I. Introduction: the fourth industrial revolution and the future of work

The contemporary industrial revolution is dramatically transforming life as we know it. The technologies of what has been called the ‘Second Machine Age’ encompass automation, robotics, additive manufacturing, the internet of things (IoT), and, most importantly, artificial intelligence (AI). Termed the ‘fourth industrial revolution or ‘4IR’, the contemporary digital revolution marked by the confluence of infotech and biotech has been transforming lives in areas as diverse as medicine and entertainment.

AI is a general-purpose technology (GPT) that can transform whole societies akin to the steam engine, electricity, and computers, during the first, second, and the third industrial revolution respectively. Machines that require human-level intelligence can not only collect and process data better and infinitely faster than human beings, but they can also learn and make decisions on their own. AI, driven by increasingly inexpensive computing power, is becoming ubiquitous. What was science fiction is becoming a reality. With the onset of Covid-19, this transformation received a shot in the arm.

The AI-led digital revolution has profound implications for the future of work. A consensus seems to be emerging among scholars, policymakers, and thought-leaders to the effect that the upcoming AI-driven workforce transitions would be huge but will vary by occupation and sector.

Activities most susceptible to automation include both low-skill manual and high-skill mental ones. Along with routine low-end jobs, many middle-income occupations with programmable cognitive skills, such as accounting, mortgage origination, paralegal work, and back-office transaction processing will have the largest employment declines.

AI is a double-edged sword. Indeed, the ongoing digital revolution is increasingly recognized as a ‘process of creative destruction (a la Schumpeter). While eliminating certain jobs or specific components of certain activities, automation creates new jobs and products. Highly skilled professionals whose work does not follow set rules will have a growing demand for their services. These include professionals such as doctors, engineers, scientists, accountants, analysts, IT professionals, managers, executives, educators, creative artists, performers, entertainers, and builders of infrastructure. Some relatively low-skill manual and non-routine service jobs in unpredictable environments, and/or where telecommuting or ‘telemigration’ is non-feasible, are also expected to survive the technological onslaught. These include unprogrammable occupations, such as home-health aides, nursing assistants, teaching assistants, domestic servants, and gardening.

Automation boosts productivity as businesses adopt automation only when it enables them to produce more or higher-quality output with the same or fewer inputs. Rising income from enhanced productivity is expected to create more demand for not only leisure and luxury goods but also for investment in unanticipated product lines. In the era of 4IR, the most in-demand skills are slated to be increasingly technology-related, specifically in the fields of Science, Technology, Engineering, and Math (STEM). Also expected to grow in demand are a set of soft skills that complement automated and technologically driven jobs.

Perhaps the clearest expression of the positive impact of 4IR on employment can be seen in the growth of ‘platform capitalism’ creating new jobs as well as investment opportunities. The ability of machines to collect, process, and exchange large amounts of data quickly and cheaply, has laid the foundations of digital network platforms such as UBER, Careem, Upwork, Airbnb, Alipay, Baidu, WeChat, Venmo, CashApp, Alipay, and a host of others. By connecting businesses and clients to workers, digital platforms are transforming labour processes, with significant implications for the future of work, geographic mobility of workers, and education. Indeed, from the perspective of international labour migration, digital platform capitalism could be a game-changer.

Digital labour platforms are not only a unique way to address youth unemployment, but it is also particularly conducive to female labour force participation in countries like Pakistan, where socio-cultural factors inhibit women’s participation in the labour market.

As for education, what makes education so unique amidst 4IR is that it will be relatively inexpensive, interactive, and virtual. All that is needed is access to the internet and a computer to interact with the instructor and co-learners across the globe. Again, for spreading mass literacy, it can be a game changer.

How does the AI-led digital revolution affect the employment outlook in the Gulf migration corridor and the prospects of continued low-skilled migration from Pakistan?

