the Great Recession Xiomara Archibald + , Denny Lewis-Bynoe + and - - PowerPoint PPT Presentation

Caribbean Labour Markets and the “Great Recession”

Xiomara Archibald+, Denny Lewis-Bynoe+ and Winston Moore* +Economics Department, Caribbean Development Bank, P.O. Box 408, Wildey, St. Michael, Barbados *Department of Economics, University of the West Indies, Cave Hill Campus, Bridgetown, BB11000, Barbados

Motivation

• Caribbean economies are very integrated with the

global economy

– tourism – foreign direct investment – remittances

• Regional business cycles are highly correlated with

more advanced economies (see Craigwell and Maurin, 2007; Cashin, 2004).

Motivation (cont’d)

• The “Great Recession” has resulted in extensive

socio-economic dislocation in the Caribbean

– depressed tourist arrivals and foreign direct investment – sudden stop in construction – fall-off in export manufacturing

• Chronic unemployment has been a defining

characteristic of the Caribbean

– 1 in every 5 persons is unemployed in some territories

Motivation (cont’d)

This study has three main objectives:

• 1. Examine the

effects

• f

external shocks

• n

labour markets in the Caribbean 2. Assess the effects of the current shock 3.Identify necessary policy initiatives

Background

• Caribbean Labour Markets

– High levels of unemployment throughout the region

• poor growth record
• exogenous shocks
• under-employment of skills

– Unemployment rates particularly high among

• Females
• Youth
• Lower-skilled workers

Background (cont’d)

Regulations Improvements in ICTs and greater global integration Productivity Education and training Market inefficiencies

Background (cont’d)

• What do Economists know about the Labour

Market Effects of Economic Shocks?

sales labour t $/persons

Background (cont’d)

• What do Economists know about the Labour

Market Effects of Economic Shocks?

– Oi (1962) argues that this fixity is due to future replacement costs – Baily (1977) instead identifies unemployment insurance as the key driver – Haltiwanger (1984) notes the firm-specific skills developed by workers

Background (cont’d)

• What do Economists know about the Labour

Market Effects of Economic Shocks?

– Hamermesh (1989) finds evidence of threshold effects using a database of small US manufacturers – Topel (1982) finds that this effect is strong in industries that use inventories to accommodate fluctuating sales

Econometric Analysis of Shocks and Caribbean Labour Markets

• Based on the literature reviewed, the

following questions arise:

– How do external shocks impact on regional employment? – Is there any evidence of downward rigidity in employment? – Are the labour market effects of shocks long- lasting? – Are there any differential impacts on females?

Econometric Analysis of Shocks and Caribbean Labour Markets (cont’d)

• The econometric model of employment and

shocks is specified as follows:

• The control variables employed include:

– gross capital formation – inflation – FDI – openness

Econometric Analysis of Shocks and Caribbean Labour Markets (cont’d)

shocks are important

• statistically significant
• cost the region 0.4-0.5

million jobs for each year of duration

• robust to changes in

the measure of shocks

shocks are asymmetric

• employment is quasi-

fixed

shocks are persistent

• adverse effects can

last 2-5 years

Shocks are gendered

• shocks have a larger

impact and tend to be more persistent for females

Econometric Analysis of Shocks and Caribbean Labour Markets (cont’d)

Case Study of the “Great Recession” & Caribbean Labour Markets (cont’d)

• Econometric analysis provides:

– aggregate evidence on the impact of shocks on employment – analysis of data up to 2008, which excludes current recession.

• Case study therefore seeks to provide:

– country-specific evidence of the current recession – analysis of differential employment impacts by country, industry, age group, education/skill-level and socioeconomic status, as well as impacts on productivity, wages and migration.

