pension while working part time. By comparison, in the GCC countries seniors risk losing their benefits if they take up official employment. And because no rules specifically permit retirees to continue working under any arrangement, those wishing to work must depend on special exemptions. This disincentive, combined with the region’s relatively early required retirement age and generous pension benefits, tends to keep seniors from re-entering the workforce after retirement (see Exhibit 4).
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Beyond providing incentives for various segments of the inactive population to join the workforce, flexible employment could in some cases create the conditions that contribute to reducing part of a country’s structural unemployment. Traditional labor regulations—such as working conditions (e.g., mandatory rest days, standard hours), mandatory social program contributions (e.g., retirement or unemployment contributions), or lay-off protection programs (e.g., dismissal rules, severance packages)—are necessary to protect employees’
rights, but they do increase the cost of employment. With the costs of employment higher, businesses are inclined to focus recruitment and hiring on experienced and tested workers, thereby marginalizing certain demographic groups, especially young and elderly workers. Governments around the world have typically responded to the resulting low employment of “high-risk” hires by offering a range of incentives and regulatory amendments, including the availability of flexible work arrangements. OECD countries with
BENEFIT NUMBER TWO: REDUCING STRUCTURAL UNEMPLOYMENT
Businesses focus recruitment and hiring on experienced workers, thereby marginalizing certain demographic groups.
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developed part-time schemes seem to experience lower overall unemployment than their peers by absorbing traditional “unemployable” segments into the workforce (see Exhibit 5).
Promoting Employment of the “Unemployable”
Inflexible employment policies can potentially segment the labor market
into an “insider” group, whose members have already successfully integrated into the labor market and are highly sought after by companies, and an “outsider” group, whose members lack such a track record. This explains why the unemployment rate among young adults is typically higher than that of the adult population as a whole, both in the GCC and around the industrialized world. Employers
prefer experienced professionals to “untested” young adults. Given the employment protection legislations common across GCC markets, recruiters may turn even more risk-averse in their hiring habits. After all, if younger workers fail to meet expectations, companies face lengthy and costly lay-off procedures.Some developed nations have partly addressed this problem by placing
Note:Part-timeworkreferstojobsthatrequirefewerthan30hoursperweekfromemployees. Source:OECD;Booz&Companyanalysis
PART-TIME EMPLOYMENT / UNEMPLOYMENT RATE IN OECD COUNTRIES, 2008(15–64 AGE GROUP)
Exhibit 5 Part-time Employment Correlates with Overall Employment Rate
Part-time Work (Percentage of Total Employment)
0 5 10 15 20 25 30 35 40 45 50 55 60
8
4
0
12Spain
Slovak Republic
PortugalHungary
Greece
Finland
France
Sweden Italy
Europe
Czech Republic
Ireland
Germany
United KingdomCanada
Belgium
Luxembourg
UnitedStates
Korea IcelandDenmark
Austria
Norway
Japan NetherlandsSwitzerlandNew
Zealand
Australia
Poland
Une
mp
loym
ent R
ate
(%)
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young adults into the workforce on a temporary basis. Work contracts typically are limited in time (approximately a year) and require few obligations for renewal or full-time employment when completed. France’s government has introduced incentives for employers to hire young adults under a “fixed duration” contract; if those new hires thrive, employers can retain and hire them on a full-time basis. If, however, those new hires prove unsatisfactory, employers can
decide to let the employment contract expire, with few administrative or financial costs. Similarly, Denmark has encouraged young adults and employers to engage in mutually beneficial part-time internships—or “school-to-work” programs—prior to and after vocational studies. As a result, it has the lowest youth unemployment rate in its region (6 percent, against an OECD average of 13 percent in 2008); 55 percent of Danish youth are employed part
time, compared to an OECD average of 28 percent. Across the OECD, countries with a greater share of flexible employment arrangements tend to also experience a lower youth unemployment rate (see Exhibit 6).
