Similar to the policy of distributing public sector jobs, housing welfare has become highly dysfunctional over the past decades – generating significant discontent amongst citizens. Queuing behaviors are encouraged by a waitlist system, with Kuwaitis now waiting years before acquiring access to state sponsored housing, sometimes even waiting between 15-18 years. In the meantime, the state compensates by handing over an allowance that helps families to pay rent. This bears a resemblance to the job allocation system for government jobs: people enroll in a list and are paid to wait, regardless of their income and socio-economic background. In both cases, the state pays because it is unable to fully implement these unrealistic and dysfunctional policies.

Because housing subsidies in Kuwait are universal for nationals, and not based on a careful evaluation of needs, this has played a part in the distortion of the real estate market in Kuwait. It has notably nurtured speculation practices: people resell at market prices lands and properties that were initially handed over to them at nominal rates, or they lease them out.176 These practices contribute to the price rise in the real estate market. In the end, real estate is so expansive in Kuwait that the subsidy policy proves unable to help those who really need it in a satisfactory manner. In the same vein as Kuwait's energy subsidy, it benefits disproportionately those who need it the less.

Moreover, Kuwait's housing policies have nurtured urban sprawl in areas far from the center of Kuwait city and its key facilities. Priority is indeed given to a kind of rush to build large individual properties to try – in vain – to fulfill citizens' expectations without paying enough attention to infrastructures. This has resulted in an increasing number of Kuwaitis who live far away from their workplace, as well as important facilities, in a country where public transportation is quasi inexistent.

To this end, Kuwait's housing subsidy is at the same time costly and inefficient, simultaneously nurturing price rise, urban sprawl, traffic-jam and discontent.

A return to a system of subsidy based on income stratification is needed (previously in force until 1984). The policy needs to be better targeted. Both government loans and rent replacement allowance should be modified to be means-tested.

## MAINTAIN WOMEN FINANCIAL AUTONOMY BUT ENABLE THEM TO RECONCILE FAMILY AND WORK

In the current welfare system, women represent the largest share of social assistance recipients. Five categories of women are considered as “vulnerable”, and thus eligible to allowances: housewives over 55 years old with no independent income, divorced women with no or low income, unmarried women between 35 and 60 years old who do not work, widows with no or low income, and women married to non-Kuwaiti men.

These categories reveal conflicting conceptions about the position of women in society and the family. They consider women as individuals independent from the family – either their parents or their husband and children – who should be given the financial means to maintain this independence. However, they also consider women celibacy as a social risk to be compensated for. By offering an income to non-working women, these policies tend to disincentive women from working. This goes against labor market policies implemented by the Kuwaiti government, which promote greater labor market participation rates among both Kuwaiti men and women.

One should take note that if the current system is not amended, the cost of compensating for vulnerable women will increase over future years due to the continuous rise of the number of celibate women, and increasing divorce rate. These two trends are not only specific to Kuwait, but are found widely across Gulf countries and even other MENA countries.177

In these circumstances, a more consistent policy would provide allowances for unmarried women, divorced women and widows, conditional upon actively seeking work and accept professional training. Concretely, allowance for unmarried women aged 35-60 should be made conditional upon enrolment in the Manpower and Government Restructuring Program. The idea is to maintain autonomy of women, but also to increase their employability.

Only the allowance for the women aged 55 and older would be maintained, as a recognition of specific difficulties in finding work for senior women. Over the long term, if current labor market policies are actively and successfully pursued, the number of recipients of this allowance will automatically decrease, since most women will work and thus have an income after retirement.

The allowance for Kuwaiti women married to non-Kuwaiti men compensates for the fact that nationality law prevents women from transmitting Kuwaiti citizenship, thus that their family does not have access to most of the provisions of the welfare state. An amendment of the nationality law would make this allowance useless (and in line with other policies promoting gender equality).

Overall, rather than granting allowances to non-working women, a consistent policy of support for working mothers should be developed to help remove the obstacles to female labor market participation. Kuwaiti figures show a gap between men and women labor market participation: in 2015, 39.3% of Kuwaiti women were part of the economically active population in comparison to 52.6% of Kuwaiti men. Women often leave work in order to take care of family and children at a certain point in their life. As we show in the part of this report, in 2015, 67.3% of Kuwaiti women part of the economically inactive population had left the labor force to take care of their families.

