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The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

No abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

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The economies of the Gulf Cooperation Council (GCC) grew severalfold over the past decades, making impressive improvements in key development indicators, supported by massive investments in extractive industries. Real gross domestic product (GDP) annual growth reached 5.1 percent during the 2000-2012 period, with hydrocarbons accounting for almost 90 percent of revenues and 80 percent of exports during the same period (IMF, 2011). Economic growth has not translated into sufficient employment creation and optimal job outcomes for GCC nationals outside of the natural resources industry. Economic growth has been closely tied to government spending and consumption. In combination with liberal admission policies, low-skilled sectors have been fueling non-oil growth. Meanwhile, the public sector grew considerably and citizens have been shunning private sector jobs. The divergence between economic growth and better jobs for citizens has also produced negative externalities that translated into limited incentives to build human capital. It has also had social cohesion spillover effects, as youth and women in larger GCC economies remain in large numbers excluded from accessing jobs. A key challenge is that GCC citizens are less inclined to accept private sector jobs since public sector employment, in combination with a range of other social benefits, is an integral part of the social contract of GCC countries. Against this background, what can be done to change the current social contract so that GCC citizens have access to more and productive employment? This engagement note offers a tentative answer to this question, namely that for GCC countries to increase private sector employment of their citizens, governments have to increase the attractiveness of private sector jobs while at the same time ensure that citizens are willing and able to accept private sector jobs. This will require, on the one hand, reforms that increase the productivity of the private sector by shifting economic activity to higher value-added sectors, more technology-intensive production, diversified and more sophisticated exports, technologydriven foreign direct investment (FDI), and enhancing admission policies. On the other hand, governance and social protection reforms are needed to alter the GCC countries' current Executive Summary Abbreviations ALMPs Active labor market programs DC Defined contribution ECD Early childhood development EOSB End-of-service benefits FDI Foreign direct investment GCC Gulf Cooperation Council HRD Human resource development HRM Human resource management MENA Middle East and North Africa MSA Mobility saving accounts OECD Organization for Economic Cooperation and Development RSA Retirement savings accounts