Saudi Labor Market Holds Firm in Face of Regional Conflict

The unemployment rate of Saudi nationals was broadly unchanged at 6.5% in the second quarter of 2026. The unemployment rate of Saudi men ticked down to 4.8% (from 4.9% in the first quarter), while the unemployment rate of Saudi women increased to 9.6% (from 9%). The Saudi employment-to-population ratio and labor force participation rate both edged lower but not significantly so.

Job creation did slow but remained positive. Saudi employment increased by 34,000 in the quarter, but the employment of non-Saudis (excluding domestic workers) fell by 17,000. This was the first quarterly decline in non-Saudi employment since the fourth quarter of 2023. It was driven by a large drop in employment in the construction sector.

Source: General Authority for Statistics; author calculations

Aggregate job losses were evident in construction, manufacturing, retail and wholesale, and agriculture. With the exception of agriculture, these job losses are consistent with the weakening of growth in the respective sectors in the first half of the year. Interestingly, there was some substitution of Saudi for non-Saudi labor within these sectors. Saudi employment increased by 11,325 workers in the construction sector, 9,271 in manufacturing, and 4,917 in retail and wholesale, while non-Saudi employment fell in these sectors by 68,743, 19,930, and 17,652, respectively. The reasons for this apparent substitution are unclear, but it could reflect some tightening of Saudization requirements.

Bending but Not Breaking

The labor market data is another indication that the Saudi economy weathered the initial months of the regional conflict quite well. Yes, employment growth slowed sharply in the second quarter, but it stayed positive.

Labor market data, however, is a backward-looking indicator. Not only is it published with a full quarter lag, but employment tends to respond slowly to changes in economic conditions. What is not clear is how the recent attacks on Saudi Arabia will affect growth and employment. Recent reports that Saudi oil exports are passing through the Strait of Hormuz in larger quantities and that flows have been partially restored to the East-West pipeline are positive signs for the economy, but the upcoming publication of September business confidence surveys will provide the first “real-time” snapshot of prospects in the non-oil sector after the strikes.

The views represented herein are the author's or speaker's own and do not necessarily reflect the views of AGSI, its staff, or its board of directors.