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where D(Green 5) is a dummy variable for the group of Green ﬁrms which began above the quota by more than ﬁve Saudi employees.
This method requires more assumptions about the e↵ects of Nitaqat on ﬁrms above the cuto↵ than the RKD. In particular, the quality of these estimates will depend on the assumption that ﬁrms just above the quota cuto↵ provide a good counterfactual for ﬁrms below and farther above the cuto↵s. If baseline Saudization rates are the results of di↵erent Saudi hiring propensities related In the di↵erences-in-di↵erences analysis, changes in Saudization percentage is calculated only for ﬁrms in the matched sample, while changes in employee counts (Saudis, expatriates, and total) are based on all ﬁrms in the baseline data. Firms that exit before October 2012 are assigned employment values of zero in the October data.
to ﬁrm characteriscis (including ﬁxed hiring investments), Green and Platinum ﬁrms well-above the quota will tend to be a less useful comparison group than those just above the quota. Spillover e↵ects on Green and Platinum ﬁrms will also bias the results. For example, these estimates will be too small if Green ﬁrms just above the cuto↵ took additional steps to retain or hire Saudi workers because of the presence of the quota.38 The estimates will tend to be too large if Yellow and Red ﬁrms met their quotas by poaching employees from Green and Platinum ﬁrms. We may also be concerned about other types of market-level spillovers, such as wage e↵ects, competitive e↵ects on exits, or price e↵ects in goods markets. Even with these issues it is nonetheless helpful to get a sense of the magnitude of the overall e↵ects.39 To account for the e↵ects of Nitaqat on the workforce composition of new entrants, the analysis also estimate how ﬁrms that entered after Nitaqat began compare with ﬁrms that entered in the ﬁrst month of the data. In particular, the sample of 40,620 ﬁrms that entered between July 31, 2011 and October 13, 2012 is compared with the 5,065 ﬁrms that entered in July 2011 in the same industry by size groups. For Saudization percentage, Saudi employees, expatriate employees, and
total employees, the speciﬁcation is:
Of course, the quality of these estimates will depend on the relevance of the July 2011 entrants as a comparison group for July 2011-October 2012 entrants in October 2012.40 6 Results
6.1 Quota Compliance Firms could achieve the required increases in Saudization percentage both by downsizing expatriates and by hiring Saudis. Figures VIIa and VIIb show the RKD results for the Saudi and expatriate employment outcomes for the full set of ﬁrms in the baseline sample.41 There is a clear kink in the number of Saudi hires as a function of the ﬁrm’s initial distance from the quota in terms of Saudi employees. Yellow and Red ﬁrms close to the cuto↵ hired almost exactly as many Saudis as they needed to reach their Saudization quotas without changing their expatriate worker totals.
In contrast, Green ﬁrms just to the right of the cuto↵ experienced no change in their number of Saudi employees. The econometric results in Table VII conﬁrm this, with the preferred procedure yielding an estimate of 0.32 and most other estimates ranging from 0.20 to 0.40 Saudi workers hired The RKD results show that these ﬁrms kept their Saudi hiring constant, which is somewhat reassuring.
To complement the RKD analysis, I also examine how this e↵ect changes with starting distance from the cuto↵.
See appendix A for empirical setup and results.
Nitaqat may have also a↵ected the number of new entrants in addition to the composition of those entrants.
Unfortunately it is not possible to estimate the e↵ect on entry rates due to the limited time horizon of the data. The estimates of the e↵ects on Saudi employment therefore assume that the number of entrants was not a↵ected but that their composition may have changed.
Firms that exit over the period are coded as losing all of their Saudi and expatriate employees, for a 100 percent reduction in size.
for each one needed to meet the quota. There is also some evidence that Green ﬁrms farther above the cuto↵ tended to reduce their numbers of Saudi employees.42 This may be because the program made experienced Saudi employees more valuable to Yellow and Red ﬁrms, so ﬁrms well-above the cuto↵ allowed their employees to be “poached” by other ﬁrms. This e↵ect will mitigate the overall impact of the program on Saudi employment by simply shu✏ing already-employed Saudis between ﬁrms. It is therefore important to allow this group of Green ﬁrms well-above the cuto↵ to be “treated” by the program in the analysis below estimating the overall program e↵ects.
