Labour Market Aspects of the Global Economic Crisis* Andrew S - - PowerPoint PPT Presentation

Labour Market Aspects of the Global Economic Crisis*

Andrew S Downes

Professor of Economics and Director SALISES, UWI, Cave Hill Campus, Barbados March 2009

*Prepared for ILO Conference, April 1-2, 2009, Jamaica

Structure of Presentation

• Introduction
• Employment and Unemployment
• Wages, Salaries and Earnings
• Poverty
• Social Protection
• Labour Market Policy

Introduction

• The roots of the current crisis lie in the USA

housing and financial markets, spreading to

• ther markets and countries (i.e., contagion

effects)

• These source markets are linked to the labour

market – spillover effects. There is a link between the financial and real sectors of the

• economy. Labour market effects occur through:
• a fall in production (output) which results in a

reduced demand for labour (i.e., derived demand) direct effect

– a decline in labour and non-labour income which leads to a fall in the demand for goods and services – induced effect and multiplier effect.

• Caribbean economies are small, open

developing economies, hence the ‘global economic crisis’ can be considered as an ‘external shock’ which has direct and indirect effects.

• Main direct effects of global economic crisis on

Caribbean economies would be felt through: export demand (goods and services such as

tourism), remittances, foreign direct investment, access to financial credit

• A decline in labour income and wealth in the

affected countries (USA, UK, Europe, etc) results in the reduced demand for goods and services in the Caribbean. For example, the Bahamas has seen a dramatic reduction in US tourism and in the second homes market, while Jamaica has experienced a decline in the demand for bauxite exports. Barbados has witnessed some decline in tourism (arrivals and

and average expenditure) from anecdotal evidence.

• Job losses in the USA, especially low and

middle income persons, have resulted in some fall-off in remittances (eg, Jamaica and Guyana)

• With a high degree of uncertainty and lack of

confidence, foreign investors are reluctant to invest or are scaling back their operations (eg, the Four Seasons hotel project in Barbados and also the international business sector).

• Forecasts of economic growth for Caribbean

economies indicate a significant reduction of economic activity.

• These changes have implications for the labour

market

• The severity and duration of the effects depend
• n the initial labour market conditions-level of

unemployment, size of informal sector, existence

• f social protection system.

Employment and Unemployment

• On the labour demand side of the labour market,

the crisis has resulted in:

– Reduced working hours (part-time work) – Lay-offs (temporary) – Severance/redundancy (restructuring) – Voluntary separation packages (restructuring)

• Barbados

– Media-Nation Group of Companies (severance) – Insurance/financial services-Sagicor (severance) – Hotel development-Four Seasons (lay-offs) – Telecoms—Cable & Wireless/LIME (redundancy)

– Fall in tourism and construction jobs with multiplier effects on other sectors

• T&T:

– Steel producer Arcelor (lay-offs) – Energy sector plants at Point Lisas (lay-offs) – Telecom/mobile services provider – Digicel (voluntary separation) – General lay-offs in construction/housing sector, manufacturing, sales, hospitality

• Bahamas

– Fall in employment in hotel/restaurant and construction sectors – New Providence (5%) and Grand Bahama (9.2%) – in February 2009

• Jamaica

– Fall in employment in construction, manufacturing and tourism. – Sagicor (insurance), C&W/LIME (telcoms). RJR (media) have announced redundancies.Bauxite industry.

• Effects on employment in the private sector.

Public sector employment is still holding up.

• Possible movement from the ‘formal’ sector to ‘informal

sector’ if layoffs persist and crisis deepens. Informal sector accounts for 15 to 40% of GDP

• Unemployment rate has increased marginally in

Barbados: 2007(iv) – 6.7%; 2008(iv) – 7.6%. Average annual unemployment rate: 2007 – 7.4%, 2008 – 8.1%

• Unemployment is expected to increase with declines in

tourism, construction, distribution and financial sector (CLICO and Stanford fall-out). Effects of CLICO in Guyana, T&T and Bahamas and Stanford in Antigua. These large companies have a significant impact on the

