LABOR MARKET INSTITUTIONS IN THE CARIBBEAN IX Reunión Hemisférica Red de Pobreza y Protección Social Políticas de Empleo e Inserción Laboral para Superar la Pobreza Washington DC, 13 y 14 de septiembre de 2007

Growth has been low and volatile… Average Annual Growth Volatility of GDP Growth in LAC (% relative standard deviation) SOURCE: WDI, IMF, Own calculations Caribbean Countries Caribbean avg (2.5 %) *Simple averages. **LAC7 = Argentina, Brazil, Chile, Colombia, Mexico, Peru, Venezuela. CAC7 = Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Panama NB: Shaded values indicate that a particular sector is of relatively high economic significance for a given country. SOURCES: WDI ; data for Bahamas are estimates based on WDI and Economist Intelligence Unit (EIU) data. Other Regions

…competitiveness has been weak Barbados (31 ) Chile (27) Costa Rica (53) Jamaica (60) Trinidad & Tobago (67) Suriname (100) Guyana (111) Caribbean South America Central America SOURCE: Global Competitiveness Report (GCR), World Economic Forum (WEF). Singapore (5) Hong Kong (11) Cyprus (46)Ireland (21)

..causing the region to lag behind in the global economy … SOURCE: WDI. SOURCE: WEO.

Diverse economic structures… *Simple averages. **LAC7 = Argentina, Brazil, Chile, Colombia, Mexico, Peru, Venezuela. CAC7 = Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Panama NB: Shaded values indicate that a particular sector is of relatively high economic significance for a given country. SOURCES: WDI ; data for Bahamas are estimates based on WDI and Economist Intelligence Unit (EIU) data. Structure of Output (Value added as share of GDP, average* )

…varying levels of income and productivity… * Simple averages. SOURCE: WDI. Country / Region GDP per capita (2004, current US$) LAC7*$4,072 CAC7*$2,467 CAR7*$6,757 CAR8*$5,964 Upper Income Bahamas$16,501 Barbados$10,401 Trinidad & Tobago$9,640 Middle Income Belize$3,870 Jamaica$3,352 Suriname$2,484 Guyana$1,047 Low Income Haiti$420 SOURCES: WDI ; United Nations (UN) Economic Commission for Latin America & the Caribbean (ECLAC).

…as well as large differences in levels of human development SOURCE: Human Development Report 2006 ( HDR ), United Nations Development Program (UNDP). Haiti 65.0 Suriname63.1 Guyana43.2 St. Vincent & the Grenadines37.5 Jamaica34.2 Belize33.0 Dominica33.0 Grenada32.1 St. Lucia 25.1 Trinidad and Tobago21.2 Dominican Republic20.6 St. Kitts & Nevis15.0 Antigua & Barbuda12.0 Barbados8.0 Bahamas5.0 Poverty Headcount Index (2000) (% of population) Human Development Index, 2006 SOURCE: ECLAC (2000) “Poverty and Social Integration in the Caribbean”

..with high skilled migration… SOURCE: DM (2005), WB. Share migrants in OECD stock/share of world population, Top 20 countries with highest skilled migration rates (tertiary education, 2000)

.... large informal sector... SOURCE: HERITAGE FOUNDATION, INDEX OF ECONOMIC FREEDOM 2005 Informal Sector Index (1=lowest. 5=highest, 2005) Employment in the informal sector (% of total employment)) SOURCES: FREIJE (2001). DATA FOR SURINAME IS BASED ON IMF ESTIMATES.

..... high unemployment rates, especially among the youth..... SOURCE: WDI (GY); HA; 1992 –1999 SU Unemployment (% of total labor force) Youth Unemployment Rate (ages 15-24, both sexes)

Murder Rates by Region SOURCE: World Bank and United Nations Office on Drugs and Crime, 2007, “ Crime, Violence, and Development: Trends, Costs, and Policy Options in the Caribbean”. Deaths Rates from Violence.. and growing concern over crime and violence

Labor market institutions …. Labor Legislation Minimum Wages Training Industrial Relations Social Dialogue Role of the Ministry of Labor

…….are key ….. Labor Markets Efficiency and GDP Growth Caribbean countries are very open economies and rely on trade of goods and services Well-designed labor market institutions determine “rules of the game” affecting productivity, competitiveness growth and employment Labor costs (wage and non- wage costs) have to be linked to productivity SOURCE: GLOBAL COMPETITIVENESS REPORT (GCR), WORLD ECONOMIC FORUM (WEF).

