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Bahrain’s new labour scheme: one step forward, two steps back?

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The new labour market scheme represents an economic translation of the political victory of the merchant elite and its allies within government.

Hasan Tariq Al Hasan
5 August 2012

On July 27, 2012 His Majesty the King of Bahrain signed the country’s new labour code that regulates employment in the private sector following its approval by the Parliament’s Shura Council. Minister of Labour Mr. Jameel Humaidan praised the new code, describing it as a, “’milestone’ for the private sector.” In effect, the code has been applauded for extending the rights and benefits to which private sector employees are entitled. These include the possibility of a compensation amounting to a year’s salary for employees sacked unfairly, an increase in the number of sick days, an extension of maternity leaves, a provision of a certain number of rights to domestic workers who were largely left unprotected under the old 1976 labour code, and finally a set of more serious punishments against employers who violate legal provisions. It also stipulates setting up a labour dispute settlement body housed within the Ministry of Labour to encourage amicable settlements as a step preceding recourse to justice.

Importantly, the new code comes as part and parcel of a new labour market scheme jointly elaborated by the Ministry of Labour and the Labour Market Regulatory Authority that aims to reassess and eventually phase out Bahrainisation requirements in the private sector. The scheme replaces a set of labour market reforms advocated by the Crown Prince and implemented in 2006 that aimed at decreasing the cost gap in hiring nationals as opposed to expatriates by levying a BD10 (approx. $27) monthly fee off of private employers for every expatriate worker they employed. Funds raised as a result were then reinvested back into the training of the national workforce through the intermediary of the Labour Fund, Tamkeen. Opposed by the merchant class for obvious reasons, the 2006 labour market reforms were scrapped following the political victory of the Prime Minister and his business allies as a result of the breakdown of the Crown Prince’s negotiation effort with the opposition in the midst of last year’s mass protest movement.

Critics of the new labour market scheme, such as Bahraini labour affairs journalist Mr. Khalil Bohazza (@Khalil_Bohazza) have pointed out several flaws in the new labour code. Amongst these flaws is the code’s article 8 provision stipulating that while employees have the right to go on strike, their contracts are to be suspended during the strike’s entire duration. This step follows the recent announcement of the creation of a new labour federation that has received the government’s blessing, and constitutes yet another effort in a government-backed campaign aimed at weakening and fragmenting the hitherto opposition-dominated labour movement, particularly since strikes in mid-March last year destabilized the country’s sensitive oil, gas and aluminium industries.

Critics of the new labour code have also highlighted the removal of the article 13 provision of the old 1976 code, which stipulated that Bahrainis followed by Arabs are to have a priority in hiring within the private sector over expatriates of other nationalities, and conversely a priority in retaining their jobs in case of firm downsizing or layoffs.

From an economic perspective, consider the major obstacles standing in the way of greater employment of Bahrainis in the private sector: the considerable cost gap between hiring Bahrainis and cheap expat labour in particular, and labour market segmentation in general (i.e. locals’ tendency to work for the public rather than the private sector). In an attempt to increase Bahraini employment in the private sector, the defunct 2006 labour market scheme placed the burden of reducing the cost gap on businesses by imposing the aforementioned BD10 (approx. $27) monthly fee on employers for each expat worker they hired. It equally attempted to mitigate the segmentation of the labour market by maintaining a certain level of Bahrainisation requirements - thereby forcing businesses once again to hire a certain percentage of nationals – as well as making Bahrainis more employable by raising their skills through the Tamkeen initiative. That said, the 2006 reforms were certainly not perfect. For example, its Bahrainisation requirement has been rightly criticised for exacerbating the counterproductive ‘ghost worker’ phenomenon, or the tendency of private employers to hire on paper stay-at-home nationals (housewives for instance) often at minimum wage, only to fulfil the legal quota.

By contrast, the new labour market scheme transfers the cost burden of fostering Bahraini employment in the private sector from the Bahraini business owner to the Bahraini worker. By reducing the Bahrainisation requirement on businesses, omitting the hiring priority for Bahraini nationals from the new labour code and freezing the BD 10 fee on business owners, the new labour market scheme places Bahraini workers in more direct competition with cheap expatriate labour. As a result, at current employment and skills levels, Bahraini workers will have to bear the brunt of reducing their hiring cost gap relative to cheap foreign labour most likely by undergoing a fall in real wages.

Overall, the new labour market scheme, leaving aside a marginal increase in workers’ rights, represents an economic translation of the political victory of the merchant elite and its allies within government. As it proceeds unchecked, the new scheme largely transfers the economic cost to the Bahraini worker, while it decreases the legal protection for workers who choose to strike. As more details become available, the economic repercussions of the new scheme will become clearer. For the time being though, Bahrain’s new labour market strategy does not bode well for the country’s working class.

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