The employment outlook in the Gulf Cooperation Council region continues to be a major challenge for the region’s economies, particularly given relatively low oil prices and a growing youth population. Saudi Arabia alone has nearly 300,000 new job seekers every year, for example, and youth unemployment in the the Middle East and North Africa (MENA) region has been hovering between 25% and 30%. Entrepreneurs and economists have long noted that the private sector, not public-sector jobs, will have to provide the solution. That suggests the need for new business creation, among other things.

But there is a disconnect. A new study finds that perceptions of salaries and career prospects at startups are creating additional hurdles for entrepreneurs and job seekers alike. A Wamda Research Lab study, titled Access to Talent for MENA’s Entrepreneurs, found that even though most of the surveyed workforce in the region perceive working at a startup as a good career move, very few seem willing to actually work for one. Wharton management professor Peter Cappelli, director of Wharton’s Center for Human Resources, called the study important “because it tells us what employers are actually experiencing — we’ve often been guessing as to what is happening with them in this region.” Cappelli adds that the MENA region’s experience is somewhat unique — entrepreneurs are appreciated and held in higher status in most other parts of the world. Yet, the preference of individuals to work in big corporations and especially in government is greater than in the West. 

Knowledge at Wharton spoke about the challenges with: Jamil Wyne and Teeb Assaf, the authors of the study (via email); Christopher Schroeder, entrepreneur, venture investor and the author of Startup Rising: The Entrepreneurial Revolution Remaking the Middle East; Fadi Ghandour, co-founder, of global logistics and transportation company, Aramex and chairman of Wamda Capital; and Mishal Hamed Kanoo, chairman of The Kanoo Group based in UAE and Oman, one of the largest and oldest family owned groups of companies in the Gulf region.

An edited transcript of their remarks follows.

Knowledge at Wharton: What key issues did the study highlight for you? Were there any surprises?

Jamil Wyne and Teeb Assaf: Nearly all of the entrepreneurs we surveyed were planning to hire more employees in the near future. Given that there are many complaints about access to talent in MENA and the fact that many entrepreneurs in our survey pointed to a series of skills gaps, it was positive to see that many founders are keen to hire soon. This finding also highlighted how the understanding of unemployment in the region needs to evolve a bit. We tend to discuss how jobs need to be created, but jobs also need to be filled, and most potential hires are not very interested in working at a startup. Entrepreneurs should not be purely satisfied with the number of jobs they create, but should also focus on ensuring the benefits they are seeking are in line with what the workforce is seeking.

Additionally, startups are still facing a lot of competition for talent from large corporations and government. Sixty-four percent of the workforce surveyed finds working for a large corporation more appealing than a startup position, 41% find government jobs more appealing. While there is consensus around the region that public sector employment is an unsustainable option for generating enough employment opportunities, many people still prefer it. This finding creates concerns regarding sustainability given the region’s already large unemployment rates. With so many people looking for jobs and governments unable to absorb all the demand, startups could be a natural employment option, especially given that many are hiring. Yet, the data suggests that this is not yet the case.

“Jobs need to be created, but jobs also need to be filled and most potential hires are not very interested in working at a startup.”

Simultaneously, although challenges to finding talent can be attributed to educational challenges in MENA, entrepreneurs also share the responsibility. Among the top three challenges in sourcing talent are entrepreneurs’ ability to identify the right skills or expertise, and the right personality. Irrespective of the talent pool, entrepreneurs must know how to identify and develop talent. Their own capacities and role in the hiring process can contribute to the challenges they face when tying to build their team. Entrepreneurs are thus in need of more support and mentorship throughout the team building process.

Christopher Schroeder: The study underscored all the potential in what startups can unleash for the economy and job creation, but also how slow the adoption is and how hard it is to find the appropriate talent.  At one level, this isn’t surprising at all. In fact, move beyond the greatest entrepreneurship hubs in the U.S. and you’ll find very similar findings — even in places like Silicon Valley, finding and keeping world class talent is always challenge.

In the short run, there is still a serious perception issue. Many don’t know enough about the opportunities available in startup and growth companies and why this matters so fundamentally in conjunction with traditional work in large enterprises or even governments — and the [views of their] parents’ generation compound this.

