Do labor markets and the social contract increase female youth unemployment in the GCC countries?

ABSTRACT In the high-income Gulf Cooperation Council countries, the female youth unemployment rate is nearly double the male youth unemployment rate. The segmented labor market with a relatively inflexible national labor market segment – coupled with a generous social contract – provide job protection to nationals and further the benefits of the social contract. These two factors may shape national youth preferences in favor of protected government jobs and raise youth reservation wages, which increase female youth unemployment. We conjecture that flexible non-segmented labor markets improve female youth unemployment rate while the social contract worsens it. Empirical evidence shows labor market flexibility and the social contract improve female youth unemployment rate, a result robust to changes in model specification and the sample. However, labor market flexibility is essential to the improvement in the female youth unemployment rate, while the social contract is not. This research has an important policy implication for selecting the appropriate tool to address youth unemployment.