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 other 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 on the initial labour market conditions-level of unemployment, size of informal sector, existence of 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 obtain, especially school/university/college leavers in the next four months (2 nd and 3 rd 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 on crises and their management • Modernize labour legislation and institutions
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