Steffen Hertog: The Quiet Reordering of Saudi Society

I met Steffen decades ago, and what struck me immediately was his extraordinary attention to detail—something that seems to come naturally to him as a German. And when I came across his work with Saudi Arabia’s Ministry of Planning as an economic advisor at the ministry with a GIZ contract, particularly on the so-called Five-Year Plan, I truly began to appreciate his understanding of the Saudi economy and society. At the time, it was rare to see a German researcher engaged with the intricacies of Saudi economic reform—and rarer still to see someone approach it with such a refined and thoughtful lens. His work didn’t just make sense of policy—it added a layer of understanding to how our society functions and helped me notice patterns and questions we, as Saudis, often overlook.

I can’t always follow everything he writes—his work is rigorous and densely packed with data—but whenever I do, I’m grateful. Because whatever Steffen writes is accurate to the bone: fair, balanced, and never judgmental. In this interview for SaudiTimes, I wanted to make more of his knowledge visible—especially at a time when many Saudis are rethinking what work, ambition, and a meaningful life should look like.

Q: Is labour market segmentation still holding Saudi Arabia back, or has it become a feature of a more flexible economy?
A: There are still important differences in both employment conditions and, often, wages between a) expats and Saudis, and b) public and private sector. But at least the difference between Saudis and expats has reduced to a significant extent, as more Saudis have joined the private sector and are often willing to work at lower wages than in the past, all the while a number of labour reforms have improved the rights of expat workers—notably making it easier to switch employers (though still not quite as easy as for Saudis). Nitaqat quotas and reservation of specific occupations for Saudis still imply relative privileges for nationals in specific areas, but on a lower level than before.

Q: How well are young Saudis adapting to the demands of a competitive private sector after decades of public sector security?
A: Anecdotally, there has been a big adjustment. There are many Saudis now in jobs that a previous generation shunned, notably in the service economy, and my impression is that Saudis now perform much better there than they used to. The initial, quota-driven entry of Saudi workers in hotels, retail, restaurants, etc. a decade or more ago was a little bumpy at times, but the phenomenon where nationals were often shadowed by expats doing essentially the same job seems to be over now. Aggregate numbers of Saudis employed in the private sector are also up drastically, although many of the new entrants earn fairly low wages. We are definitely dealing with a new generation operating under a new social contract.

Q: Why does the gap between employment data and public expectations remain so persistent—and what could finally bridge it?
A: If you mean the gap in expected vs. actual salaries, I think that’s because a lot of new jobs in the private sector outside of the relatively small high-skilled segment do not pay very well. This is mostly due to very intensive competition with foreign workers from low-wage countries, a phenomenon that is ubiquitous in the GCC but quite unusual in global comparison. No other economy, apart from perhaps Brunei, operates with such a high share of low-cost migrant workers as GCC economies do.

Another constraint is the skills basis among many Saudi workers, which has improved but still leaves important gaps, as shown in Saudi results in international benchmarking studies of student performance like TIMSS or PISA. In principle, skills gaps can be fixed through further educational reforms, especially attracting higher-calibre teachers to the public system. There will still remain a wage issue in the low- to mid-skilled labour market segment—a segment that exists in any country but in which downward pressures on wages are particularly intense in KSA.

This could be addressed through interventions like a negative income tax for lower earners, i.e., a top-up payment through which nationals on low private sector wages get to a socially acceptable total income. Such tools are already used in other labour markets with migrant competition and highly unequal wage distributions, such as the US and Singapore. They could be financed through fees on expat labour to be cost-neutral from the government’s perspective.

Q: Are the most significant reforms in Saudi Arabia the ones that are least visible?
A: You could say so. The unannounced decision in 2015 or so to put an end to the de facto guarantee of public employment for Saudi citizens has had a profound impact both in terms of fiscal sustainability and providing stronger incentives for Saudis to seek private employment and skills that are relevant in the private sector. Recent pensions reforms similarly have largely flown “under the radar” but are quite significant fiscally and in terms of welfare and labour market modernization. In most other countries, pushing the pensions age up by up to seven years would have been a lot more politically contentious!

To me, these changes are more fundamental than what is happening in some of the giga-projects, as important as these might be for representing the new Saudi Arabia to the world.

Q: As Saudis gain more freedom over their career paths, how are they managing the uncertainty that comes with it?
A: Good question. I am not sure there’s a clear answer to this yet. Private sector employment can be precarious, especially compared to the ironclad government job guarantee enjoyed by a previous generation. This will be an issue especially as the new “Vision generation” gets older and wants to acquire property and start families. Although there is an unemployment insurance system and a range of income support systems for low-income households, these can mitigate uncertainty only to some extent. I think there will be pressure to further modernize the welfare system and engage in more active labour market policies to facilitate continued employment.

Q: With traditional markers of success fading, how is the idea of a “good life” being redefined in today’s Saudi Arabia?
A: It is true that life-long public employment, with ample spare time for family activities, is not the standard anymore. For a well-educated young elite, I think the good life now entails well-paying but more demanding private sector jobs or, even more so, jobs at PIF entities or new government agencies. For the rest of young Saudis, it is less clear materially what the “good life” is, given cost of living pressures and a tough labour market. But they definitely enjoy a much more varied social and cultural life which, at least before they reach the age of family formation, seems to be an acceptable deal for many of them!

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