The challenge in the GCC is more acute than in the OECD. Young people’s share of unemployment among nationals in the region is disproportionally high: For example, in 2008, 46 percent of the unemployed
Exhibit 6 Flexible Employment Decreases Youth Unemployment
Source:OECD;Booz&Companyanalysis
OECD YOUTH UNEMPLOYMENT / SHARE OF PART-TIME EMPLOYMENT IN TOTAL YOUTH EMPLOYMENT, 2008(15–24 AGE GROUP)
Part-time Employment (Percentage of Total Youth Employment)
0 5 10 15 20 25 30 35 40 45 50 55 60
Yout
h U
nem
plo
ymen
t Rat
e (%
)
4
8
12
16
20
24
65
OECDcountries
G7countries
EuropeanUnion 15
United StatesUnited Kingdom
SwedenItaly
Ireland
KoreaGermany
Europe
Spain
France
NetherlandsDenmark
Portugal
Poland
Luxembourg
Czech Republic
Turkey
Slovak RepublicHungary
Greece Belgium
SwitzerlandJapanAustria
NorthAmerica
NorwayIceland Australia
CanadaNew Zealand
Finland
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in Saudi Arabia consisted of youth, while they constitute only 12 percent of the overall workforce (see Exhibit 7). Given the approaching “youth bulge” in the populations of GCC countries and the reduction in the size of public administration (the default source of employment for many job entrants in the past), the challenge of finding work for young adults will need to lead public-policy agendas. Governments in the region have responded with a number of initiatives to promote overall job creation; introducing flexible employment
arrangements to make it easier to hire young workers could provide an initial boost to current efforts to address the upcoming demographic challenge.
However, there is an important caveat: The experience of OECD countries indicates that if greater work flexibility is not well regulated, it could give employers incentives to substitute current full-time employment with flexible jobs, to benefit from cheap, malleable, and disposable employees. To that effect, the Netherlands has introduced some legal protections
for part-time employees (e.g., similar hourly rate between full-time and part-time contracts). Other OECD countries have gone even further and established precise rules on the circumstances in which youth temporary contracts can be used, ensuring that their use is only a first step to full-time employment. For instance, labor regulations effectively limit the renewal of those contracts, or impose some training requirements in exchange for tax or fee exemptions.
Exhibit 7 The GCC Countries Have High Unemployment Rates among Youths
1 PercentageofyouthinworkforceisfromInternationalLabourOrganization2005data. Source:UAEMinistryofEconomylaborforcesurvey,2008;QatarStatisticsAuthorityLaborForceSampleSurvey,2009;KuwaitCentralStatisticsOffice,2008;SaudiArabiaCentralDepartmentofStatisticsandInformation,laborforcesurvey,2009
0
20
40
60
80
%
UAESaudi ArabiaKuwait 1Qatar
13%
40%
12%
46%
10%
31%
20%
62%Percentage of Youth in Workforce
Percentage of Youth Unemployed
GCC UNEMPLOYED YOUTH VS. YOUTH IN WORKFORCE(2008-2009)
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Flexible employment also helps businesses remain agile by providing the tools for them to react seamlessly to economic cycles. The option to hire people for specific periods of time means companies can adapt labor forces to the business cycle, hire a temporary workforce during peak periods, and adjust easily when workers are no longer needed. In fact, part-time work arrangements appear to be significantly correlated to business competitiveness, as measured by the World Economic Forum Global Competitiveness Index (see Exhibit 8).
Flexible arrangements are particularly valuable for industries that experience large variations of demand. A lack of access to such arrangements often correlates closely
to an increase in unregulated, “black market” jobs. If left unchecked, these undeclared arrangements could lead to serious abuses of employees and employers alike. Most important, as governments formalize previously undeclared occupations, these jobs can contribute to raising official overall national output.
There are three distinct types of businesses in particular that can benefit from flexible labor arrangements: those facing short-term or unpredictable spikes of activity, those that experience regular and predictable variations of demand and labor capacity, and those that require the flexibility to manage their employees’ overall work schedule around nonstandard hours or shifts.
BENEFIT NUMBER THREE: IMPROVING BUSINESS AGILITY
Exhibit 8 Countries with Flexible Employment Policies Have Greater Business Agility
1 TheGlobalCompetitivenessIndexisaWorldEconomicForumindicator,whichcapturesthemicroeconomicandmacroeconomicfoundationsofnationalcompetitiveness. Note:Part-timeworkreferstojobsthatrequirefewerthan30hoursperweekfromemployees. Source:OECD Employment Outlook 2008;“GlobalCompetitivenessReport2009–2010”;Booz&Companyanalysis
PART-TIME EMPLOYMENT / COMPETITIVENESS
4
5
6
0 5 10 15 20 25 30 35 40 45 50 55 60
Slovak Republic PortugalPoland
Norway
New Zealand
Netherlands
Korea
Japan
Italy
IrelandIceland
Hungary
Greece
Germany
France
Finland Denmark
Canada
Belgium
AustriaAustralia
Glo
bal C
ompe
titiv
enes
s In
dex1
Part-time Work (Percentage of Total Employment)
Luxembourg
U.K.
