Shooting the goose that lays the golden egg: the case of UAE employment policy

Abstract

Purpose – This is a policy paper that analyzes the economic impact of mandated employment quotas for citizen workers among firms in the United Arab Emirates (UAE). The purpose of this paper is to demonstrate the nature of the efficiency losses associated with these quotas, and then explore a workable policy alternative that can achieve the same employment objectives with lower efficiency loss. Design/methodology/approach – The paper begins with an extensive discussion of UAE labor policy, together with some data and salient features of the UAE labor market. The authors use this discussion to motivate and analyze a theoretical model of the way in which labor quotas impact firm production, input employment and efficiency. The authors then extend this model to the proposed policy alternative. Findings – The UAE’s labor quotas create inefficiencies on a number of fronts, including productive inefficiency, higher product prices and the possibility of reducing the number of jobs available to citizen workers. The proposed policy alternative has the potential to ameliorate these efficiency losses, while still creating jobs for citizens. Originality/value – Labor quotas for citizen workers are a unique brand of labor regulation that has largely escaped economic analysis. Understanding their implications is informative in the context of labor market regulation generally, and particularly for countries with large expatriate labor forces that struggle to provide job opportunities for citizens.