Saudi Arabia’s ambitious economic transformation agenda, “Vision 2030,” seeks to transition the economy away from oil dependency toward a competitive, knowledge-based future. Central to this goal is the necessity of structural reform in the labour market.
The long-standing Kafala system, characterised by absolute employer control over mobility and exit, created profound power imbalances and conditions akin to forced labour. These rigidities inhibited market efficiency, artificially suppressed private sector wages, and prevented the organic flow of high-value international talent, thereby serving as a significant structural impediment to the goals of diversification.
The implementation of the Labour Reform Initiative (LRI), which began easing restrictions in 2021 and came into full effect in 2025, was a calculated response to this strategic constraint. Replacing the rigid sponsorship model with a contract-based employment system, the reforms grant approximately 13 million foreign workers the freedom to change jobs and leave the country without prior employer consent. This move aims not just to enhance worker dignity, but to create a more dynamic and competitive labour pool necessary for achieving Vision 2030 objectives.
The Foundation Of National Capability
Successful labour market transformation requires simultaneous investment in national human capital. The Human Capability Development Programme (HCDP) focuses on empowering Saudi citizens through lifelong learning and aligning educational outputs with high-demand private sector needs, such as in technology and engineering.
The domestic results have been profound, driven largely by shifting fiscal realities that necessitated private sector job creation for a young, rapidly growing population. The overall labour force participation rate reached 68.2% in Q1 2025, with Saudi unemployment falling to a historic low of 6.3%.
Crucially, the economic participation rate for Saudi females surged to 36.3% in Q1 2025, exceeding the original Vision 2030 target of 30%. This rapid activation of the female workforce is arguably the most significant structural success to date, providing a vital, newly available labour reserve that offers critical flexibility in implementing nationalisation policies (Saudization) while the economy races to create around 920,000 new jobs by 2030.
Strategic Filtering Of International Talent
The post-Kafala environment transforms the mobility grant from a general right into a deliberate, strategic mechanism for managing the quality of foreign human capital. The primary function of liberalisation is to enable a swift transfer of expertise and fill critical skill gaps in high-value sectors.
To institutionalise this focus, the Ministry of Human Resources and Social Development introduced a skill-based work permit system in 2025. This system mandates that expatriates be officially categorised as “High-Skill,” “Skilled,” or “Basic,” based on criteria including qualifications, experience, wage level, and technical ability.
The evaluation mechanism, facilitated by the digital Qiwa platform, ensures that the newly granted mobility is most accessible and valuable to the high-skill talent the knowledge economy requires, such as experts in AI, data analytics, and cybersecurity. This intentional filtering minimises reliance on low-skilled labour while maximising the competitive advantage derived from targeted international recruitment.
Digital Governance And Structural Friction
The integrity of the post-Kafala system relies entirely on advanced digital governance, which centralises compliance and institutionalises trust. Recognising that past abuses were enabled by private employer discretion, the government has moved enforcement power to the state via platforms like Mudad and the Wage Protection System (WPS).
These systems monitor payroll submission, flag breaches like excessive wage deductions, and apply sanctions to non-compliant firms. Furthermore, the Preventive Justice Initiative allows for the automated recovery of unpaid wages without lengthy court proceedings, strengthening worker rights and transparency.
Despite these technical advances, two critical areas of structural friction persist. Economically, the sustainability of reduced Saudi unemployment hinges on productivity gains. Modelling indicates that if higher-wage national workers replace lower-productivity expatriate labour without commensurate output improvement, unit labour costs will rise, potentially undermining economic growth and diversification efforts. Policymakers must therefore ensure that HCDP outcomes translate directly into justified private sector productivity.
Ethically, the reforms remain strategically inconsistent. Critics note that millions of the most vulnerable workers, specifically domestic workers (estimated at around four million) and farmers, are excluded from core mobility protections. This systemic gap creates a reputational risk, potentially deterring the highly sensitive international professionals whose expertise Saudi Arabia is actively attempting to attract.
By dismantling the rigidity of the old system and simultaneously implementing digital governance and a skill-based filtering mechanism, Saudi Arabia has engineered a more competitive environment optimised for national workforce expansion and high-skill international talent attraction.
However, the market’s long-term global credibility and economic stability depend on two continuous commitments: extending protections universally to all labour categories and ensuring the productivity of the newly mobilised national workforce consistently meets the ambitious demands of “Vision 2030.”