II. The kafala system, structural transformation in GCC, and the employment outlook in the Gulf Migration Corridor

In light of the relatively unlimited supply of cheap labor from Asia and Africa, the labour market in the Gulf can be characterized as a buyers’ market. The abundant supply of surplus labor from multiple countries competing with each other lies at the root of the so-called kafala system prevalent in the Gulf States that governs the employment and residency of migrant workers. The kafala system constitutes the defining characteristic of the work visa regime for migrant workers prevalent in the Gulf States. The local kafeel has near total control over the mobility of low and semi-skilled foreign workers. This control is a significant source of what is called economic rent (or unearned income) for the Gulf nationals. The magnitude of economic rents (unearned income without any commensurate productive service) generated by the kafala system has been enormous. Economic rents over the last half century have taken various forms: underpaid or unpaid wages, extended hours of work, little or no overtime, and forced labour.

The working conditions are particularly harsh for low and semi-skilled workers. Given the high earnings threshold required to bring family members, most low-skilled migrant workers are forced to live without their loved ones for years, even decades. Those who do bring face economic hardships. The economic hardships have become particularly severe for migrant workers in Saudi Arabia since the monthly levy of 400 SAR per migrant (including all dependents). In addition, the iqama fee has increased by almost 400%, making it difficult for many migrants to make ends meet. Consequently, Saudi Arabia has become the third largest country of undocumented migrants!

As regards, non-monetary benefits for migrants, the GCC countries of destination offer few in comparison with the Western countries of destination. Thus, unlike citizenship rights granted to children of migrants in, children born to migrant workers in GCC countries have few rights. As integration and assimilation is actively discouraged, they typically receive their education in private schools where access and efficiency are directly related to the ability to afford tuition. “The pandemic has exposed, more aptly than ever, migrants’ lack of agency and control of their mobility patterns in the Gulf.”

Since the kafala system is a source of income for the nationals of Gulf, there is a perverse incentive to hire cheap labor from abroad swelling the population of expats. Consequently, today almost 90 percent of the population of the Emirates and Qatar is foreign. Reliance on cheap labor has also dampened productivity. In addition to the finite nature of non-renewable energy resources on which their economies depend, the Gulf states have long been concerned about the growing dependence on foreign labor. (This concern has been particularly intense in Saudi Arabia given the youth bulge and high level of youth unemployment.) They have pursued the twin objectives of reducing their reliance on foreign labor while diversifying the economy away from oil and gas at the same time. Since diversification itself largely depends on foreign labor, they have largely failed to attain the twin objectives – with the exception of Dubai which does not depend on oil revenue. The Gulf states aim at not only diversifying away from natural resources and leapfrogging (jumping technological generations) into a high value-added knowledge-based digital economy but also at reducing their heavy dependence on foreign labour through nationalization (Saudization, Qatarization, and Emiratization) of the workforce. The current Saudi government has undertaken the harshest measures to reduce its dependence on foreign labor. These measures include a monthly levy of 400 SAR per migrant, forcing many migrants to go underground. Consequently, the Emirates has eclipsed Saudi Arabia as a the top source of remittances ($43.24b as opposed to $34.60) despite Saudi Arabia hosting 55.4% more migrant workers than the Emirates (13.5m vs. 8.72m).

Digitalization and automation are transforming the employment landscape of GCC. In addition to the ongoing digital and automated transformation, the growing participation of women, particularly in Saudi Arabia, has been changing the employment landscape against low-skilled workers. The automation agenda received a shot in the arm and was accelerated in the wake of the pandemic.

The AI-led transformation of GCC and its ramifications for temporary labour migration of low-skill workers carries significant and qualitatively different risks and opportunities for the labour exporting economies. Given the low population base and the strategic goal of reduced dependence on foreign workforce, the accelerated adoption of AI-led automation by resource-rich GCC in the wake of Covid-19 offers the Gulf states a unique opportunity to square the circle of diversifying the economy while nationalizing the workforce that has long evaded them. Data shows that COVID-19 intensified the GCC workforce nationalization Policies. Considering the growing divergence between the countries of origin and countries of destination in the Gulf migration corridor it is time to reframe the issue and ask how migration fits into the broader development paradigm amidst the ongoing structural changes in the global economy, in general, and the Arab Gulf states, in particular.