SwitzerlandSweden
Spain
Czech Republic
United States
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Managing Short-term and Peak Business Needs
Certain labor-intensive industries experience unpredictable and short-lived bursts of activity. Businesses that need staff for event management (e.g., hostesses and security guards), market research (e.g., surveyors), or landscaping services (e.g., gardeners) require ready access to a pool of low-skill workers, often for assignments ranging from a few hours to a couple of weeks each. Contract-based employment allows companies to bring in labor on short notice for a very limited duration, offering hourly compensation with few administrative restrictions.
In OECD countries, legislation typically allows residents to offer
“casual employment services” through a simple procedure Employers or individuals can, with minimal administrative hassle, briefly employ casual workers, either directly or through an intermediary. For example, in Australia, employers need only to send a single-page contract to the Taxation Office and the Department of Immigration and Citizenship (in the case of expatriate workers) after the work has started. Similarly, in France, employers can purchase pre-paid and pre-declared “Service Checkbooks,” in which the costs of taxes and benefits are built into the cash-equivalent checks, to compensate their casual workers. Nor are flexible arrangements suited only for employers of low- or moderate-skill workers. Sometimes, companies require “just-in-time” freelance work
from highly specialized individuals (e.g., scientific experts, writers, translators). These specialists typically prefer to offer their services on an as-needed basis to preserve flexibility in their work schedule and business practice.
In the GCC, no such contractual provisions exist. Companies in the region cannot legally hire and compensate individual workers for casual and short-term assignments, nor is the legal status for intermediary companies—which serve as broker for those “ad hoc” jobs—well defined. There is, for instance, anecdotal evidence that regional event management and survey companies maintain lists of legal expatriate spouses or students “on standby” and summon them on request for dedicated projects. These
Companies in the GCC region cannot legally hire and compensate individual workers for casual and short-term assignments.
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informal practices are technically unlawful but represent the only economically viable solution to meeting demand.
Introducing a proper legal framework to define and codify these casual jobs would allow companies to better respond to their customers’ needs. It could also help absorb some of the illegal employment currently occurring and, by spreading the supply of labor across the demand for such services (e.g., allowing households access to cleaning companies that serve multiple clients as an alternative to hiring a full-time resident housemaid), potentially reduce the overall need for low-skill expatriates. However, governments
must take care in the implementation and communication of such policies to avoid the perception that those new measures would condone or eliminate penalties for current malpractices. If employers get that impression, it could increase the amount of informal employment instead of reducing it.
Dealing with Predictable Demand and Seasonality
Industries subject to seasonal demand, such as retail or hospitality, need to calibrate their staffing levels throughout the year, often at predictable intervals. In some Western countries, retailers realize up to 50 percent of their yearly revenue during the last quarter of
the year. To adequately respond to this surge, employers hire workers for the quarter only. Managing through such seasonality, or similar peaks in labor demand, with a full-time workforce would not be possible for a competitive seasonal business. In addition, even if demand is held constant, labor force availability can sometimes fluctuate due to maternity leaves and extended sick leave or vacations. Seasonal businesses in OECD countries can typically resort to temporary employment and hire semi-skilled or highly skilled professionals for a limited period of time—usually less than a year. Companies can hire these employees either directly, or indirectly through
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a temp agency. These flexible contracts entail fewer benefits than those enjoyed by full-time employees (see Exhibit 9). Certain fixed costs associated with employment—such as business fees and employment taxes—are usually adjusted to the length of employment or waived altogether. After all, health insurance or pension coverage setup costs could prove daunting for a business seeking to employ someone for only a few months. In addition, in OECD countries, severance
packages upon termination do not apply because the contract naturally expires after a given period.
By comparison, GCC employers seeking temporary seasonal staff would have to pay the same fee for work permits, health cards, or bank guarantees (for expatriates) as for full-time workers. Additionally, temp agencies that seek to broker temporary employees in the GCC face substantial legal barriers—especially with regard to sponsorship
requirements—even if they employ only inactive residents who are already living in the country. Furthermore, beyond cost or legal considerations, administrative regulations can render temporary employment impractical. For example, in the UAE, a renewable 90-day mission work permit is available for local employers to bring in foreign labor; however, cumbersome and lengthy procedures may require more time than the period of the permit itself.
Exhibit 9 Flexible Work Arrangements Vary in the Social Benefits They Provide
Health Benefits
Vacations
Severance
UnemploymentInsurance
FULL-TIME EMPLOYMENT
PART-TIMEEMPLOYMENT
TEMPORARYEMPLOYMENT
CONTRACTUALEMPLOYMENT
Strong WelfareModel (France)
Limited WelfareModel (U.K.)