Expatriate employment, on the other hand, shows less responsiveness to quota cuto↵s, though expatriate hiring increases in distance above the quota. This suggests that ﬁrms were not changing their expatriate sta ng in order to achieve the quotas. The visa restrictions placed on Yellow and Red ﬁrms (and the streamlined renewals o↵ered to Green ﬁrms) likely reduced expatriate hiring at Yellow and Red ﬁrms while encouraging an increase in hiring at Green ﬁrms. Yellow and Red ﬁrms far below the cuto↵ were the least likely to improve their color band assignment and become eligible for the enhanced recruitment services. Similarly, Green ﬁrms well-above the cuto↵ were both unconstrained by quotas and likely to maintain access to visa services over the period. The estimate for the linear estimator with the FG bandwidth is 0.10, indicating that ﬁrms downsized 0.10 expatriates for every one needed to meet the quota. The rest of the estimates for the kink in expatriate hiring are highly variable, however, and range from -0.05 to 0.50 for the linear speciﬁcation and from -0.64 to 5.71 in the quadratic speciﬁcation.
When the sample is restricted to surviving ﬁrms (Figure VIII and Table VIII), Saudi hiring rates for Yellow and Red ﬁrms farther below the quota are higher, reﬂecting the fact that the sample no longer accounts for Saudi positions lost at exiting ﬁrms. In this sample we are able to see the impact of the quotas on Saudi employment percentage in Figure VIIId. The estimates for the impact on Saudi percentage are very mixed, with the preferred point estimate of 0.28 not statistically signiﬁcant.43
6.2 Program Costs On the cost side, the Nitaqat program also appears to have signiﬁcantly increased ﬁrm exit.
Figure VIId shows the graphical results, plotting average exit rate against percentage point distance from the cuto↵. Firms above the cuto↵ experienced little e↵ect on exit rate, with the average exit rate for Green ﬁrms at around 15 percent regardless of cuto↵ distance.44 For Yellow and Red ﬁrms, exit rates are increasing in distance below the cuto↵; although estimates for exit rate are sensitive to the choice of bandwidth, and the main speciﬁcation indicates a 7 percent increase in exit rates for every baseline percentage point below the cuto↵. The other estimates range from highs of above 50 percent for the smallest bandwidths to as low as 1.1 at larger bandwidths.45 These ﬁndings are supported by the results in appendix A.
See appendix B for sector and industry-level RKD results.
About 10-12 percent of businesses in the U.S. and the U.K. close each year.
A similar analysis was done for the e↵ect on Nitaqat on the market value of publicly-listed ﬁrms. Unfortunately the small sample size makes it impossible either to detect a kink in market value changes or to ﬁnd a su ciently The e↵ects of the program on ﬁrm size are shown for the full sample in Figure VIIc and Table VII and for the matched sample in Figure VIIIc and Table VIII. These ﬁgures plot the percentage point change in ﬁrm size relative to the initial percentage point distance from the Nitaqat cuto↵.
Firms that remained in the sample over the whole period grew on average, and the intercept indicates a growth of about 25 percent among ﬁrms just at the cuto↵. On average, ﬁrms above the cuto↵ appear to have grown at about this rate. For Yellow and Red ﬁrms below the cuto↵, however, the e↵ect on ﬁrm size is dramatic, with the growth of these ﬁrms dropping o↵ sharply in cuto↵ distance. The main estimate in Table VII shows a 12.6 percentage point decrease in ﬁrm growth for every percentage point below the cuto↵. Much of this large decrease appears to be driven by ﬁrm exit: when the sample is restricted to surviving ﬁrms (Table VIII) the main estimate is not statistically signiﬁcant and the other signiﬁcant estimates mostly suggest a size decrease of 1-2 percent.46 Overall, the evidence suggests that the increase in Saudi employees was not the only e↵ect of the program, and that Nitaqat imposed serious constraints on ﬁrm growth over the 16-month period. Although these ﬁrms tended to increase their Saudi workforce in response to the program, this result indicates that these ﬁrms tended to lose workers overall as their visas were restricted. While ﬁrms do not appear to have reduced their expatriate workforce in order to comply with Nitaqat as a function of their quota distance in terms of expatriates (panel (b)), ﬁrms that started further from the quota in percentage terms experienced a larger overall reduction in ﬁrm size (panel (c)).
