Vision 2040 Planning For The Future: Creating a Thriving Omani Labor Market
About the Author:
This report is developed by Dr. Abdullah Al-Bahrani. Dr. Al- Bahrani is an Associate Professor of Economics at Northern Kentucky University. He received his Ph.D. from the University of Kentucky and specializes in market structure and market outcomes. His research has focused on how to create efficient online mortgage markets, and education markets. He also serves as director of the Center for Economic Education, which focuses on helping people make better decisions through a better understanding of economic principles.
Twitter: @DrAALBahrani
email: abdullah.albahrani@gmail.com
Website:www.abdullahalbahrani.com
Summary
The recent demands by youth seeking employment have increased interest in the state of the labor market in Oman. Attempts to curb the labor market concerns have provided patchwork policy that solves short term concerns but does not address long term outcomes. This report provides analysis of the interdependence of the labor market and public policy. To solve the long-term labor market concerns, it will require multiple government agencies, businesses, and education providers to all coordinate more closely. A more complex decision is that Oman and its citizens will have to decide if employment is a right or privilege. That decision will dictate future policies.
Market Overview
There are currently 2,544,115 labor force participants in the Omani labor market. This is a 5.6% increase from the year prior. While the labor force growth rate is high, it is showing signs of slowing down. The growth rate of 5.6% in 2017 is lower than the 8.96% average growth rate experienced in the 7 years between 2011-2017. Over the past 4 years, an average of 34,000 new students graduated with a high school degree. Some entered the labor market and others pursued higher education, with the expectation of finding a job when they graduate. However, the high growth rates in labor supply are not matched in labor demand.
The most recent unemployment data reports a 16% overall unemployment rate and a 49% youth unemployment rate. A more pressing issue is that 40% of Omanis are under the age of 25, the prime working age. The high unemployment in the youth demographic will have long run implications. As these individuals remain unemployed, their skills and education are depreciating. Each passing year makes it more difficult for them to find employment. The long term unemployed are considered structurally unemployed. They will need training to successfully reenter the labor market.
The upcoming decade or two will require Oman to better match employees with employers. Alleviating the pressure on the Omani labor market will require economic and strategic planners to coordinate with multiple government and business organizations. The Labor market problem cannot be solved by one organization only. The future of Oman’s labor market requires coordination and aholistic approach to provide job opportunities to citizens, and to ensure there are qualified employees for the job openings. The problems in the Omani labor market are both, a demand and supply problem.
As Oman begins to develop and release the strategic plan, Vision 2040, it must consider the role of labor market in the development of the economy and the socio-political consequences of underperforming labor market. Vision 2040 must take into consideration the interplay of labor markets in the “three pillars” already established, People and Society, Economic Development, and Governance and Institutional Performance.
This report provides an economic perspective on the different segments of the labor market and the areas policy makers need to evaluate. I provide policy recommendations when applicable. The report discusses how Oman can invest in the following:
Increasing Job opportunities
Developing job ready employees
Reducing labor market frictions
Labor Demand
Historically, the main employer in Oman has been the public sector. This is typical for a resource-based economy. However, as Oman begins to transition away from oil, it needs to assist in the development of a thriving private sector. In the past decade there has been an increase interest in supporting the establishment of Small and Medium Enterprise (SMEs). While resources have been devoted, there are several issues that have hindered growth in this area.
Cultural Bias
This first is cultural bias. The average Omani graduate is interested in a public sector job. The prestige, wages, and certainty associated with the public sector jobs cannot be matched by the private sector. Educational and public relation efforts need to be devoted to increasing interest in private sector jobs. These efforts should start with k-12 education, and increased emphasis on the importance of private sector in development of the economy.
Small Business Opportunities
To establish a thriving entrepreneurial environment that includes a distribution of firm sizes, efforts need to be devoted to reducing the barriers to starting a business. Most large firms begin as a firm of one or two individuals. To ease the process, government must work to reduce the process required to start a business, the number of days it requires, and most importantly increase the transparency of the process. More information available to new entrepreneurs will increase interest and encourage the establishment of new ventures.
