At face value, the Saudi labor market report released March 28 contained good news. The report showed that the overall unemployment rate (covering nationals and non-nationals) fell to 4.4% in the fourth quarter of 2023 from 5.1% in the third quarter. The unemployment rate for Saudi nationals dropped to 7.7% from 8.6% in the third quarter (and 8% in the fourth quarter of 2022), with the unemployment rate for Saudi women declining particularly sharply to 13.7% (down from 16.3% in the third quarter of 2023 and 15.4% in the fourth quarter of 2022). The unemployment rate for Saudi men remained unchanged at 4.6% between the third and fourth quarters of 2023, still above the 4.2% rate in the fourth quarter of 2022. The overall unemployment rates for Saudi women and all Saudis are at their lowest levels since the kingdom began collecting statistics.

Scratching below the surface, however, not everything is positive. The labor force participation rate of Saudis – the share of the working-age population that is employed or actively looking for work – fell again, the fourth consecutive quarterly decline. The decline is particularly pronounced for Saudi men, with their fourth quarter participation rate at 66.6%, 2 percentage points below the level in the fourth quarter of 2022. The labor force participation rate for Saudi women also dropped by 0.5 percentage points, to 35.5%, over the same period. The declining participation rate suggests that a growing number of working-age Saudis are becoming discouraged from engaging in the labor market.

Job creation for Saudi nationals has also likely slowed, particularly for men. The Saudi employment-to-population ratio rose slightly in the fourth quarter of 2023 but remained well below its level at the end of 2022. This ratio fell for men and increased for women. While the Quarterly Labor Force Survey does not publish employment data beyond the employment-to-population ratio, a proxy employment series is available that covers the number of workers registered with the General Organization for Social Insurance and the civil service. While this series has its limitations – it excludes workers in the security and military sectors and other workers who are not registered with the General Organization for Social Insurance, such as gig workers – it is the best available. This proxy series shows that employment of Saudis fell slightly in the fourth quarter of 2023, although employment was still nearly 4% higher than in the fourth quarter of 2022 (mainly because of strong job growth early in 2023). Women accounted for about three-quarters of the increase in Saudi employment during 2023. Employment of non-nationals (excluding domestic workers) also dropped slightly in the fourth quarter.

An Evolving Labor Market

The considerable quarter-to-quarter volatility in the labor market data makes it difficult to draw firm conclusions from any one data release. However, it increasingly looks like the decline in the aggregate Saudi unemployment rate over the past year is due to falling labor force participation rather than strong employment growth. There are, however, differences for male and female workers. For women, continued employment growth and a small drop in their participation rate resulted in a significant decline in the unemployment rate during 2023. For men, however, the unemployment rate edged up despite much lower participation rates as employment growth stalled. 2023 stands in contrast to the 2021-22 period when the participation rate increased as the unemployment rate fell for men, women, and in aggregate. In that period, strong job creation created sufficient employment opportunities for new Saudi entrants to the labor market and those unemployed.

Looking ahead, whether the recent drop in the Saudi labor force participation rate reverses will be a key statistic to look out for as 2024 progresses. For the long-term health of the Saudi labor market and broader economy, rising participation rates, even if initially accompanied by a higher unemployment rate, will be a better outcome than a further decline in the unemployment rate that is driven by lower Saudi labor force participation.