The push by GCC towards diversification into a high-value digital economy drawing upon the synergy between highly skilled human capital and advances in ICT had intensified a skill bias in their migration regimes that predates the onset of the Covid-19 pandemic. As expected, Gulf states also seek to become more attractive for skilled foreign workers. UAE has been at the forefront of introducing pro-skill reforms in the visa regime. Saudi Arabia followed suit and has embarked on a pro-skill visa regime with a vengeance. The COVID-19 pandemic has only put this strategy on steroids, particularly in Saudi Arabia, distinguished by the highest rate of youth unemployment in GCC. Given the high fertility rate of nationals in Saudi Arabia, and a population pyramid comparable to labour surplus economies like that of Pakistan, young foreign professionals face a higher degree of competition in the labour market, depressing real wages even further. The extent to which the destination markets are concentrated in Gulf countries, occupations and sectors are limited. Unlike the countries of destination in the West that are facing an ever-aging population, GCC, particularly Saud Arabia will have a growing population with the share of youth and working-age population (15-64) increasing.

What future changes are expected in the GCC labour market, in general, and demand for foreign workers, in particular? Accelerated adoption of AI and other technologies of 4IR in GCC will directly affect the future demand for skills and the sectoral composition of the foreign workforce in these countries. Skills in demand are slated to be more technologically relevant, built on STEM (Science, Technology, Engineering, and Math) fields, and steeped in a diverse set of soft skills that complement automated and technologically driven jobs, such as computer programming, the ability to handle and manage hardware and network infrastructure, and data management.

III. 4IR and the future of emigration from Pakistan

Of all the countries exporting labour to the Gulf Cooperation Council (GCC), few face the political and economic challenges that Pakistan is confronting at the present juncture. As the political elite are engaged in an existential struggle, and the short-run balance of payment crisis is consuming the government, few have the time or the foresight to reflect from a long or even an intermediate perspective on the economic challenges and opportunities facing the country. Given the growing proportion of remittances as a source of Pakistan’s GDP, policymakers seem to be oblivious to the impending long and medium-term dangers facing the country. Here I seek to bring into the limelight a looming challenge that is, to the best of my knowledge, not even on the radar screen of the policymakers and thought leaders in Pakistan, i.e., the structural transformation of the Gulf States and the implications thereof for the future of work in the Gulf-Asia migration corridor.

To put things in perspective, let us look at the relevant numbers and stylized facts. In the face of the country’s mounting economic challenges, the opening of the Gulf labour market following the oil boom of 70s offered policymakers a much-needed vent for surplus labour. Export of labour to the Gulf following the oil boom was a low-hanging fruit, and successive governments have tacitly encouraged emigration for both political and economic reasons as an easy way out of the chronic balance of payments deficit, poverty, youth unemployment, and as a bulwark against potential social unrest. A country of 236m people, Pakistan become the seventh largest emigration country in the world in 2020. Pakistan’s population is expected to grow by another 44 million people by 2030, implying more mouths to feed and a commensurate need for job creation. Over 70% of all migration from Pakistan is to the Gulf and is heavily concentrated in two destinations (Saudi Arabia and the United Arab Emirates). A barbell pattern of emigration by skill is evident, with low-skilled migrants concentrated in the Gulf and medium- and high-skilled migrants in the West. Those going to Europe are also more likely to be unmarried. The bulk of Pakistan migrant workers in the Gulf is low and semi-skilled and is heavily concentrated in a limited set of occupations. Socio-cultural factors and a lack of agency in decision-making processes within the family are the two main reasons for the minuscule share of women among Pakistani migrants. Remittances are typically spent on conspicuous consumption or buying real estate, making housing almost unaffordable for the low- and middle-income non-migrant households.

A quick comparison with neighboring countries should bring the increasing dependence of the Pak economy on remittances into sharper focus. Migrant remittance inflows from the Gulf constituted 7.9% of Pakistan’ GDP in 2019. The corresponding figure for Bangladesh and India was 5.5% and 2.8% respectively (See Figure 1 which shows increasing dependence of Pakistan’s GDP on remittances). The contrast over the last decade is unmistakable – while the reliance of both Bangladesh and India on personal remittances as a share of GDP has been decreasing, that of Pakistan has been increasing, and increasing sharply over the last half decade.

