Working Paper No 3 Version 3

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    Working Paper No. 3 July 2010 The Cost of Foreign Labor in the United Arab Emirates Mouawiya Al Awad Institute for Social & Economic Research (ISER) Zayed University PO Box 500320, Knowledge Village, Dubai, UAE    The Institute for Social & Economic Research (ISER) at Zayed University conducts empirical research on important social and economic matters facing the UAE and the GCC region. The Institute aims to provide policy makers and practitioners with analyses and recommendations which enhance understanding and decision-making. Views presented in this working paper are those of the author and do not necessarily represent views of ISER or Zayed University © 2010 Institute for Social & Economic Research. All rights reserved.  No part of this publication may be reproduced or transmitted in any form or by any means without permission from ISER.  ISER | 3 The Cost of Foreign Labor in the United Arab Emirates Mouawiya Al Awad July 2010 Abstract The aims of this study are to estimate and analyze the labor cost and its distribution in the UAE and to decompose it to direct cost to firms (e.g., wages, non-wage benefits, recruitment costs, labor fees, insurance, end of services) and indirect costs (e.g., energy subsidies, use of public services and infrastructure, security and social risks, etc). Those costs are compared to and linked to productivity estimates of foreign workers to draw analysis of the impacts of these costs on several labor market issues and on the ability of the UAE economy to compete in international markets. Mouawiya Al Awad Institute for Social & Economic Research, Zayed University, Knowledge Village, PO Box 500320, Dubai, U.A.E. email:  This work has been supported technically and financially by the UAE Ministry of Labor  ISER | 4 Executive Summary 1.   In the UAE, it is estimated that there are more than 4 million foreign laborers that work in around 260,000 private establishments. The large influx of foreign workers can be attributed to many factors, among them the high economic growth which is financed by the increasing oil revenue since the early seventies and which has led to excess demand for labor that cannot be met by domestic workers. However, over the years, this economic growth continues to rely largely in the non-oil sector on cheap foreign workers who have low reservation wages and coming especially from Asian countries which have excess supply of labor. 2.   Compared to UAE nationals, the high economic rent associated with foreign workers and their ability to tolerate relatively poor working conditions and to work long hours have blown up the reliance on them until they dominated the private sector with more than 98% of overall laborers. However, the cheap cost to private sector companies may not be true for the society. The large presence of foreign workers (foreign  population) demands amplification of the services provided by the government, including security and other measures, and they may threaten the national identity of the country. 3.   The cost of employing foreign workers can be divided into the three types: A.   Administrative and recruitment costs: this type represents all kinds of fees that companies pay to different ministries and departments to import workers and giving them the legal status to work in the UAE, in addition to costs that are paid  by those companies for human resources activities related to the employment of those workers. B.   Labor variable costs: they represent wages and salaries and all financial (monetary) and in-kind (non-monetary) benefits that are related to workers.
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