Caribbean Labour Markets and the “Great Recession”

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 of external shocks on 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

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$/person

s

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 gender-

differentiated

• shocks have a larger impact and tend to be more persistent for females

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

… econometric estimates suggest that the “Great Recession” has cost the

region 1.2-1.5 million jobs since 2007.

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 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 of the “Great Recession” has been severe– significant rise in unemployment and under-

employment in 2008 and/or 2009, eroding gains of 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)

2004 2005 2006 2007 2008 2009 -

5.0

10.0

15.0

20.0

25.0

Annual Unemployment Rates (%), Selected Caribbean Countries

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 11.2Jamaica* 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 .. 30.0Montserrat 13.0 .. .. .. .. 13.7 .. .. .. ..St. Kitts and Nevis .. .. .. .. .. .. 5.1 .. 6.5 ..St. Vincent and 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)– 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• Comparison with other findings:

– 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)

02468

1012

Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10

Barbados

0

5

10

15

20

Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10

Jamaica

0.0

5.0

10.0

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 +

05

1015202530354045

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-

08

Nov-0

8

Jan-

09

Mar

-09

May

-09

Jul-0

9

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

Dec-0

8

Jan-

09

Feb-

09

Mar

-09

Apr-0

9

May

-09

Jun-

09

Jul-0

9

Aug-

09

Sep-

09

Oct

-09

Nov-0

9

Dec-0

9

Trinidad & Tobago

15 - 19

20 - 24

25 - 29

30 - 34

35 - 39

40 - 44

45 - 49

50 - 54

55 - 59

0

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 of 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 on 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) Maintain public

sector employment– Tourism Employment opportunity Data Bank (Antigua)

Labour Market Responses (cont’d)• Recommendations

– Proceed with longer-term structural reforms– Promote entrepreneurial activity

• e.g. enhance the ease of starting a business– Provide opportunities for education, training and

work experience• e.g. expansion/introduction of apprenticeship programmes

to avoid “scarring” due to prolonged unemployment– Adopt more productivity-centred, gender-neutral and

targeted approaches– Prioritise improvements in the collection and

dissemination of labour market information

Conclusions

• Chronic high unemployment in the Caribbean.• The “Great Recession” has made a bad

situation worse:– Econometric estimates suggest that the recession

has cost the region 1.2-1.1 million jobs– Case study shows that unemployment rates have

generally risen throughout the region

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 • males disproportionately affected by recession• skilled/semi-skilled workers most affected

Conclusions (cont’d)• Policymakers’ responses aimed at mitigating

the labour market impact• 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