<footnote>176_ Ibid., p. 27.</footnote>

<footnote>177_ Françoise De Bel-Air, Jihan Safar and Blandine Destremau, "Marriage and Family in the Gulf Today: Storms over a Patriarchal Institution?, Arabian Humanities, 10, 2018 (https://journals.openedition.org/cy/4399).</footnote>
In line with a social investment perspective, one way to promote female labor market participation is to develop care facilities and services to ensure that women are not stuck at home because of family duties. Developing childcare facilities for young babies (from the age of one for instance) within collective care facilities of quality would have two advantages. It would allow women to be available for work while having children. It would also allow for, as demonstrated by many studies, high quality early childhood care and education facilities to increase the acquisition of cognitive and non-cognitive skills by young children.<fnref n="178" /> At present, Kuwaitis tend to have their children under the age of 4 taken care of by their families (e.g. a young married woman stays with her husband's family who takes care of the child, often with the assistance of a foreign maid). The other main alternative to mothers with young children is paid nursery homes, costing approximately between 300-1,000 USD per month, which many cannot afford.

Kuwait's government could decide to provide publicly financed free childcare facilities to all. This would require building numerous facilities (and hence favoring new economic activities), developing the childcare profession (and hence opening a new venue for jobs in the service sector).

## PREPARE THE SYSTEM FOR AN AGEING CRISIS

With the same aim of favoring higher labor market participation (especially for women), one should also think of necessary reforms and services aimed at tackling the coming age crisis in Kuwait.

The ageing or “greying” of societies linked to life prolongation and decreasing fertility has become a major challenge in all developed and emerging economies. With life prolongation, health and pension expenditures are increasing, while new needs for elderly care emerge. These evolutions call for new services of care provision.

The current Kuwaiti population is very young, which in part explains Kuwait's relatively low healthcare spend in comparison with the OECD average. Aggregated data (including Kuwaitis and non-Kuwaiti) indicate a median age of 29 years, but, according to the data of the 2011 census collected and published by the Central Statistical Bureau, it is even lower for Kuwaitis (between 20 and 24).<fnref n="179" /> Census figures also show that Kuwait's national population is ageing. A study (using aggregated data mentioned in the first part of the report) forecasts an increase of the number of people aged 65 and over to 4.41% of the total population by mid-2025, and to 17.90% in 2050.<fnref n="180" /> According to United Nation World Population prospects, life expectancy in Kuwait has increased steadily over the past decades (from 51 years in 1950 to more than 75

in 2019). Meanwhile, while in 2017 the fertility rate of Kuwaiti women was still above the replacement rate at 3.5%,<fnref n="181" /> it has constantly declined.

As a result of these demographic trends, the number of elderly people will increase in the long run relative to the overall population. In order to be prepared for such ageing of the Kuwaiti population, one needs to 1. reform the pension system, 2. implement active ageing and 3. develop a formal elderly care sector.

In Kuwait, the minimum age to retire is relatively early, set at 55 years of age for men, and 50 years of age for women. As underlined in the first part of this report, it is rare to find people in Kuwait working beyond this age (e.g. in 2015, only 14% of Kuwaitis in the age bracket between 44-55 years old were still employed). Reforms have already sought to extend the retirement age, with a law passed in 2019 defining a minimum amount of years of contribution (set at 30). While Kuwait has comparable life expectancy to OECD countries, it has much more generous rules for old-age pension. In the OECD countries, on average, one needs to have contributed around 40 to 45 years to be entitled to a full pension.<fnref n="182" /> In order to make the pension system sustainable in the future, one thus needs to increase the retirement age for both men and women (circa 65 on average in OECD countries), and the amount of required contribution years to be entitled to a full pension.

However, these reforms would been meaningless if people leave the labor market too early. Hence, one needs to add to this pension reform “active ageing” policies. Inspired by the Finnish example,<fnref n="183" /> these policies aim at favoring labor market participation of older workers through lifelong training programs (to avoid human capital depletion) and investment in labor market environment and conditions. It also requires that children (especially women) in their fifties are not prevented from finishing their professional careers because of caring duties.

