Abstract

After a prosperous youth starting from the early 1900s, Saudi Arabia is finally starting to face some of its first real challenges of the 21st century in the form of high rate of unemployment. This paper seeks to determine the root causes of the persistent rise in unemployment in Saudi Arabia. In addition to more general causes, it also looks at the historical foundations of the problem of unemployment in the nation. The paper explains the high economic and social costs of unemployment and also determines the empirical relationship between unemployment and loss in Gross Domestic Product (GDP), utilizing Okun’s law and applying recently developed panel econometrics techniques. Additional details about the social costs of unemployment are also explained. The primary goal of the paper is to develop an approach to estimate the cost of unemployment in Saudi Arabia more accurately. This paper utilizes alternative approaches such as the average product method as a failsafe to double-check in situations where Okun’s law could not be applied. Thus, this paper will detail the potential risks that threaten the nation as an effect of unemployment. Finally, the main findings of this paper is that the loss of the total real GDP is $ 95 billion, while the loss of the non-oil real GDP is $ 95 billion as a result of 1,687,313 Saudis unemployed.

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