SKILLS DEVELOPMENT AND JOB CREATION: LABOUR MARKET POLICIES FOR THE 21 ST CENTURY CARIBBEAN* ANDREW S DOWNES PhD PRO VICE CHANCELLOR and PROFESSOR OF ECONOMICS.

SKILLS DEVELOPMENT AND JOB CREATION: LABOUR MARKET POLICIES FOR THE 21ST CENTURY CARIBBEAN*ANDREW S DOWNES PhD

PRO VICE CHANCELLOR and PROFESSOR OF ECONOMICS

UNIVERSITY OF THE WEST INDIES

*The 29th Adlith Brown Lecture, Trinidad & Tobago, 20 November 2014

OUTLINE OF PRESENTATION

Introduction Overview of the Caribbean Labour

Market Job Creation Process Skills Development for the Labour

Market Policy Measures for the Next Decades Conclusion

INTRODUCTION The operation of the labour market is critical to

personal welfare and overall national growth and development

At the person level, a large percentage of persons obtain their income from selling their labour services in the labour market. They spend several years obtaining knowledge/skills/competencies to be used as human capital in the commodity market

In the small developing countries of the region and beyond, the development of human capital and subsequent use in the production process enhances productivity, economic growth and development

Households build human capital which is sold to firms and other organisations for the production process.

INTRODUCTION This lecture in the memory of Adlith Brown examines the

job creation process and associated skill development in the Caribbean with a view of identifying policies for making the labour market effective, efficient and equitable in decades to come.

Adlith herself looked at the operation of the labour market in her article “ Employment Policy in the Open Dual Economy” SES, 29 (4), 1980 and also related issues in her subsequent paper “Issues of Adjustment and Liberation in Jamaica: Some Comments” SES, 31(4), 1982

Indeed, Adlith’s PhD thesis at McGill University in 1982 was entitled “Unemployment in Jamaica: An Analysis of the Relationship Between the Demand for Labour and the Distribution of Income” (726 pages!!!)

INTRODUCTION In these articles which are relevant to this lecture, Adlith

reviewed the alternative models of the Caribbean labour market: Lewis’ Dual Economy model Tidrick’s Rural to Urban Migration model Seers’ Open Petroleum Economy model Keynesian Demand model

Her main conclusions with respect to employment growth in the Caribbean were: The wage-price –productivity relationship is important to

labour demand Productivity growth esp in the traditional sector is important

to employment growth Export demand is the most significant factor for job creation Foreign investment ( capital inflows) was also very critical A conductive macroeconomic environment is vital for growth

and employment Need to pay attention to structure—prices, wages, exchange

rates, markets, production. etc

INTRODUCTION

This lecture elaborates on some of the issues raised by Adlith in her review of Caribbean labour market models and extends her analysis to look at skills development in the region.

The macroeconomic production plans for the region largely inform the job creation process and also the skills development initiatives adopted by the respective countries.

Since there is a “time to educate and train”, skills development in the education/training market must be largely guided by the demands of firms and other organisations.

OVERVIEW OF THE CARIBBEAN LABOUR MARKET

LABOUR SUPPLY/FORCE: Relatively low rate of labour force growth over the

past two decades ( less that 2% for most countries)—associated with low population growth [issue of replacement in the future]

Some ageing of population ( those over 65 years of age) with an extension of the retirement age in some countries

Significant increase in the female participation rate and relative constancy and in some cases a decline in the male participation rate ( which is generally higher than female rate).

General improvement in the educational and skills bases of the labour force but still significant deficiencies

Ongoing brain drain problem esp in high skill areas.

OVERVIEW OF THE CARIBBEAN LABOUR MARKET EMPLOYMENT

Decline in agricultural sector as a significant employer of labour in most countries ( still important in Guyana, Belize, Dominica and St Vincent)

Growth in new and traditional services employment ( tourism, distribution, business and financial services, professional services, government services etc)

Increase in the number of persons indicating that they are self-employed or own account workers. Partly associated with the informal labour market and improved training.

Private Sector accounts for the largest percentage of the employed ( generally over 60% in most countries). Government is the single largest employer of persons.

Altho’ Government employment reduces unemployment, there is evidence of partial crowding out of private sector employment in Barbados [Craigwell/Jackman 22014]

OVERVIEW OF THE CARIBBEAN LABOUR MARKET Some degree of labour market segmentation with

females dominant in Clerical/Sales/Service jobs. But growth in female employment in professional/technical occupations associated with the increase in females with tertiary level education

High percentage of workers in “elementary occupations” pointing to a possible “missing middle” and “polarisation” in the labour market. Also the issue of the “quality of jobs” in some sectors of the labour market

Some evidence of an increase in the working poor and vulnerable due to the link between poverty and the human capital base of workers

Social networks are seen as important in shaping employability


UNEMPLOYMENT High rates of unemployment in all countries

except T&T. Very high rates of youth ( 15-24 years of age)

unemployment and esp. among females. Youth unemployment rates tend to be 2 to 3 times higher than the national rates

Low level of educational and training attainment among the unemployed—low human capital base—suggesting a “mismatch problem”