According to World Bank data, Oman ranks 78th out of 190 countries on the ease to Starting a Business index.3 Starting a business in Oman requires a minimum of 4 procedural steps and requires 6 days of work effort, in minimum, to complete the tasks. In comparison, it requires one step to start a business in New Zealand which requires half of a day to complete.
Reducing the regulation and paperwork associated with starting a business will increase the number of business in operation. In the long run this will reduce the pressure on the public sector to provide job opportunities. Additionally, it increases the likelihood that medium and large enterprises evolve from small firms. Easing the effort and regulations around starting a business is a prerequisite for a thriving entrepreneurial region. New small firms will help create new jobs. In the US, every small business creates an additional .54 job openings. If 5% of graduates started a business, they would reduce job market needs by 1612 (their position) and 870 (the additional jobs they create), for a total of 2,482 jobs.
To successfully accomplish this goal, resources need to be devoted to 1. Making small business employment a culturally acceptable opportunity and 2. Make small business establishment easier and less regulated.
Attracting International Firms
Oman can increase access to job by increasing the number of multinational firms that operating in Oman. It is imperative that Oman emphasize the goal of attracting international firms as a part of the economic development plan of visions 2040. International firms are interested in 1. Ease of ownership 2. Access to talented employees 3. Cost of labor 4. Labor regulation 5. Transportation and logistics.
The recent investment and opening of Muscat International Airport are an indication to the commitment Oman is devoting to the ease of travel. The Duqum special economic zone, industrial city, and port make it easy for goods to travel in and out of Oman. However, these initiatives need to be marketed. Transparency and awareness of Oman as a business hub needs to be marketedinternationally. It is important to leverage Oman’s geographic advantage.
Attracting new firms requires publicly displaying regional data on the number of qualified individuals, and the jobs they can fill. What are the available sites that are open for development? What are the costs of utilities? Are there business clusters currently in place? What infrastructure framework currently exists? Are roads and utilities fully developed and can they support an industrial cluster?
To attract new firms, clear description of the regulation and the cost of doing business must be communicated. Additionally, firms will be interested in Oman due to its low political risk; an advantage that Oman has over other regional competitors.
Omanization
An area of concern to the unemployed youth in Oman is the ratio of Omani employees to expat employees. While Oman has publicly made a commitment to Omanization, the data indicates that the number of expat workers is increasing at higher rates. The rise in expat workers is even higher at the entry level, these are jobs that have lower experience requirements. While policymakers have implemented quotas on how many expat workers are hired, these policies have not been effective. Policy makers need to ask why Omani businesses are more likely to hire an expatriate in place of an Omani. This can be for two main reasons. 1. Cost and 2. Bias.
It is possible that the Omani employee is more costly to the business than the expatriate. This cost can be in the form of explicit wages, or non-pecuniary costs. Do Omani employees enter the labor market require more training than the expatriate? Job seekers suggest that they are overlooked for jobs that end up being staffed by expatriates with more experience and often at lower wages. This raises questions about the implications of the Omani minimum wage schedule and how it might affect those it is intended to help, the entry level job seeker. In addition to the wage costs, are there costs associatedwith firing and hiring Omani’s that are not experienced with expat workers? Are there moreregulations associated with Omani employees that are not realized with expat employees? These can all tip the hiring decision in favor of the expat worker. These policies, although with good intention, have unintended consequences.
The other possibility is that the Omani and expat worker are equally as costly, but the market perception is that the Omani is less qualified or more difficult to work with. The solution to this problem is less about economics, and more about cultural education. Nonetheless, it is a problem that policymakers need to recognize and tackle. Mandating an expat quota does not solve the underlying problem. To increase the number of Omanis hired by private industry, we must ask why the Omani employee is less favored than the expatriate in the hiring decision.
