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: 2. Assess the 3.Identify 1. Examine the effects of the necessary effects of current shock policy external shocks initiatives on labour markets in the Caribbean

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

Background (cont’d) • What do Economists know about the Labour Market Effects of Economic Shocks? sales labour $/persons t

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) • statistically significant • cost the region 0.4-0.5 shocks are million jobs for each year of duration important • robust to changes in the measure of shocks shocks are • employment is quasi- asymmetric fixed shocks are • adverse effects can last 2-5 years persistent • shocks have a larger Shocks are impact and tend to gendered 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 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) Annual Unemployment Rates (%), Selected Caribbean Countries 25.0 Unemployment Rate (%) 20.0 15.0 10.0 5.0 - 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

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. Quarterly Unemployment Rates (%), Selected Caribbean Countries Country Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- 07 08 08 08 08 09 09 09 09 10 10 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 4.5 5.3 4.6 4.7 3.9 5.0 5.1 5.8 5.1 6.7 & Tobago 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.

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 Point Estimates of Unemployment Rates (%), Selected Caribbean Countries 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 16.5 .. .. .. .. .. 18.8 .. .. .. Grenadines Sources: Country Poverty Assessments, various governments’ social and economic reports and budget addresses

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) Unemployment Rates (%) by Gender – Selected Caribbean Countries 12 10 18 11 9 16 10 8 14 9 7 8 12 6 7 10 6 5 8 5 4 4 6 3 Barbados Jamaica Trinidad & Tobago 3 4 2 Total Total 2 Total Males Male 2 1 Male 1 Females Female Female 0 0 0 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Jul-09 Jan-09 Apr-09 Oct-09 Jan-10 Apr-10

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