Operating costs of the construction industry will increase by 14% as a result of the proposed labour reforms, much of which can be recovered through improving productivity and passing on some of the higher costs to consumers through price increases.
Although labour costs will increase by approximately 67% in the construction sector, labour costs only represent 21% of total costs sector-wide (based on aggregate sector figures reported by the National Accounts). The net result is that costs overall will increase only by 14%.
This level of cost increase is manageable for the sector, especially given the relatively low level of productivity exhibited by the industry in Bahrain. For example, estimates show that Bahrain’s residential construction industry is only 25% as productive as the construction sector in the U.S (Exhibit 3). Even if Bahrain were to improve its productivity to the level of Dubai or Turkey (which are approximately 35% and 41% as productive as the U.S., respectively), it would almost entirely compensate for the anticipated labour cost increase.

Moreover, labour market reform will clean up the industry of ghost workers and ghost companies, so that law abiding companies will be able to increase their market share and prosper. Up to 50% of currently registered construction companies are not really engaged in construction work, but are just a front for bringing in cheap foreign labour. This will stop.