Could hiring costs explain the relationship between education and employment: evidence from Saudi University-level data

• Author: Asma Raies - Mohamed ben Mimoun
• Position: College of Business of Umm Al Quraa University, Makkah, Saudi Arabia, FSEG of Sfax University, Tunisia - College of Islamic Economics and Finance of Umm Al Quraa University, FSEG of Sousse University, Tunisia - This research is financed by the Deanship of Scientific Research of Umm Al Quraa University Makkah/Saudi Arabia
• Pages: 62-72

Vol. 4 No. 1

March, 2018

Academic Journal of Business, Administration, Law and Social Sciences

IIPCCL Publishing, Graz-Austria

ISSN 2410-3918

Acces online at www.iipccl.org

62

Could hiring costs explain the relationship between education and

employment: evidence from Saudi University-level data

Asma Raies

College of Business of Umm Al Quraa University, Makkah, Saudi Arabia

FSEG of Sfax University, Tunisia

Mohamed ben Mimoun

College of Islamic Economics and Finance of Umm Al Quraa University

FSEG of Sousse University, Tunisia

This research is fi nanced by the Deanship of Scientifi c Research of

Umm Al Quraa University Makkah/Saudi Arabia

Abstract

While the theoretical literature predicts that high level of education increases employment, a

vast amount of empirical data showed that, regardless of whether it is in developing countries

or developed countries, unemployment rates strongly hit the most educated population. In this

paper, we provide a theoretical model in which hiring costs are not exogenous and constant

as in the previous theoretical literature, but endogenous and proportional to the worker’s

qualifi cation degree. Basing on this assumption, our model shows a negative relationship

linking education and employment which is in line with the observed reality. The numerical

simulation section shows that reducing hiring costs will encourage individual investment

in education and reduce unemployment by enhancing fi rms’ labour demand. Finally, by

using information from the “Charter for Employment of Non-Saudi Sta ” we show that in Saudi

universities, the cost of recruiting a non Saudi faculty member increases with that faculty

qualifi cation degree, which is in line with the key assumption of our theoretical model.

Keywords: Employment, Education, hiring cost.

JEL Classifi cations: I25, J23, J24.

Acknowledgments: The authors of this research express their sincere thanks and

acknowledgments toward the Deanship of Scientifi c Research at Umm Al-Qura University

for fi nancial support. The views expressed herein are those of the authors and do not necessary

refl ect the views of the Deanship.

Introduction

In the 1960s, the Human Capital Theory put forward by Schultz, (1961) and Becker,

(1962) suggested a positive relationship between education and employment. Then

according to the Job-competition Model Theory (Thurow 1975, Boudon, 1974 and

Hirsch 1977) enterprises preferred to employ those applicants with relatively high

educational levels. More recently Pissarides (1990), Laing and al. (1995) and Burde and

Smith (2002) showed a positive correlation between the fi rms’ job creation decisions

and the workers’ decision to invest in education. According to Acemoglu (1999), an