Cheap Immigrant Work Force and Imbalanced Labor Markets

Countries in the Gulf Cooperation Council (GCC) face a tricky situation. For years cheap imported labor from India, Bangladesh, Pakistan, and other countries has been providing a seemingly unlimited factor of production. That source, however, has recently realized its contribution to regional growth and has dared to ask for more compensation. Such claims have been supported by the government of the countries supplying labor to GCC countries as well.

Interestingly, some GCC countries have voluntarily engaged in practices to make immigrant labor more expensive in a bid to make the labor markets more competitive. Bahrain, for example, will be charging a visa fee and a per-head levy on foreign labor. GCC nationals like the lifestyle that they enjoy, which is mostly made possible by the work of migrant workers. What they don’t like is the competition it creates in the labor markets. Nationals are predominantly hired in artificial government positions and benefit from distribution of Petrodollars. This is while the private sector does not compete with the government to match salaries and instead hires immigrants for a fraction of the cost. The trick is to find the benefits that foreign labor brings and match them against the costs of unemployment (or employment in quazi positions) of local labor force.