At present in Kuwait, elderly people generally live in the same house with their children. With ageing, the problem of vulnerability amongst the elderly will increase. More and more elderly people will need care for everyday life. If no formal elderly care facilities are planned, care taking may fall on the children of the frail elderly, and particularly on women, who thus would have to retire early from the labor market without being able to finish their professional career (and pay enough contribution to the pension system to be entitled for a full pension). To avoid both a “care crisis” and increasing poverty amongst old women, one thus need to plan the development of formal elderly care facilities, be it in the form of retirement homes or in the form of care at home by professionals. As for childcare, this requires development of care professionals, well trained and paid, subsidized by public funding, to develop a new private service sector.

<footnote n="178">178. J. Bennett and C. P. Tayler, Starting Strong II: Early Childhood Education and Care, OECD, 2006.</footnote>

<footnote n="179">179. State of Kuwait, Central Statistical Bureau, Annual Statistical Abstract 2018-2017 Edition 53, p. 34 (https://www.csb.gov.kw/Pages/Statistics_en?ID=18&ParentCatID=2).</footnote>

<footnote n="180">180. Mustafa Younis, Maha Al-Hajeri, Yucel Cefik, Adnan Kisa, Patrick Richard, Jai Parkash, “Healthcare of Aging Population of Kuwait”, Ageing International, 2015 (https://www.researchgate.net/publication/257770795_Healthcare_of_Aging_Population_of_Kuwait).</footnote>

<footnote n="181">181. Nasra M. Shah, “Dangers of Using Aggregated Data for Understanding Socio-Demographic Realities of the Gulf Region”, GLMM - EN - No. 01/2017, pp. 7-8 (https://gulfmigration.org/media/pubs/exno/GLMM_EN_2017_01.pdf).</footnote>

<footnote n="182">182. OECD, Pensions at a Glance, 2019.</footnote>

<footnote n="183">183. Hannu Piekkola, Active Ageing Policies in Finland, ETLA Discussion Papers No. 898, 2004.</footnote>
DIVERSIFYING THE SOURCES
OF REVENUES FOR WELFARE

Currently, the majority of welfare spending is funded
directly by the state's treasury, which is itself funded
by selling hydrocarbon resources on international
markets. There are only two insurance-based systems
financed by contributions of employees and employers
(in addition to a contribution through the public
treasury):

* Social security system which covers old-age, disability, sickness, work injury and death insurance of Kuwaiti employees of the public, oil and private sectors as well as the Kuwaiti self-employed

* Unemployment scheme

As underlined in the first part of this report, the Kuwaiti
government increasingly confronts fiscal issues as oil
incomes fluctuate and, since 2014, decrease, and as
current spending increases due in particular to a high
wage and pension bill. Some long-term demographic
dynamics are further burdening the welfare system,
such as the increase of women celibacy notably due
to increasing divorce rates, a declining birth rate and
the ageing of the Kuwaiti population.

To meet current and future welfare expenses, the
Kuwaiti welfare system needs to diversify its sources of
income by increasing the share of social contributions
by employees and employers. The efficiency of such
a move towards insurance-based services would be
reinforced by labor market policies aiming at increasing
the labor market participation of Kuwaiti nationals: the
more Kuwaitis work - both men and women - the more
they will contribute to the welfare system and make it
sustainable in the long run.

<figure><img src="image_22.png" /></figure>
## CONCLUSION

# A SUMMARY OF PROPOSALS AND SOME CONSIDERATIONS ON THEIR POLITICAL FEASIBILITY

The reform of Kuwait's welfare state that we propose in this report focuses on three domains: education, labor market and social protection. It should be noted that in many respects, reforms in these domains are inter-dependent and intertwined in the sense that they hold an impact on each other.

### IN THE DOMAIN OF EDUCATION, WE ARGUE IN FAVOR OF:

* Expanding pre-school infrastructures in order to develop Kuwaiti human capital at the earliest age (from age one) and fostering the employability of women.

* Improving efficiency of the public system through an amelioration of selecting and training teachers.

* Investing in STEM education (science, technology, engineering, math) in order to align educational content with the types of skills necessary to develop knowledge-based dynamic service sectors.

### IN THE DOMAIN OF LABOR MARKET REFORM, WE ARGUE IN FAVOR OF:

* Fine-tuning to the extent feasible segmentation of the labor market by cancelling the *kafala* sponsorship system as soon as possible.

