Employers across the Emirates are facing pressure to raise housing allowances as accelerating inflation puts a strain on household incomes.
It comes as a double blow to employers as allowances also come under scrutiny in the face of double-digit rent rises in parts of the country.
A survey carried out by the consulting firm Mercer found that 24 per cent of employers in Dubai aim to increase schooling allowances for their employees in the coming year, with 19 per cent of employers in Abu Dhabi planning to do likewise.
This compares with the 13 per cent of respondents in Dubai and 7 per cent in Abu Dhabi that increased tuition allowances in 2013, Mercer announced as part of its Spot Survey on Housing and Schooling Allowances Increases in UAE report.
Mercer reported in February that 24 per cent of companies in Abu Dhabi and 41 per cent in Dubai also planned to raise housing benefits.
Inflationary pressures have been building as rising demand, improving consumer confidence and a rampant housing market puts pressure on prices.
Housing and utilities prices increased by 4.49 per cent in Dubai year on year to February and 1.5 per cent in Abu Dhabi, according to statistics authorities in both emirates.
Hamad Buamim, the chief executive of Dubai Chamber, warned in January that increasing real estate prices would negatively affect Dubai’s competitiveness.
“Looking at our annual employer surveys there was barely any change in schooling allowances from 2011-13,” said Mercer’s Nuno Gomes. “Employers have been resistant to change, but we’re increasingly seeing them become more active and engaged with this issue.”
While more companies are planning to increase school allowances in 2014, the planned increases fall short of the amount offered by those employers that did increase allowances last year, Mercer found.
On average, in 2013 increases were 15 and 16 per cent in Dubai and Abu Dhabi respectively, whereas in 2014 forecast increases are 12 per cent in Dubai and 10 per cent in Abu Dhabi.
“The inflationary trend is one that we definitely see increasing going forward, especially in Dubai, with the main driver being an increase in the cost of housing and food,”” said Alp Eke, a senior economist at National Bank of Abu Dhabi.
Dubai’s private schools regulator said last month that private school fees in the emirate would rise in September for the first time in two years, by between 1.74 and 3.48 per cent.
Increases in school allowances are likely to be concentrated among employers currently paying below the market average, said the head of talent and reward at a large Dubai-based employer who did not wish to be identified.
“If an organisation is currently paying below average levels they may look to increase their allowances to come in line with the market average. For us however we’re paying slightly more than average, so we’re going to hold our rates for now and see where the market is towards the end of the year.”
Companies will have little choice but to increase allowances for schooling and education if the UAE’s economy continues its brisk growth, said Mr Gomes.
“We’re not seeing any change in the schooling system to contain increasing fees. As the economy grows there will be more children of school age coming here, which schools can take advantage of.”
But changes in employee pay and compensation will often lag behind increases in the cost of living, meaning that wholesale salary increases may be some way off, according to Harish Bhatia, unit manager for Hay Group in the Middle East.
“When the market was booming in 2007-08, housing allowances trailed behind; it was only a few years later when they actually increased.
“Rents today still haven’t reached the levels they were, so allowances are only likely to go up if we see sustained increases over a few years.”
jeverington@thenational.ae
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