LABOR SHORTAGES, RISING WAGES

C O N F I D E N T I A L SECTION 01 OF 02 MUSCAT 000254 SIPDIS SENSITIVE SIPDIS STATE FOR NEA/ARP, G/TIP, DRL DEPARTMENT OF LABOR FOR JRUDE E.O. 12958: DECL: 04/02/2018 TAGS: PGOV PHUM ECON ELAB ETRD KMPI MU SUBJECT: LABOR SHORTAGES, RISING WAGES REF: MUSCAT 153 Classified By: Ambassador Gary A. Grappo for Reasons 1.4 b/d. -------------- SUMMARY -------------- ¶1. (SBU) Summary: Demand for labor in Oman's booming construction and service sectors exceeds supply, and companies increasingly are raising wages to recruit and retain employees. Workers are taking advantage of the market by frequently switching employers to increase their salaries and other compensation. The tight labor market even is improving conditions for Oman's low-skilled expatriate workers, some of whom report incremental gains in their monthly compensation. End Summary. -------------- A "WORKERS' MARKET" -------------- ¶2. (C) Executives in leading construction and service sector companies tell poloff that they are facing a "workers' market," in which demand for labor at all skill levels exceeds supply, despite an increase in the number of expatriates who have come to Oman for employment (reftel). Companies are competing with each other for scarce labor, executives say, and wages are rising as a result. Dr. Rashid al Ghailani, General Manager of Human Resources at Galfar, one of Oman's largest construction companies, informed poloff that the company has been forced to increase wages to remain competitive in the market. He said that Galfar raised salaries for Omani employees by 30% in 2007, increased the compensation for some skill positions by 20% in early 2008, and is planning an additional across-the-board raise of 20% on April 1. ¶3. (C) The wage increases are necessary, he explained, not only to recruit new workers but to retain current employees. Ghailani said that Omani and expatriate workers regularly switch employers to leverage higher compensation packages, adding that 20-30% of his new recruits leave the company for one of Galfar's competitors within the first six-months of their employment. (Note: In 2006, the government removed the requirement for expatriate employees to obtain a "no objection letter" from their sponsors before being able to pursue another job in Oman, making it significantly easier for expatriates to switch employers. End note.) He remarked that he continuously struggles to keep recruitment levels higher than the rate of attrition, and that throughout 2007, his attrition rate among expatriate employees approached 30% of new recruits. Among Omani employees, the rate often was as high as 70%. ¶4. (C) Ghailani told poloff, for example, that his company recruited 100 heavy vehicle drivers in January and February 2008 - a skilled group of workers that is essential for the company to fulfill its construction contracts. During the same period, 92 drivers left the company to take jobs elsewhere, 64 of whom had been with the company for more than six-months. Even though he was able to replace the departures with new recruits, Ghailani said the company suffered losses in efficiency and incurred additional costs to train the new drivers - a benefit that eventually makes the workers more attractive to Galfar's competitors. "We are not a training institute (for the rest of the industry)," he grumbled, adding that further wage increases may be necessary to aid retention. -------------- EVEN THE BOTTOM BENEFITS -------------- ¶5. (C) Contacts contend that low-skilled expatriate workers also are in high demand and, as a result, compensation packages are slowly rising at the bottom levels of employment. Mohammad al-Rawahi, Administration Manager for the cleaning, gardening and pest control company Oman International Group (OIG),told poloff that his employees - 80% of whom are South Asian expatriates who earn as little as 35 Omani Rials (USD 90) per month - increasingly are demanding more money to compensate for the decline in the value (especially in relation to their home country currencies) of their earnings paid in dollar-pegged Omani Rials (OR). The company has been slow to respond, he commented, because it is locked in long-term, fixed-price contracts that assumed low labor costs. As a result, Rawahi MUSCAT 00000254 002 OF 002 said, he regularly loses employees to hotel and business clients who are in the market for trained cleaners and willing to offer his workers higher wages. ¶6. (C) Other companies in the cleaning sector are facing similar labor pressures. An employee of the cleaning company Kalhat, one of OIG's primary competitors, told poloff that many employees have left Kalhat to work for other companies that pay more, and that some even have returned to India in the expectation of making more money at home while avoiding exchange rate risks. He stated that in some cases, Kalhat has retained workers by paying them special allowances as high as 20 OR/month (USD 52) to augment their base salary of 35 OR. (Note: Allowances permit a company to increase a worker's monthly compensation without affecting the rate of overtime or leave pay, which is tied to base salary. End note.) The supervisor further told poloff that he has heard that Kalhat may be considering an increase of 5 OR/month (USD 13) in the base salary of its lowest skilled employees, a move that likely would affect wages throughout the industry. -------------- COMMENT -------------- ¶7. (C) Comment: Contacts anticipate that Oman will face a deficit in labor supply for the foreseeable future due to expected strong growth in key sectors like construction and services, and that workers likely will continue to command higher wages. Company executives say, however, that there is only so much that the Omani market will bear. The black market for labor, populated by illegal immigrants and laborers, provides employers with a pressure-relief valve and a pool of workers to meet some of their demand (reftel). So far, Oman has avoided major strikes or other labor disruptions over compensation, but wage rates could increasingly become a source of friction as inflation and the declining value of Oman's dollar-pegged currency erode workers' real earnings. GRAPPO