Read More: Read more: ESG and Pakistan’s textile industry

Despite the significant benefits accruing to the migrant households and to the macroeconomy, Pakistan finds itself at the bottom of the lower-middle-income group, ranking 174/225 on a per capita GDP (PPP) close to Myanmar. Pakistan is a textbook case of the dismal performance of the social sector for a lower-middle-income country. In terms of multidimensional poverty at 38.3% (as of 2022), Pakistan presents a bleak picture in comparison with that of India (27.9%) and Bangladesh (24.6%). Given the low rate of women’s labour force participation and large household size, the majority of households do not have living wages (making corruption a structural institutional feature of the public sector). More than 20 percent of Pakistan’s population is undernourished, and nearly 45 percent of children younger than five years of age are stunted. Corruption is institutionalized, and for a large section of the population, it is the only way to survive (given the predominance of non-living wages that few low and mid-level workers can expect to survive on). Capital flight by the corrupt elite has worsened the impact of corruption.

A twin deficit (i.e., the overall poor educational attainment of the population, in general, and women’s still poorer educational attainment) has been the hallmark of education in Pakistan. At 8.3, the average years of schooling in Pakistan lag significantly behind those of India (12.2) and Bangladesh (11.6). As late as 2020, 6% of children in Pakistan were still not even enrolled in primary schools. Displacement and homelessness caused by the recent devastating floods is likely to have worsened the situation. Non-enrolment of children is tantamount to lower amount of future capital. The gravity of the permanent loss to society from the loss of human capital is immeasurable. Pakistan is ranked 90th out of a group of 120 countries on the Economist’s inclusive Internet index. Even more striking is the gender gap in mobile ownership – at 34%, Pakistan has the widest gender gap in mobile ownership worldwide.

While de jure integration of migrant workers in the Gulf is near impossible, there is de facto economic integration without all the benefits associated with a legal path towards citizenship. There is mounting evidence that temporary migration is often permanent, a fortiori within the Gulf migration corridor. Being unable to earn and save enough to return home to improve their standard of living as the national economy offers few alternative earning pathways, many migrants remain stuck for decades beyond their planned separation from their loved ones in the Gulf countries of destination. Many migrants return home as diseased, deported or dead. The COVID-19 pandemic further exacerbated Pakistan’s macroeconomic and fiscal challenges as thousands of workers either returned or were forcibly deported from the Gulf.

In this unfolding scenario, the de facto policy of specialization in low-skilled mass emigration pursued by countries of origin like Pakistan is demonstrably doomed. Specialization in unskilled temporary migration is akin to specialization in low-value export commodities. The argument is as follows. The opportunity to emigrate and earn higher wages despite low level of education and skills impinges on the human capital formation decision of would-be migrants in countries of origin. widely documented abuse and exploitation of migrant workers in the Gulf. Low and semi-skilled migrant workers are highly vulnerable to automation in the wake of the ongoing digital transformation in GCC.

Despite the heavy and growing dependence of Pakistan on the Gulf migration pipeline, to my knowledge, no emigration policy has ever been formally adopted in Pakistan. Covid-19 pandemic created a ‘critical juncture’ – a moment in which fundamental changes are possible. The post-COVID labour markets in the GULF are being shaped by the rapid societal penetration of DigiTech, reduced international demand for fossil fuel in the context of growing international preference for a greener economy, within GCC competition, particularly between the Emirates and the Kingdom to diversify into tourism and entertainment as major non-oil growth sectors, and the changing geopolitical context with corresponding shifts in the foreign policy stance of these countries.

Pakistan is on a knife’s edge. It is a cliché that every crisis is also an opportunity.

Are there any silver linings for countries of origin like Pakistan in the wake of the structural transformation of the GCC and the global economy? In our view, DigiTech offers the prospect of breaking out of the low-skill migration trap. The real challenge will be to manage the phased transition to the new employment landscape in the Gulf migration corridor. Fortunately for labour-exporting countries like Pakistan, conditions for a gradual phasing out of a low-skill emigration are favorable for several reasons.

