In many high-income countries, the pandemic has caused seismic changes in labor markets. What started as a growing shortage of workers in a few industries has become the “big quit,” a record number of workers not returning to their jobs after the shutdowns. More recently, it has become clearer that these workers do not necessarily leave the labor market completely. On the contrary, they re-evaluate their career paths, change sectors, look for jobs with greater responsibilities, create businesses or start freelancing. This leads to labor shortages as workers move through the labor market in search of better opportunities. What these high-income countries are observing is not so much the Great Resignation but rather “The Great Reshuffle”.
For proof of a major overhaul, look no further than Saudi Arabia. The oil-rich country’s labor market is undergoing one of the fastest transformations in the world. Saudi nationals, especially Saudi women, are joining the workforce at an unprecedented rate, a trend likely triggered by recent reforms targeting female employment. Unlike most high-income countries, labor force participation in Saudi Arabia has actually increased during the pandemic. At the same time, foreign workers – who make up more than 70% of the private sector workforce – are leaving their jobs in large numbers, leading to a sharp and rapid contraction in total employment. Nearly a million jobs have disappeared since the start of the pandemic.
In Saudi Arabia, evidence of post-pandemic worker reassignment is emerging. Job turnover – the simultaneous existence of hires and departures – during the last two quarters of 2021 has almost doubled compared to the previous year. The number of Saudi citizens quitting their jobs in the third quarter of 2021 increased by 95% compared to the previous year. Quits increased further in the third quarter of 2021, reaching 3% of total employment in the private sector. Around 270,000 workers, mostly Saudis, left their jobs in the third quarter of 2021, compared to 134,000 in the third quarter of 2020 and 152,000 in the third quarter of 2019. On the other hand, the hiring of new workers is picking up quickly after last year’s pandemic crisis. . The job turnover rate, defined as the sum of new hires and quits as a share of all jobs, in the Saudi private sector stands at 6.7% of employment (Chart 1).
There is always attrition in the labor market, but increasing attrition is usually a sign of strengthening labor markets. Churn refers to turnover that is not tied to job creation or destruction, so it is not a measure of net job creation but fluidity of the labor market. If rotational workers move to more productive jobs, companies and sectors, this can improve productivity and therefore a positive outcome. An increasing rate of worker reallocation can also lead to a more efficient match between workers, skills and jobs.
In addition, labor mobility among foreign workers is increasing. In the third quarter of 2020, job transfers had increased by 23% compared to the previous year, but in the third quarter of 2021, this annual growth rate increased to 93%. Recent changes to the Kafala sponsorship system have allowed foreign workers to change employers.
What caused the Great Reshuffle?
The factors driving the Great Reshuffle around the world remain unclear. The most relevant experience comes from OECD countries. In the third quarter of 2021, the number of quits in the United States reached 4 million, a record 3% of total nonfarm employment. Quits were highest in certain service sectors, such as accommodation and food services (7%), leisure and hospitality (6%) and retail (5%), suggesting that workers seek better opportunities in higher productivity sectors. Workers have more leverage to negotiate higher wages and better working conditions.
In Saudi Arabia, the reshuffle could also be driven by improving economic conditions and a tightening labor market. Economic activity is rebounding, driven by higher oil prices and surprisingly strong growth in non-oil activities. As foreign employment continues to decline and unemployment among Saudis reaches record highs (11.3%), employers may find it more difficult to find skilled labor to produce their production.
More favorable labor market conditions can also make it easier for workers to transition into higher-paying and higher-paying jobs. Average wages of Saudi workers are rising (Chart 2), especially for highly educated Saudis. In fact, wages are growing faster for Saudis with a university degree than for those with a high school education, at 6% and 1% respectively. In addition, new jobs are increasingly concentrated in highly skilled occupations. About half of all new Saudi hires (51%) in the third quarter of 2021 joined a job in the professional or related professional categories, compared to only 15% a year ago. Higher salaries and the availability of more suitable work opportunities could encourage Saudi workers to quit and seek better opportunities in new jobs.
There may be other factors at play. Studies show a strong preference for remote working or hybrid arrangements, as flexibility becomes increasingly important for workers. This could also happen in Saudi Arabia. According to Google Trends, searches for the term “jobs” in conjunction with “remote work” in Saudi Arabia have increased by 190% over the past two years. As always in Saudi Arabia, the role of the Nitaqat, a policy which obliges companies to hire a certain number of Saudis, is to be taken into account. For example, resignations from the private sector among Saudi women have doubled in the past two years. It could also mark the end of the “ghost jobs” created by Nitaqat. Now that more opportunities are opening up for women in the economy, these women who in the past were only hired by companies on paper to fulfill the Nitaqat quota are resigning to seek real employment.
Either way, a more buoyant labor market can give Saudi workers more agency and leverage to negotiate higher wages and better working conditions. Whether these trends will translate into productivity gains will ultimately depend on the extent to which the reallocation of workers takes place from low-productivity to high-productivity firms.