• economies. Adoption of a “too big to fail policy” by

governments

• Issues to consider:

– ‘added worker’ effect as main bread winner is laid off – ‘discouraged worker’ effect as job are difficult to

• btain, especially school/university/college leavers in

the next four months (2nd and 3rd quarters). – Decline in remittances to households would boost job search (empirical evidence indicates that remittances reduce labour market participation in the Caribbean) – Long unemployment duration /spells can result in skills depreciation

– Increased hustling and informal sector activity (NB: Jamaica removed duty on imported barrels in December, 2008)

• Uncertainty with the likely duration of the

recession – longer the duration, the more significant the effects, especially in the private

• sector. High government debt limits the ability of

the government to respond (direct employment, social protection, active labour market policies)

• Still a demand for workers in the USA and

Canada – hotel construction, agricultural and health – from Jamaica.

• Re-entry of older workers ( with reduced value of

pensions), females into the labour market is

• likely. Possible inter-country migration of labour

(due to push factor)

Wages, Salaries and Earnings

• Reduced working time/part time work means

reduced labour income/earnings

• Some countries have increased the national

minimum wage – Dominica, St Kitts and Nevis, Barbados (being considered), Jamaica.

• Reduced inflation rates in recent times have had

a positive effect on real wages. [Heightened discussion on high prices in the region].

• Reduced allowances being considered for

supervisors/managerial staff.

• Reduced bonuses/profit sharing expected.
• Discussion on a wage freeze in the public sector

(compare the Barbados case in 1991).

• Jamaican government paid out 14 weeks notice

pay valued at $800m.

• Wage/salary negotiations will be difficult. Lower

settlement rates for 2009 in Barbados (due to lower inflation rate and lower expected profitability). Possible ‘wage curve’ effect, that is an inverse relationship between wage increases

and increases in unemployment

• Greater desire to join union to protect

wages/salaries and jobs. But the negotiating environment will be difficult. Increased employer power in the wage bargain

Poverty

• Reduced working hours, fall in employment,

lower wage/salary increases imply reduced household income and increased income poverty.

• High poverty rates exist in the region (generally

15% f th l ti )

• Evidence for Jamaica indicates that during

severe economic crises, even middle income households are pushed below the poverty line.

• The impact on poverty can affect the

achievement of the MDGs in the region. (Caribbean has been largely on track before the crisis).

Social Protection

• Social protection system is not strong enough to

withstand a significant shock to the labour market in the Caribbean.

• Barbados has an Unemployment Insurance

scheme to cover the unemployed who qualify.

• Severance/redundancy payment arrangements

exist in various forms.

• Barbados has increased its reverse tax credit for

low income persons and introduced free bus fare for school children (not directly due to crisis).

• Minimum wage increases in some countries.
• Increased welfare payments – Dominica,
• Grenada. Conditional Transfer programs in

Jamaica and planned in Barbados and Belize.

• Job placement services for laid-off workers in

Jamaica through a special program at the HEART/NTA.

• Government procurement arrangements to help

micro- and small businesses – Barbados, Jamaica.

• Maintaining public sector employment – policy

decision in several countries.

Labour Market Policy

• Range of active labour market policies can be

adopted:

– Training and re-training of workers (partial use of severance payment fund and tax incentives) – Selected public works programs which build or create skills

– Develop conditional cash transfer schemes which have proven to be effective in LAC ( see PATH case in Jamaica) – Targeted micro credit schemes – Enhanced welfare and welfare-to-work

• schemes. Also workfare programs to keep the

unemployed busy—environmental and social programs

• Enhanced social partnership and dialogue using

the Barbados case as a base—enterprise, sectoral and national levels. National Economic Council formed. Greater information sharing is needed

• Develop labour market monitoring and

information systems to track changes in the labour market

• Promotion of gain sharing schemes within

enterprises- adoption of aspects of the share economy where part of wage/salary linked to firm performance/productivity

• Creative concession bargaining to balance

real wage increases with employment security, job sharing, workplace flexibility etc

• Enhance worker and employer education
• n crises and their management
• Modernize labour legislation and

institutions