A complete and sudden break from the current pattern of migration and remittances is neither necessary nor desirable at this time. The adoption of automation in GCC will be slow accelerated as it may have been since the coronavirus pandemic. First, the momentous impacts of technological change (e.g., self-driving cars) are unfolding gradually and can take decades from the birth of the invention to its commercialization. Second, for structural reasons discussed above, transformation into a high-value knowledge-based economy is likely to be slow in GCC, because the Gulf economies require a critical mass of indigenous knowledge workers and highly skilled professionals before the oil economies can be reincarnated into knowledge-based digital economies. Second, given the extremely low population base of Qatar and the Emirates, this process is likely to be much slower and longer, as unlike Saudi Arabia, they are not confronted with the problem of high level of youth unemployment. Third, Gulf states’ exclusivist and segregationist approach to immigration is likely to deny them the full advantages of the new technologies, further decelerating the process of successful automation. Fourth, constant supply of increasingly cheap labour will dampen the incentives for structural transformation in the Gulf and is likely to slow down the automation process. Everything else held constant, workers’ wages are likely to fall for two reasons – dismissal of workers in many countries and industries and the rising pool of technologically unemployed will increase the relative supply of workers willing to accept low salaries, dead-end menial jobs, and undesirable work conditions in the short run. Automation, even when slow in adoption, is likely to create downward pressure on wages for the unskilled and semi-skilled workers in occupations with shrinking demand. This will require massive investment in upskilling the affected workers. Fifth, the demand for certain forms of occupational skills required for infrastructure and building (such as architects, engineers, electricians, carpenters, and other skilled tradespeople and construction workers) in the Gulf countries of destination is likely to be sustained due to the lack of well-documented enthusiasm among GCC nationals for technical and vocational education and training (TVET) despite GCC governments’ investments as part of their economic vision and the preference of nationals for the public sector jobs.

IV. What should be done?

What are the strategic choices for Pakistan in the medium term? To get out of the low-skill migration trap, Pakistan needs to carry out strategic planning to diversify markets (countries of destination) and upgrade export quality (skills of labour) both in-person and online.

In the medium term, there is an urgent need to diversify in multiple dimensions. To maximize the benefits of labour export, countries of destination with the greatest direct and indirect benefits of migration need to be tapped. Would-be migrants are voting by their feet and showing the way. Irregular migration from Pakistan to Europe via Turkey and other channels is a regular phenomenon. Median earning in US$ is considerably lower than that of India. That is also an opportunity

While the exodus of talent has reached an unprecedented level. policymakers should recognize that the exodus of skills to the Gulf and to immigrant-friendly destination in Europe has different implications at both the micro and the macro levels. First, there is a vast gulf in living standards and access to public goods between the Western countries of destination and GCC. More importantly, many Western liberal democracies suffering from a demographic deficit and aging population have an active immigration and integration policy. Most have incorporated international student mobility into their immigration and integration strategy and international students pursuing advanced degrees are considered a prime target for recruitment. Second, while economic drivers are predominant for migration from Pakistan, higher education opportunities are the second most prevalent motive for potential migrants toward Europe. Third, many women find the social and economic environment in these countries to be highly favorable. The swift upward mobility of highly skilled Pakistani diaspora in the West is well-documented.

Ceteris paribus, uniform labor laws, social democratic norms, and more importantly geographical distance between destination and sources of labor, the economic benefits of migration to Europe and other advanced countries of the West greatly outweigh the benefits of migration to the Gulf. Per capita remittances by the West-based Pak diaspora are significantly higher than the per capita remittances from the Gulf. Apart from higher earnings, social remittances in terms of learning and soft skills from the OECD countries of destination are no less important in the post-pandemic globalized labour market. Scholars have highlighted the importance of knowledge networks at the higher end of skills, that international migration can create.

In addition to the Western countries of destination, rich Asian powerhouses should be explored. The Chinese population pyramid is becoming top heavy as a result of persistent low fertility rates and an aging population. Just like Japan with rising income levels and an aging population, China is likely to become an immigrant-receiving country China has experienced a labour shortage and rising wages. The dramatic development of its labour market signals that China is entering a new stage of economic development. “As China is increasingly globalized, an immigration boom in China is inevitable.” In light of the ever-growing economic integration with the Chinese economy in the wake of the $62b China Pakistan Economic Cooperation (CPEC), the potential demand for Pakistani bilingual workers will come not only from China but also from other countries that wish to do business with China.

To enhance the benefits of labor migration to China and Japan, Pakistan can draw upon the experience of projects such as the ‘Pilot Project Addressing Labor Shortages Through Innovative Labor Migration Models’ (PALIM) project, implemented in 2019 by Enabel – Belgium’s development agency – in partnership with Flanders and Morocco.

