Labor Income and Oil Wealth

Abstract

Actuarial sustainability of income from exhaustible resources requires that present and future generations get equal shares of income. Significant omission is labor market conditions. This paper proposes a broader framework for sustainability assessment that incorporates labor market conditions. Theoretical analysis indicates that current generations’ income level is not sustainable for future generations with declining wages, even if oil income is sustainable into the foreseeable future in the actuarial sense. Saudi worker income has not been sustained as private-sector wages declined sharply in recent decades, while government-sector worker income increased. The paper reviews Saudi Arabia’s labor market conditions with recent supporting data to explain the causes of persistent unemployment and declining wages. A major cause is labor market distortions resulting from government-sector wage policies. Empirical findings substantiate the theoretical arguments. Discussion of salient policy issues concludes the paper.

Keywords:

• Saudi Arabia labor markets
• unemployment
• wage and oil income sustainability