Case Study of the “Great Recession” & Caribbean Labour Markets (cont’d)

• Labour market fallout has been severe

– significant rise in unemployment and under- employment in 2008 and/or 2009, eroding gains

• f previous years

– percentage point increases in unemployment rates range from 0.6 in T&T to 6.3 in the Bahamas – average increase of 3 percentage points, as compared to 2 percentage points for LAC (Freije- Rodriguez & Murrugarra, 2009)

Case Study of the “Great Recession” & Caribbean Labour Markets (cont’d)

Annual Unemployment Rates (%), Selected Caribbean Countries

2004 2005 2006 2007 2008 2009 Bahamas, The 10.2 10.2 7.6 7.9 8.7 14.2 Barbados 9.6 8.9 9.4 8.1 8.6 9.9 Belize 11.6 11.0 9.4 8.5 8.2 13.1 Cayman Islands 4.3 3.5 2.6 3.8 4.0 5.9 Jamaica 11.7 11.2 10.4 9.8 10.6 11.3

• St. Lucia

18.2 15.6 13.7 14.6 16.8 20.5 Trinidad & Tobago 8.3 8.0 6.2 5.6 4.6 5.3

• 5.0

10.0 15.0 20.0 25.0

Unemployment Rate (%)

Case Study of the “Great Recession” & Caribbean Labour Markets (cont’d)

• Barbados, Jamaica and Trinidad and Tobago

have up-to-date quarterly data – all 3 report a continuation and even worsening of the situation in 2010.

Country Dec- 07 Mar- 08 Jun- 08 Sep- 08 Dec- 08 Mar- 09 Jun- 09 Sep- 09 Dec- 09 Mar- 10 Jun- 10 Sep- 10 Barbados 6.7 7.9 8.6 8.4 7.6 10.1 9.9 10.5 9.4 10.6 10.7 11.2 Jamaica* 10.1 11.7 10.2 10.3 11.1 11.4 11.3 11.6 13.5 12.4 Trinidad & Tobago 4.5 5.3 4.6 4.7 3.9 5.0 5.1 5.8 5.1 6.7

Sources: Central Bank of Barbados, Statistical Institute of Jamaica, Central Bank of Trinidad and Tobago *Note: The quarters for Jamaica are as at January, April, July and October. The first data point shown (December 2007) therefore corresponds to January 2008 in Jamaica’s case, and so on.

Quarterly Unemployment Rates (%), Selected Caribbean Countries

Case Study of the “Great Recession” & Caribbean Labour Markets (cont’d)

• Some social and economic reports provide

point estimates of unemployment rates, which in some cases provide an indication of the impact of the recession

Country 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Dominica .. 25.4 .. .. .. .. .. .. 13.9 .. Grenada .. .. .. .. .. .. .. 24.9 .. 30.0 Montserrat 13.0 .. .. .. .. 13.7 .. .. .. ..

• St. Kitts & Nevis

.. .. .. .. .. .. 5.1 .. 6.5 .. St. Vincent & the Grenadines 16.5 .. .. .. .. .. 18.8 .. .. ..

Sources: Country Poverty Assessments, various governments’ social and economic reports and budget addresses

Point Estimates of Unemployment Rates (%), Selected Caribbean Countries

Case Study of the “Great Recession” & Caribbean Labour Markets (cont’d)

• Cross-country differentials:

– severe labour market dislocation observed in key tourism destinations like the Bahamas, Barbados, Grenada, Jamaica, St. Kitts and Nevis and St. Lucia – Belize: initial shock significant, but quickly dissipated – T&T: lagged impact – Guyana and Haiti: negligible labour market impacts

Case Study of the “Great Recession” & Caribbean Labour Markets (cont’d)

• Sector/industry differentials:

– construction (Barbados, Cayman Islands, Grenada, Montserrat, Jamaica, Trinidad and Tobago [2010]) – Tourism (Barbados, BVI, Grenada, Montserrat, SKN, SVG) – finance, insurance and real estate (T&T, SVG) – wholesale and retail (Jamaica, T&T) – manufacturing (Belize, Jamaica, SKN)

Case Study of the “Great Recession” & Caribbean Labour Markets (cont’d)

• Gender differentials:

– Female unemployment > male unemployment – But male unemployment > female unemployment during the current recession – Different from findings related to previous shocks – But similar to findings for LAC in the current recession (Freije-Rodriguez & Murrugarra (2009) - linked to fall-off in male-dominated construction industry

Case Study of the “Great Recession” & Caribbean Labour Markets (cont’d)

1 2 3 4 5 6 7 8 9 10 11 12 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10