Nature does not like vacuums. When the government fails in fulfilling their responsibilities, individuals like rivers find alternative channels. We already see some silver linings. The creative solutions that the youth in Pakistan have been devising offers a silver lining. The market for “digital entrepreneurship,” a multi-billion-dollar industry, is growing at a rapid rate and is thirsty for young talent. Today, more than 60% of the population of Pakistan is under the age of 30. The educated part of this youth population offers a huge opportunity to the country. Another unintended consequence of the Covid pandemic has been the enhanced prominence of English as the global lingua franca. It is among the most-demanded soft skills. Here also Pakistan shares with ex-British colonies a comparative advantage over many developing and emerging economies. With the right investments, this large cohort of young people has the potential to yield an important demographic dividend to contribute to social development and economic growth.

Pakistan has an estimated 3-4 million youth taking advantage of global connectivity and the digital economy to link with job opportunities internationally. According to the Oxford Online Labor Index (OLI), the online labour supply of Pakistani workers has been increasing significantly. It is remarkable that while India, with a population of 1.4b, supplies more than one-third of the global online freelance labour, at about 12%, Pakistan supplies more than twice that of India on a per capita basis. In terms of absolute numbers, Pakistan is now the world’s third-largest contributor to online labor – ahead of the US and only slightly behind Bangladesh. The real challenge is to continuously calibrate the link between secondary and post-secondary education and the changing skill requirements in the globalized labor market.

Notwithstanding the digital divide and the gendered access to it, there are many Pakistani women who are excelling in the digital scene, be it via digital media, digital arts, or digital technology. Enhancing the opportunities for home-bound females that constitute the bulk of Pakistani women.

The endogenous response by the youth to economic incentives in the market need to be scaled up through joint efforts by the public and the private sectors with assistance from multilateral organizations.

It is estimated that investments in (TVET) could lead to a seven percent gain in worker productivity and better employment prospects. The technologies of 4IR have opened a huge window of opportunity to overcome the challenge of universal access to education at all levels in resource-constrained developing countries. Digital dividends depend upon literacy, and in the era of 4IR, literacy is increasingly and costlessly spread through DigiTech.

Within the context of 4IR, the task for educators needs to be redefined in terms of transmission of needed skills in a fast-changing world to future cohorts, while creating greater incentives for students to enroll in STEM as well as vocational training programs. Lifelong learning of adults is also imperative as the pace of technological change has accelerated beyond imagination.

Conclusion

Covid-19 has revealed the inherent risks of a more connected world, highlighting the unequal prospects for the digitally advanced and resource-rich GCC and the digitally backward and resource-poor labour surplus economies in the Gulf migration corridor. The AI-led transformation of GCC and its ramifications for international labour migration carry significant and qualitatively different risks and opportunities for the labour importing and labour exporting economies. Labour-export-dependent economies can make a virtue of necessity by leveraging the technologies of the 4^th Industrial Revolution and redirecting investment towards digital infrastructure to tap into the growing online opportunities for the burgeoning young population and labor force participation of women. This will reduce emigration pressure synchronously with the reduced future demand for labour from the Gulf due to nationalization and automation. DigiTech offers Pakistan the prospect of breaking out of the low-skill migration trap and diversify into countries of destination with higher socioeconomic benefits for migrant workers. Given the unprecedented pace of change that characterizes the 4^th Industrial Revolution, time is of the essence here.

Dr. Abdul Ghaffar Mughal is an independent scholar and a lecturer in economics at Northeastern University, Boston. He is a recognized expert in international migration and the nexus thereof with education. He is also the author of “Twin Deficit of Education in Pakistan”. The views expressed in this article are the author’s own and do not necessarily reflect the editorial policy of Global Village Space.

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AI-led Automation in the Gulf States & Pakistan’s Mindless Dependence on Low-skilled Workers’ Remittances

I. Introduction: the fourth industrial revolution and the future of work

II. The kafala system, structural transformation in GCC, and the employment outlook in the Gulf Migration Corridor

III. 4IR and the future of emigration from Pakistan

IV. What should be done?

Conclusion

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