Abstract
This article discusses earnings differentials among skilled Western, Arab and Asian migrants, who constitute most of the private sector labour force in Gulf Cooperation Council (GCC) countries, during the period 2012–14. Using two standard decomposition methodologies, it investigates the view that Westerners are paid premium rates due to the unobserved perceptions of private employers. The results indicate that while one‐third to three‐quarters of real hourly earnings differentials are attributable to differing observed levels of productivity‐related characteristics, the remainder are due to the incorporation of higher opportunity costs for Westerners into the bargaining process. The potential effect of unobserved perceptions is found to be irrelevant to observed earnings differentials.