But it is changing rapidly, and the report is right that all constituencies in the Middle East can benefit from this shift if they start by simply embracing it. Having said this, there is still a significant need for the core skills that startups and growth companies require: embracing critical thinking and problem solving; world class skill in STEAM (science, technology, engineering, art and math); and I think art and creativity is essential also.

This starts very young and the education systems across the region are under-delivering for these very needs for the 21st century. To the report’s point, traditional governments and education infrastructure remain a part of this engine for change if they are willing to adapt. But technology solutions — established enterprises and companies active in and creating pedagogy and new ways of learning — all make me hopeful.  Companies really can not only demand but also create and support programs specifically for the very skills they desire.  Udacity [a for-profit company offering MOOCs – massive, open, online courses) is helping to unleash this in the U.S. and beyond; more of it can come indigenously from the region.

Fadi Ghandour: The study highlighted a disconnect between the types of jobs startups are creating and the type of jobs employees deem attractive. Entrepreneurs are primarily focused on creating an innovative-friendly work culture (62% offer flexible working hours and 60% offer opportunities to innovate), but employees would rather work for established companies that offer typical corporate benefits (64% of the workforce).

The current disconnect could potentially be problematic because many organizations and individuals are investing in startups as a way to spur job creation and tackle the region’s chronic unemployment challenge, but if the jobs created are not being fulfilled by the workforce, then the impact of startups will be diminished. Entrepreneurs and supporting institutions should not be purely satisfied with the number of jobs created, but need to focus on ensuring that the types of jobs and benefits provided are in line with what the workforce is seeking.

More than half of entrepreneurs are satisfied with their local employee pool — this is positively surprising given that entrepreneurs often call out the region’s education system as one of the main reasons accessing talented employees is difficult. Our research shows that by and large, most entrepreneurs are hiring locally (more than 80% with the exception of UAE), and 60% are satisfied with the hires they have made.

Mishal Hamed Kanoo: There is a fundamental mistake that is being perpetuated — that there is a need to hire “X” millions of young Arabs by “20XX.” This is a false positive because unlike other parts of the developed world, where certain issues are there but under the surface, in the Arab world it is on the surface. Tribalism, religion, color of skin are just a few major reasons why people are not hired, and not for a lack of skill. I can teach a skill, but I can’t change the tribe I belong to or the color of my skin. Thus the number is exaggerated and the issue is not resolvable by creating new jobs but needs a social shakeup.

“Tribalism, religion, color of skin are just a few major reasons why people are not hired, and not for a lack of skill.”

Knowledge at Wharton: As they relate to startups and entrepreneurs, how are the labor markets in the region now and how are they evolving?

Wyne and Assaf: The general buzz and support for startups is growing in the region. The number of institutions supporting entrepreneurs is increasing, which includes both regional as well as foreign players. In this regard … more and more people are viewing entrepreneurship and employment at a startup as viable career options. This positive development could indicate that labor markets as well are becoming more populated by startups.

However, our data also suggests that people in the region still prefer traditional forms of employment, so while the labor markets might be gradually evolving in that startups have a larger presence, they still have a ways to go before working at a small, growing company becomes the norm.

Entrepreneurs in the region are beginning to shift the ‘desired employability’ profile of the workforce. Traditionally, corporations and governments preferred to hire employees from certain universities who followed a traditional career path and worked at recognizable institutions. More recently though, we’re seeing more entrepreneurs hiring people for their niche or specialized skills that fit their startup culture, and not so much for their previous employability history.

Schroeder: Like the A.A. Milne poem, where it’s good, it’s very, very good; where it’s bad, it’s awful. I’ve met world-class talent across the region and I’m seeing more and more of it, and many of the best are aggregating in the UAE/Dubai because they can succeed there. It is a model for talent generation and aggregating, and others should take note and see if they can adapt some of that learning back at home.