Benefits
Pension
Aside fromsick leave
Proportional towork duration
Proportional to workduration & wage
Proportional to workduration & wage
Proportional to workduration & wage
Proportional towork duration
Proportional to workduration & wage
Proportional to workduration & wage
Benefit Not Provided
Benefit Provided
Source:Booz&Company
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Enabling Non-standard Hours
Not all industries want to limit their workers’ time on the job. In some industries, the flexibility employers seek pertains to how those hours are spread out. Airlines, for example, require crew members and other employees to work their overall hours in a month on irregular schedules, depending on a combination of flight times and mandatory rest periods. Similarly, industrial companies may require a shift-based work schedule and require employees to work their allotted time overnight. Certain businesses that are facing a slowdown in their
activity would welcome the flexibility to smooth out their employees’ work schedule throughout the month—i.e., ramp up and down employees’ work hours, while keeping overall monthly work hours under the legal limit. In most OECD countries, companies can adapt their permanent employees’ work schedule to match demand. For instance, they can schedule shifts when people are required, even if that entails work during nights, weekends, or national holidays. Similarly, airlines can arrange cabin personnel’s work schedule and rest days according to flight patterns, as
long as their overall hours remain within the maximum allowed.
In the GCC, it is unclear how labor laws take account of those particular business circumstances. Most laws define maximum work hours per week, including overtime, as opposed to overall hours per month. Some GCC regulations even specifically prevent night work for women or impose mandatory rest days, which can cause significant barriers for companies trying to cope with their ever-changing environments.
Businesses facing a slowdown in activity would welcome the flexibility to smooth out their employees’ work schedule throughout the month.
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A PROGRAM FOR FULLY FLEXIBLE LABOR MARKETS
Although there have been efforts throughout the GCC to create a more welcoming environment for flexible work arrangements—such as the UAE’s 2009 announcement that it would issue regulations to let people, including expatriates, work part time—the region’s governments must take a more holistic and comprehen-sive approach.
1. Create standardized employment contracts for short-term, part-time, and temporary work assignments. Governments should develop com-prehensive and specific legislative
frameworks to support the effective introduction and implementation of those employment types. The design of these policies must take into account the socioeconomic develop-ment context in each country, as well as consider the incentives for both employers and employees to prevent unintended and harmful consequences.
2. Amend existing labor laws and infrastructure to accommodate flexi-ble work arrangements. Current labor regulations, such as those regarding night work or sponsorship transfers,
In a region with little tradition of part-time work, GCC governments will need to influence both employees and employers to use such arrangements.
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need to be adapted to accommodate the introduction of flexible hours. In addition, labor ministries should be prepared to handle an increase in ser-vice requests from part-time employ-ees and employers. In particular, they will need to train their employees on new proposed regulations, plan for additional labor inspections, and cope with the expected rise in traffic on their IT or field office infrastructure.
3. Review all ancillary laws that currently prevent the development of flexible arrangements. A variety of social welfare laws and programs
pertaining to pensions, healthcare, and civil service will be affected by any changes in labor laws. All will require review and possible reform to promote a flexible labor force. For example, pension rules may need to be tailored so that workers who already have a private or public pension—a status that currently pre-cludes many retirees from participat-ing in the labor force—can continue to work in the private sector on a temporary or part-time basis.
4. Develop supporting initiatives, such as public awareness campaigns,
to promote flexible employment. In a region with little tradition of part-time work, GCC governments will need to influence both employees and employers to use such arrangements. For instance, when introducing part-time work, the Singaporean govern-ment launched supporting initiatives to dispel negative impressions of such work. These initiatives included awareness seminars, awards to com-panies for best practices, and subsidies to train human resource specialists.
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Developing a comprehensive legal framework for flexible employment in GCC countries will substantially improve the efficiency of labor markets by spurring greater partici-pation of workers from previously underrepresented groups, contribut-ing to a reduction in unemployment and an increase in overall business agility. This process will require an in-depth analysis of existing labor laws to make sure reforms create enough incentives for both employers
and potential employees to engage in flexible work arrangements. The benefit of these reforms will be felt by those demographic groups—especially national and expatriate women, young adults, and seniors—now over-looked by potential employers. For companies, especially those subject to cyclical and seasonal changes in demand, a more flexible labor market would contribute significantly to their ability to compete and prosper.
CONCLUSION
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Endnote
1TheGCC,establishedin1981,consistsofBahrain,Kuwait,Oman,Qatar,SaudiArabia,andtheUnitedArabEmirates.
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This report was originally published by Booz & Company in 2010.
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