Barbados

Total Males Females 2 4 6 8 10 12 14 16 18 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10

Jamaica

Total Male Female 1 2 3 4 5 6 7 8 9 10 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10

Trinidad & Tobago

Total Male Female

Unemployment Rates (%) by Gender – Selected Caribbean Countries

Case Study of the “Great Recession” & Caribbean Labour Markets (cont’d)

• Age differentials:

– unemployment is generally higher among the youth (age cohort 15-24) – unemployment has increased at a faster rate in this group compared with the average across all groups – for low-skilled youth, the crisis exacerbates the long-standing problem, and has likely pushed more into high-risk pursuits in the informal and illegal sectors

Case Study of the “Great Recession” & Caribbean Labour Markets (cont’d)

• 2.0

4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0

2004 2005 2006 2007 2008 2009

Cayman Islands

15 - 24 25 - 34 35 - 44 45 +

10 20 30 40 50 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09

Jamaica

14 - 19 20 - 24 25 - 34 35 - 44 45 - 54 55 - 64 65+ 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0

Trinidad & Tobago

15 - 19 20 - 24 25 - 29 30 - 34 35 - 39 40 - 44 45 - 49

2 4 6 8 10 12

Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09

Barbados

15-19 20-44 45-64 65 & Over

Unemployment Rates (%) by Age Group, Selected Caribbean Countries

Case Study of the “Great Recession” & Caribbean Labour Markets (cont’d)

• Education/skills differentials:

– largely reflect the fall-off in construction employment - increased unemployment heavily concentrated in the ‘Craft and Related Workers’ category in most countries (ISCO skill level 2) – professional categories also recorded significant increases in unemployment (skill levels 3 & 4) – ‘Elementary Occupations’ category (skill level 1) and the group

• f persons with no work experience were least affected.

– The current recession can therefore be said to have had a more adverse employment impact on the skilled and semi-skilled than

• n the unskilled.

Case Study of the “Great Recession” & Caribbean Labour Markets (cont’d)

• Other impacts/differentials:

– Attempts were made to look at differential employment impact by socioeconomic group, as well as impacts on wages, productivity and migration, which would be of great interest to academics, policymakers and the public alike. – However, due to data constraints there was insufficient evidence to support regional generalisations.

Labour Market Responses

• Existing measures:

– Income

• wage freezes
• minimum wage increases

– Employment

• Increased public works projects
• Avoidance of lay-offs in the public sector
• Hiring freezes
• Other

Labour Market Responses (cont’d)

• Other employment measures

– Deferred NIS payments in return for maintaining employment (Barbados) – Extension of unemployment benefits (Barbados) – Increased funding for small businesses (Dominica) – Reduction in VAT (Grenada) – Creation of industrial parks (T&T) – Tourism Employment opportunity Data Bank (Antigua)

Labour Market Responses (cont’d)

• Recommendations

– Proceed with longer-term structural reforms – Promote entrepreneurial activity – Provide opportunities for education, training and work experience – Adopt more productivity-centred, gender-neutral and targeted approaches – Prioritise improvements in the collection and dissemination of labour market information

Conclusions

• The “Great Recession” has made a bad situation

worse:

– Chronic high unemployment in the Caribbean. – Econometric estimates suggest that the recession has cost the region 1.2-1.5 million jobs since 2007 and employment could take several years to recover – Case study shows that unemployment rates have generally risen throughout the region in 2008 and

• 2009. The situation has worsened in 2010 for the 3

countries with quarterly data.

Conclusions (cont’d)

• Several differential impacts observed:

– Tourism-dependent economies most affected – Affected industries - tourism, small businesses, transport, telecommunications, wholesale and retail, financial services, construction – Concentration of job losses in construction  – Skilled/semi-skilled workers most affected – Males disproportionately affected by recession – Also, youth continue to be most likely to be unemployed

Conclusions (cont’d)

• Main Implications:

– Policymakers’ responses aimed at mitigating the labour market impact reasonably successful – Study findings have key policy implications, which could enhance policymakers’ effectiveness in mitigating impacts of future shocks – However, the study also has significant limitations associated with data constraints, which need to be addressed to facilitate future research and policy formulation