The Saudi authorities have decided to set up a scheme providing unemployment insurance to nationals laid off from their jobs. The system, approved only last week, is a novelty for the kingdom.
Not surprisingly, there is a six-month grace period for implementation of the plan, ostensibly to provide stakeholders the opportunity to make the necessary adjustments.
With regard to funding, the law requires all employers to contribute 1 per cent of the salaries of all Saudi nationals working in their enterprises. Similarly, employees have to contribute 1 per cent from their salaries to the scheme.
However, the law does not require the government making additional financial contributions other than as the employer of those nationals working in the public sector. Accordingly, the contribution plan in Saudi Arabia differs from that of Bahrain, whereby the government is obliged to pay 1 per cent of salaries of all insured employees aside from the 2 per cent contribution made by employers and employees.
The unemployment insurance programme in Bahrain dates back to 2007. However, the scheme proved unpopular with nationals having a sort of secured occupational positions but forced to contribute from their salaries to the plan against their will. The argument used was that the government should solely shoulder responsibility of the unemployed. It remains to be seen if the new unemployment insurance plan in Saudi Arabia would prove popular or otherwise.
The new Saudi scheme is exceptionally generous. Individuals losing their jobs against their will and control would be able to get 60 per cent of salaries for the first three months, and reduced to 50 per cent of the average salary thereafter.
The compensated amount could reach a maximum of $2,400 per month for the first three months and then $2,000 per month for the remaining period. By one account, the compensation period would be 12 months. Anyway, the minimum payment is set at $533 per month. This is equivalent to an existing law granted to Saudi jobseekers in order to sustain themselves.
Understandably, the unemployment insurance scheme will be obligatory on all Saudi nationals working in both private and public sectors. Yet, it is generally assumed that governmental departments would refrain from firing nationals.
Clearly, the plan is partially designed to encourage Saudi nationals seeking employment opportunities in private sector firms. It is suggested that some 1.5 million Saudi nationals work in the private sector.
To be sure, the unemployment insurance scheme is only the latest part of a series of governmental steps designed to address challenges relating to employment for nationals. Last year, officials started implementing a plan known as Nitaqat, intended to apply pressure on private sector firms to employ more Saudi nationals where possible.
Under Nitaqat, the extent of local employment varies from 6 per cent in the construction sector to 30 per cent for oil and gas extraction, and to over 50 per cent for banks and financial institutions.
Some 629,000 Saudi nationals were unemployed at some point in 2013, compromising a sizable 12 per cent of the local labour force. Yet, actual joblessness rate is believed to be higher as merely 40 per cent of working age adults participate in the labour force. A good number of graduating females opt to shun the job market, a fact that represents a loss to the kingdom’s economic potential.
All eyes now are on release of details relating to conditions of the unemployment insurance scheme other than that applied to workers not older than 59 years, the retirement age for Saudi nationals.
The writer is a Member of Parliament in Bahrain.