* Restricting visas for unskilled and low-skilled expatriates to improve overall quality of the expatriate workforce, and reduce labor cost gap between Kuwaitis and expatriates.

* Increasing the level of the minimum wage for all private sector workers in Kuwait, to reduce labor cost gap between Kuwaitis and expatriates.

* Reforming recruitment policy of government administrators by cancelling the waitlist system of Kuwait's Civil Service Commission, and ceasing to use public employment as a channel of wealth distribution.

* Reforming unemployment allowances to make them more equitable, and more favorable to the objective of private sector Kuwaitization.

* Making Kuwait's wage subsidy system (*da'm al-'amala*) temporary in order to move the private sector away from "low cost" business models.

* Fostering creation of trade unions in the private sector to generate an alliance for Kuwaitization.

* Creating a national tripartite institution for the private sector to participate in the elaboration of socio-economic policies.

### IN THE DOMAIN OF SOCIAL PROTECTION, WE ARGUE IN FAVOR OF:

* Shifting most universal subsidies (e.g. water, energy, and housing) to means-tested cash transfers to lower income households.

* Lifting food subsidies.

* Reforming allowances targeting women considered vulnerable in order to foster female employability.

* Restructuring Kuwait's pension system by augmenting the global retirement age in order to face an inevitable ageing crisis, and increase Kuwaitis' labor market participation.

* Developing a formalized elderly care sector in order to manage Kuwait's ageing population, and facilitate women's labor market participation.

* Diversifying revenue sources for welfare by increasing shares of insurance-based schemes.
POLITICAL FEASIBILITY OF WELFARE REFORMS IN THE KUWAITI CONTEXT

During our round-table discussion with stakeholders, a dialogue emerged on political feasibility of reforms advocated for in this report and, as underlined by Wafa Saad, their subsequent sequencing. Welfare state reform is a conundrum for any government, repeatedly shown by existing academic research on politics of European welfare states. Kuwait, with its vibrant political life and well-organized socio-economic interests, is certainly no exception.

That being said, we would like to underline that this report must be understood and emphasized as a long-term proposition. In the short run, priority should be placed on implementing measures that foster labor market participation of Kuwaiti men and women and, most importantly, their incorporation in up to par private sector jobs. This requires implementation of all educational measures advocated for in this report (i.e. expansion of pre-school infrastructure, selection and training of teachers, and important investment in STEM as underlined by Dr Shareefa Al-Adwani).

Priority should be given to social protection measures. In particular, reforming allowances for non-employed women with the creation of an obligatory condition for unmarried working-age women to actively seek out work opportunities, and/or undertake professional training. Measures to develop and enhance child care facilities are also vital to foster the participation of women in Kuwait's labor market. All these measures must also take into consideration their cultural acceptability and implementation in Kuwait, i.e. involving the discussed groups within our report (such as women), as underlined by Dr Blandine Destremau in our debate.

Our round table discussions also greatly focused on labor market measures, with two of them debated in particular. Firstly, our proposal to make the workforce support allowance (da'm al-'amala) temporary and secondly, establishment of a higher minimum wage in Kuwait. We concur that the workforce support allowance plays a key role in fostering employment of Kuwaitis in the labor market. Curtailing this allowance is not the most urgent measure to implement, and would even be counter-productive at this early stage of private sector Kuwaitization. Yet, there is room for maneuver to begin reforming on the line of what in our eyes should be a very important general orientation of welfare reforms: the shift from regressive universal subsidies to targeted means-tested allowances. As underlined by several participants, there are important wage disparities for Kuwaitis across private economic sectors and well-paid Kuwaitis also benefit from the workforce support allowance. Decisions could be taken in the short term with regards to curtailing this allowance for higher compensated Kuwaitis (who do not need this allowance as a necessity). As underlined by Wafa Saad during the January 2021 roundtable discussion, in order to tackle various policy incoherencies and misalignment between Kuwait's public and private sectors, there is a need to address reforms of the public sector employment policy in parallel with those of the da'm al-'amala. This means putting an end to "queuing behaviors" incited by this system, canceling the wait-list system, and what goes with it - the job search allowance.

In regards to Kuwait's minimum wage, a consensus emerged among roundtable participants that the long-term goal should be to set minimum wage at a fairly high level. This is with two objectives in mind: attracting Kuwaitis to the private sector and fostering shift towards a more qualitative private sector. Yet increasing the minimum wage (currently 75KD a month), should be gradual - accompanying a rising quality of the private sector rather than preceding it.