6.3 Overall E↵ects Estimates for the overall e↵ects of the program are displayed in Table IX. These estimates are based on cell-level di↵erence-in-di↵erence estimates calculating the average e↵ects by initial color band assignment.47 Odd-numbered columns show comparisons against all ﬁrms in the Green band;
even-numbered columns allow for “poaching”, or changes in Green ﬁrms that were more than ﬁve employees above the cuto↵, by using only Green ﬁrms near the cuto↵ as the comparison group.
This e↵ect appears to be important, and the conclusions focus on these results. The last two rows of the table show the total estimated e↵ect of the program based on these estimates as well as the relevant full-compliance benchmark.48 The table shows that Yellow and Red ﬁrms increased their Saudization percentages by 3.5 percentage points on average, with Green ﬁrms reducing their Saudization rates by 5.45 percentage points. Overall, the program is estimated to have increased Saudization by 2.73 percentage points, precise zero. This is also the case for other balance sheet measures available in the Tadawul stock market data for these ﬁrms. More information on the data and this analysis is presented in appendix C.
The small bandwidths chosen by both of the data-driven bandwidth selectors yield highly variable estimates of the kink in ﬁrm size depending on the estimation technique chosen.
As discussed above, these estimates are valid only under strong assumptions about the validity of the ﬁrms in the Green band as a control group.
In odd columns this benchmark is the change in the outcome variable associated with all ﬁrms moving up to the relevant Nitaqat quota, with no change in Green and Platinum ﬁrms. In even columns, the benchmark includes the e↵ect of all ﬁrms above the quota adjusting down to the quota as well.
compared to an estimated full-compliance benchmark of 4.49. On the Saudi employment side, Red and Yellow ﬁrms increased their Saudi employment by around one employee on average, while Green ﬁrms reduced their employment of Saudis by around nine employees. Because there are many more Red and Yellow ﬁrms, however, the overall e↵ect is to increase Saudi employment by 73,000 – over half of the benchmark of 138,000 but well short of the no-poaching benchmark of 307,000. This implies that Nitaqat was responsible for 16 percent of the total increase in Saudi employment over the period. There is also evidence that Nitaqat reduced the overall size of the expatriate workforce, with Red ﬁrms hiring 6.72 fewer expatriates than ﬁrms in the comparison group. Expatriate hiring in Green ﬁrms increased for ﬁrms farther above the cuto↵, however, and these increased expatriate employment by 60.62 on average. Overall, the estimated e↵ect was a reduction in expatriate employment of 496,000, a decrease of just over 50 percent relative to the implied counterfactual increase in expatriate employment in the Kingdom.
These e↵ects on Saudi and expatriate employment are reﬂected in the estimates for the changes in total ﬁrm size, implying a reduction in total private sector employment of 418,000 workers. The e↵ects on exit rates were largest for Red ﬁrms, with these ﬁrms 11.67 percent more likely to exit than the comparison group. Yellow ﬁrms had an average exit rate 4.31 percent higher as a result of the program. Unlike with the other outcomes, Green ﬁrms with more than ﬁve “excess” Saudi employees did not experience a di↵erential e↵ect on their exit rates. Overall, the e↵ect of the program was to increase exit by 10,665 ﬁrms. This is a signiﬁcant proportion of the 33,305 ﬁrms that exited during the period, implying that the program increased exit rates from 19 to 28 percent.
In addition to the e↵ects on ﬁrms that already existed when the policy was enacted, Nitaqat quotas also a↵ected the composition of new ﬁrms that entered the private sector after July 2011.