**2. Social contract and labor market segmentation**

The generous implicit social contract the GCC states have extended to its nationals is believed to have shaped their expectations and decisions to work. The social contract includes highly paid and protected government jobs as well unemployment benefits [3–5]. It also includes free education, health care, and child support. At retirement, generous public pensions are provided.

The highly paid government jobs have created high expectations about jobs in the private sector including high reservation wages. Thus, national youth on the labor supply side may offer their labor services at high wage rates. On the labor demand side, at high wage rates the demand for national youth labor services is normally low especially if unaccompanied by high productivity. The interaction of the supply and demand for labor leaves a surplus of national youth unemployed. The high reservation wages and unemployment benefits may reduce job search and increase the duration of unemployment.

With oil revenues financing the generous (implicit) social contract and economic activities in the GCC economies, the hiring of foreign labor was inevitable given the economic growth following oil exploration and production, and the limited indigenous population, labor force or human capital.9 The stipulated benefits in foreign labor (explicit) contracts do not on average match those of GCC nationals. Accordingly, the GCC labor markets are segmented *de facto*.

In addition to the social contract and the resulting labor market segmentation, and the relatively less costly foreign labor, cultural factors weigh in towards more female youth unemployment. The GCC culture is largely conservative as suggested by gender segregation at public schools and universities. Many females prefer to remain at the household as opposed to working or remaining on the job market.10 It should be noted however that the literacy rate gender parity index for youth shows that both genders are at par.11