Ghandour: As youth unemployment continues to rise amidst increasing political and economical turmoil, the labor force is beginning to turn to alternative employment methods — whether that be working at a startup, doing freelance work, or launching their own company to generate income. Increasingly, we are seeing more of the workforce theoretically recognize that alternative employment methods, which were once deemed unstable and not credible, are becoming less of an exception.

Kanoo: The issue with the labor market differs from country to country. Some are moving towards computerization of such jobs, while others live in what I like to call the “frenchization” of their country. That is to say, they create jobs for the people because it helps certain people get power.

Knowledge at Wharton: Are there similarities in the employment patterns and challenges for startups globally? If so, how does the MENA region compare?

Wyne and Assaf: Growing startups around the world will rely heavily on talent, so the challenges with finding talent are universal, at least nominally. Globally, recruiting talent is one of the top challenges to building a team. In MENA, this challenge is exacerbated by the fact that the ecosystem remains comparably immature and startups’ legitimacy and credibility hasn’t yet diffused through the general population. Working for startups is not as common or attractive in MENA as it is in other parts of the world. Because of these and other factors, startups in the region may be faced with a more difficult task of finding, enticing and developing talent.

Schroeder: There are similarities everywhere. But even in successful regions in say, Asia, where talent is superb, there is still great emphasis on rote learning and process execution. But this is changing. Bottom up, young people with smart devices are finding ways to improve their skills, and communities and non-traditional educational programs are rising everywhere very powerfully in shared workspaces and beyond.

But in the Middle East there is a historic opportunity for top-down institutions to embrace the potential that can be unleashed by rising and substantially younger populations. Talent wants to stay home and build home, but only if it can succeed. There are models; let’s see if new generations of leaders start to embrace them.

Ghandour: Globally, employment patterns and challenges are dependent on the availability of talent. The challenges faced by startups and small enterprises when accessing talent and competing with larger established organizations seems to be a global trend rather than a region-specific trend. That being said, the entrepreneurship ecosystem in MENA is nascent, and startup success stories and exits are new, so the region needs more success stories to convince the general workforce that their jobs are credible and stable.

Kanoo: The world is moving faster than the region because they can feel the global pressure. We don’t. This will change with the reduction of the importance of oil to the world and the slowing of discretionary cash in the markets.

Knowledge at Wharton: Given that the price of oil will generally stay where it is, what does the region need to do in the next five to 10 years to change employment patterns?

Wyne and Assaf: Employment patterns are hinge on the quality of education in the region and how well it prepares youth to enter the job market. The same applies to how effectively society as a whole encourages people to start businesses, youth included. Additionally, the size, dynamism and productivity of the private sector is a point of concern, which also relies on the talent flowing into it, both in terms of employees and entrepreneurs. Ultimately, a mixture of substantial education reform and private sector development in general is needed, which is an often-discussed reform in MENA.

“The best enterprises that massively embrace software, and care about their cultures and attracting and growing big talent, will thrive — others less so.”

Additionally, the field of digital skills and knowledge of advanced technology is evolving rapidly. Startups are big players in not simply introducing new technologies but also new skills needed to effectively develop and sell these technologies. MENA needs to make sure it’s keeping pace. If the skills gaps discussed in the report already limit the degree to which entrepreneurs can make hires, the region will need serious upgrades, and startups could help usher those in.

Schroeder: I think it is happening anyhow as new generations do not want to work in nine-to-five enterprises and slow bureaucracies, and places where “wasta” [advancement based on nepotism or who you know] is viewed as a competitive advantage.  So I think success will breed success. The best enterprises that massively embrace software, and care about their cultures and attracting and growing big talent, will thrive — others less so.

Ghandour: Governments have to step up quickly to help the entrepreneurship-enabling environment to encourage the next generation and the ones after to either start their own business or start learning what it means to work in the private sector, including startups and SMEs.  This is a huge task and starts with education very early on, changing laws, infrastructure, soft and hard access to finance, etc. Everyone in society should be involved to make it happen.

Kanoo: The very first thing any government must be concerned with is the education of their children — not just a degree at the end of the process, but to excite them to want to do things that challenge their comfort zone. And … they need to make the issue of failure a badge of honor to learn from, and not a badge of shame.