..and Caribbean countries have assets and liabilities …… *CYPRUS, MALTA, MAURITIUS, SRI LANKA ** COUNTRIES WITH PER CAPITA GDP +/- 1/2 STD DEVIATION OF THE CARIBBEAN AVERAGE (RANGE , CONSTANT 2000 USD) SOURCE: WORLD ECONOMIC FORUM Labor Market Indicators (125 countries)

SOURCE: MÁRQUEZ AND PAGÉS, TIES THAT BIND IADB,1998. THE INDEX PROVIDES AN ORDINAL ORDER BY CONSTRUCTION. The index summarizes information on several components of dependent work regulation. the institutional information refers to …. low rigidities… Flexibility Rigidities (hiring and firing costs) are lower than LAC) Collective bargaining At firm level and mostly bi-partite: workers and employers are best placed to estimate productivity increases Social Dialogue Most Caribbean countries have tri- partite instances of social dialogue that can be used to build consensus on labor policies Employment Protection Index

…. but high relative wages… Minimum Wages (as a % GDP per capita) Minimum wages and public sector wages in real terms should be linked to productivity growth Important to distinguish between minimum wage and minimum income Income redistribution through “minimum income” policies (i.e conditional cash subsidies or benefits for education, training, health or housing) SOURCES: IDB (IPES 2004), LABOR MINISTRIES, WORLD DEVELOPMENT INDICATORS.

….that are likely to affect growth prospects …. Hiring and firing practices score and GDP Growth Pay and Productivity score and GDP growth SOURCE: GLOBAL COMPETITIVENESS REPORT (GCR), WORLD ECONOMIC FORUM (WEF)., WDI

Significant education expenditure has promoted high enrollment rates and educational attainment.. Primary enrollment rates are among the highest, in line with income levels SOURCE: WB/ WDI. Labor force by educational attainment Secondary enrollment rates are higher than most regional averages

…. but post-secondary education….. Heterogeneous situations Bahamas & Barbados: over 15 % of the employed labor force has a college degree Suriname & Guyana: 3-5% The region lags behind countries like Singapore and Cyprus, where tertiary educated labor force represents 30-40% of total SOURCE: WB/ WDI.

Technical Training Programs Supply driven approach: narrow offer (i.e. limited programs at medium-levels for technicians, white-collar occupations and internship) despite increasing diversification in the economic sector Outdated curricula and program content with respect to labor market needs Scarce articulation between secondary schools, non-degree post-secondary providers, and actual tertiary institutions Lack of substantive skills among workers due to limited academic preparation in core subjects (Math, English, Science) Lack of professional maturity and demeanor Attitude vs aptitude ……face bottlenecks…

…affecting competitiveness. SOURCE: GLOBAL COMPETITIVENESS REPORT (GCR), WORLD ECONOMIC FORUM (WEF).

Given these findings... Existing labor market institutions are generally an asset In “high wage” economies, labor costs (wage and non-wage costs) have to be in line with productivity Secondary education completion is a minimum requirement for the development of service-economies. Higher education coverage and quality seem to be affecting competitiveness Post-secondary education needs to be articulated with labor market developments

.... there is a need to strengthen... Labor market institutions Maintain/induce collective bargaining at the firm level Ensure minimum and public sector wages growth in line with productivity Avoid sector specific minimum wages Disseminate best practices of management/industrial relations/performance- based compensation Strengthen social dialogue Skill acquisition for the “job market” Promote private training provision and improve certification “Dual approach” to vocational training Establish a regional market for training providers (i.e. CANTA) to ensure portability of educational standards and certification (labor mobility in CSME) Improve entreprises’ incentive to training Diversify tertiary education to meet labor market needs Broaden skill base and master of math, technology (concerted effort at regional level)

THANK YOU.