Labor Supply
To solve the labor market concerns, we must also address the role of the supplier of labor, the job seeker. The abundance of workforce participants raises concerns about the match of labor skills supplied with labor skills demanded. Is the Omani employee ready for work in today’s economy?
Education
To answer this question, we must evaluate the role of education in preparing future work force. Long term planning for the labor market must include both Ministry of Education (MOE), and Ministry of Higher Education (MOHE). It also must include a strategic provision of educational opportunities to develop the skillsets the economy needs in the future. Education providers should be looking 10-20 years in the future to develop workforce participants that are ready to be productive members of future economies. This concern is not only applicable to Oman, the role of higher education is questioned internationally. The question boils down to, is the role of higher education to develop thinkers or workers? I would argue that a thriving economy would have a good balance of both. However, this expectation needs to be clearly expressed to students. This is the role of career guidance, advising, and mentorship.
In the short run, the role of MOE and MOHE is to provide strong signals of what graduates of our current system are capable of doing. Private firms’ higher employees under conditions of uncertainty, we can reduce the uncertainty by making our curriculum and learning objective more transparent. This will allow firms to be better informed about the quality of education of recent graduates.
Experience
Furthermore, if the Omani employee is perceived to be either more costly or lacks experience, then they can increase their productivity by gaining experience before graduation. Higher education can invest in increasing experiential learning opportunities and connecting education with private sector. Internships, job shadowing, and project-based learning need to be part of the education system. Without these efforts the Omani employee will be less favored than the expat. The only other option is to reduce the entry level minimum wage. The Omani employee cannot expect high wages if it is not matched with higher productivity. Wages cannot be a function of nationality only.
Long term success of the labor market requires that suppliers of labor be fully aware that jobs and wages are determined by productivity and that through their effort they can signal their productivity. A degree only is not sufficient to compete in a market with abundant labor.
Connecting Labor Market Participants
A problem that exists with all Labor Markets is the matching problem.4 Since all job openings are not equal, and all job applicants differ, it becomes difficult to match each applicant with the correct job and vice versa. This problem requires a way for the market participants to coordinate. The search process is costly to both the demander and the supplier. An intermediary, like the one provided by the Ministry of Manpower, provides a platform where participants can interact.
The success of the platform hinges on a reputational effect. Successful matches must be transparent. The search process should be relatively easy for the job seeker and the employer. Job postings need to reflect the true requirements of the job. Most importantly, job seekers need to exert effort in the search process and be able to indicate their preferences. Job seekers need to invest time to search on a regular basis, and job postings need to be updated regularly. The market fails when information does not flow, or if the reputation of the platform diminishes.
Creating a successful employment clearing house is difficult and complex. The role of the government is to provide the environment, but not control the process. The framework described here is very different than the current job portal provided. Careful consideration of the matching process is needed to help match market participants.
Data Transparency
The ideas proposed in this report rely heavily on the access to informed decision making. Reliable data must be provided so that decisions can be based on accurate information. Data on wages, employment, job openings, graduates, school systems, SME operations, infrastructure...etc. are needed. The labor market concerns we have today are dependent on many other government organizations and not solely the problem of the ministry of manpower.
Planning for a successful vision 2040 must explicitly include a labor market policy. Education, policy makers, businesses, and job seekers need to be involved in the decision making to define the objectives of the future. The first step to solving this problem is to define whether employment is a right or privilege, it will dictate what policies are implemented.
Conclusion
This report is written to provide insight on the complexity of the Omani Labor Market problem. Policy makers interested in easing the tensions in the labor market must recognize that the solution to this problem must be approached holistically and with a vision into the future. Short term solutions only provide temporary relief with the underlying problem resurfacing a year or two later. Going into the future we must ask two simple questions:
what can we do to increase the number of private sector jobs?
How can we increase the demand for Omani labor?