The structure of employee compensation in Saudi Arabia : the case of chemical and petrochemical industries

Abstract

This study examines the wage differentials and wage discrimination among employees in the chemical and petrochemical industries in Saudi Arabia. The context of segmentation is discussed through a detailed examination of the distinct features of the Saudi labour market, with a special emphasis on the Saudisation labour policy that reflects government intervention in the labour market. Under the Saudisation labour policy, the government compelled private firms to attract Saudi nationals to join their services and to secure them permanent jobs. The present study discusses how this policy has distorted the structure and function of the Saudi labour market from both the demand and supply side perspectives. Due to the lack of official data on the Saudi labour market and the restrictions by the Statistics Law in Saudi Arabia on access to any cross-sectional data, a purpose designed cross-sectional survey was conducted among a sample of six hundred Saudi and non-Saudi workers in these industries. Simple statistical analyses of the survey returns have revealed substantial differences in the pay and working conditions between Saudi and non-Saudi workers across a number of personal characteristics, such as levels of education, occupation, years of working experience and marital status. Regression analyses have further confirmed the significant differences in the effects of supply side factors on the monthly earnings on Saudi and non-Saudi workers. Using the Oaxaca-Blinder technique to measure and to decompose differences in average monthly earnings between Saudis and non-Saudis in the chemical and petrochemical industries, the study reveals that the aggregate earnings differentials between the two groups of workers is 62.6% in favour of Saudi workers, while the explained portion of the earnings differential between the two groups of workers is estimated at 3%, and the unexplained portion is calculated at 97%, which indicates a significant level of discrimination in the chemical and petrochemical industries. This study provides an original and systematic attempt at examining wage differentials and wage discrimination with emphasis on the sources of segmentation in the Saudi Arabian labour market between indigenous and migrant workers. It contributes to bridging the gap in the studies on wage differentials and the labour market's segmentation in Saudi Arabia with a hope that the economic reforms that have started in the country will consider such issues to reform its labour market policy.