Even gradual reforms are likely to be resisted by strongly organized vested interests. As underlined by Dr Steffen Hertog, welfare retrenchment reforms (targeting of current universal measures, shrinking of subsidies such as food vouchers, or energy subsidies) will affect first and foremost Kuwait's middle classes whose interests are well represented in Parliament. What our report underlines is the necessity to build an alliance for reforms with Kuwaiti private sector workers by fostering private sector unionization and tripartite mechanisms of policy-making. This proposal is based on the idea that Kuwaitization is having an impact on Kuwait's class structure, fostering the emergence of a category of middle class private sector employees who have different interests than the middle class civil servants who are the traditional constituency of MPs. This new emerging class, which is meant to broaden as Kuwaitization will progress, should be collectively organized. In order to maintain support of this new middle class for further labor market reforms, they should also be associated with policy-making decisions. They should also be supported by the state to successfully confront employers' vested interest in the status quo (in terms of wages and working conditions). We agree that employers are more "defeatable" (sic Dr Steffen Hertog) than middle class organized interests. This is why we also consider that reforming the kafala system, which mostly benefits private sector employers, is among those measures that have the potential to be implemented in the short term. In particular because such reforms have already been undertaken successfully by neighboring Gulf states (i.e. Bahrain, Qatar, the UAE) with quick positive effects. Priority should be given to abolition of the No-Objection Certificate, i.e. creating the possibility for expatriates to change jobs at will. In the UAE, a recent study has shown that this legislative change has had a swift and positive impact on expatriates' wage levels.<fnref n="184" />

Labor market reforms advocated in this report focus on reorganizing private sector on a more qualitative basis and making it less dependent on state subsidies. This also implies that employers will pay alone the costs (wages, working conditions, etc.) incurred by working with a manpower who is free, holds rights and is organized in order to assert them.

<footnote n="184">184 Suresh Naidu, Yaw Nyarko and Shing-Yi Wang, "Monopsony Power in Migrant Labor Markets: Evidence from the United Arab Emirates", Journal of Political Economy, 124 (6), 2016.</footnote>
# ANNEX 1
## LIST OF INTERVIEWEES

**Hanan Al-Hajeri** (Undersecretary social development, Ministry of Social Affairs and Labor)

**Huda Al-Rashed:** (Director Social Safety Net Committee, Ministry of Social Affairs and Labor)

**Dr. Mohamed Al-Sharika** (Director of Information Sector, Arab Bureau of Education for Gulf States)

**Dr. Ala Al-Zaghlal** (Advisor GSSCPD at the planning sector)

**Wafa Saad** (Policy advisor Public Administration and Human Capital, UNDP Kuwait)

**Prof. Sungsoo Chun** (Policy advisor in Health, UNDP Kuwait)

**Fares Al-Anezi** (Deputy Director General of the National Fund for Small and Medium-Sized Enterprises)

Apart from these in-depth interviews, **Dr Rivka Azoulay** also met several times with representatives of the GSSCPD and KFAS during her stay in Kuwait in December 2019. She further participated in the two-day New Kuwait Summit 2019 where she had the chance to meet and interact with different stakeholders involved in Kuwait's economic reform strategy.

# ANNEX 2
## LIST OF FIGURES AND TABLES

**Figure 1:** Kuwait's population pyramid according to age group and gender (2018)

**Figure 2:** Sectoral employment Kuwaiti men in public sector

**Figure 3:** Sectoral employment Kuwaiti women in public sector

**Table 1:** Kuwait's HDI trends based on consistent time series data and new goalposts

**Table 2:** Kuwait's budget: summary of revenues and expenditures

**Table 3:** Government expenditure on Basic Social Services

**Figure 4:** Government expenditures on main sectors of universal aid (2018/2019)

**Figure 5:** Health indicators Kuwait in perspective

**Table 4:** Prices for Energy Products GCC

**Table 5:** Social aid to vulnerable categories in Kuwait

**Table 6:** Social insurance Kuwait

**Table 7:** Main labor market policies Kuwait

**Table 8:** Monthly job search allowance
<figure><img src="image_23.png" /></figure>