Poor labour market information for matching people to jobs and allowing a smooth and productive transition from school to work –asymmetric /imperfect information problem

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

5

10

15

20

25

The BahamasBarbadosBelizeJamaicaSt. LuciaSurinameTrinidad and Tobago

Unemployment in the Caribbean 2000-13 (%)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

2

4

6

8

10

12

14

AVG UNEMPLOYMENT Rate 2000-13 (%)

AVG UEMPLOYMENT

OVERVIEW OF THE CARIBBEAN LABOUR MARKET Higher urban unemployment in geographically larger

countries and higher rural un/under employment in smaller countries

High reservation wage by the unemployed, hence queuing for jobs is preferred. Remittances from abroad have exaggerated this situation

Weak systems of social protection for the unemployed ( little protection beyond severance pay in most countries)

Strong inverse relationship between unemployment and economic growth ( Okun’s Law) supported by recent IDB research

There has been a general downward trend in economic growth since the 1980s

Evidence of hysteresis effect with unemployment—persistence after output shocks

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

-3

-2

-1

0

1

2

3

4

5

6

Avg Growth Rate for Caribbean 1980-2013 (%)

Avg Growth rate for CaribbeanLinear (Avg Growth rate for Car-ibbean)Polynomial (Avg Growth rate for Caribbean)

-3 -2 -1 0 1 2 3 4 5 60

2

4

6

8

10

12

14

Avg Unemployment and Growth 2000-13 (%)

Avg Unemployment and Growth 2000-13 (%)Linear (Avg Unemployment and Growth 2000-13 (%))Exponential (Avg Unemployment and Growth 2000-13 (%))Power (Avg Unemployment and Growth 2000-13 (%))


WAGE-PRODUCTIVITY LINK Some real wage stickiness/resistance exists in some

countries Real wages seem to be rising faster than measures

labour productivity at the aggregate level ( that is, falling or stagnant levels of productivity)– implications for competitiveness esp in “fixed” exchange rate regimes

Earnings affected mainly by human capital and work experience

Various forms of minimum wage arrangements exist ( national and occupational wages). Labour legislation tend to change slowly but labour practices tend to create adjustment costs and hence inflexibility.

Slow uptake in alternative forms of compensation—performance based/gainsharing schemes

1980

[YR19

80]

1982

[YR19

82]

1984

[YR19

84]

1986

[YR19

86]

1988

[YR19

88]

1990

[YR19

90]

1992

[YR19

92]

1994

[YR19

94]

1996

[YR19

96]

1998

[YR19

98]

2000

[YR20

00]

2002

[YR20

02]

2004

[YR20

04]

2006

[YR20

06]

2008

[YR20

08]

2010

[YR20

10]

2012

[YR20

12]

0

10000

20000

30000

40000

50000

60000

Barbados

Linear (Barbados)

Jamaica

Linear (Jamaica)

St. Lucia

Trinidad and Tobago

Linear (Trinidad and Tobago)

GDP per person employed at constant 1990 PPP


Average Employment-Output Elasticities calculated by Kandil et al ( 2014) support the productivity trends

COUNTRY ELASITICITY VALUE

Bahamas 0.53

Barbados 0.79

Belize 0.69

Jamaica 1.06

St. Lucia 0.54

Trinidad/Tobago 0.32


In summary, some of the main labour market challenges in the region include: High level of unemployment ( esp among

the youth) Relatively low levels of skills development Low level of labour productivity Breaking the poverty-human capital nexus Weak social protection systems

These call for an examination of the Job Creation and Skills Development processes in the region, and

The formulation and implementation of appropriate policy measures

JOB CREATION PROCESS

PRELIMINARIES: JOB: a set of task elements or prescribed work

activities which are grouped together under one job title and designed to be performed by an individual

JOB DESIGN is characterised by several elements Multi-tasking—where job requires the employee to perform

several tasks Skill—which relates to the breath and depth of ability and

human capital ( education, training etc) required Discretion---the ability to make decisions Interdependence—the degree to which one job is related

to others in the organization Job Flow dynamics determine/reflect the variation of

net employment in the labour market and the degree of upskilling/deskilling ( i e creative destruction) taking place


NET EMPLOYMENT CHANGE = JOB CREATIONS- JOB DESTRUCTIONS (job flows)= HIRINGS- SEPARATIONS (worker flows)

JOB CREATION: the sum of job gains measured at the organisation level over a given period as a result of the opening of new production units and the expansion of jobs within existing workplaces

JOB DESTRUCTION: the sum of job losses resulting from the closing of production units and the contraction in the number of jobs in units that stay open over a given period

NOTE: Labour Demand is a DERIVED demand


There are several MODELS OF JOB CREATION: DEMAND-ORIENTED MODEL:

Assumes nominal wage stickiness and excess supply of labour

Aggregate Demand is the key determinant of job creation ( increase in aggregate demand leads to output expansion and job creation and employment)

Keynesian in nature Aggregate Demand can be driven by

Monetary and Fiscal policies Exchange rate policy Export Promotion Entrepreneurial confidence etc

Lewis’ open dual economy and Seers’ models discussed by Adlith emphasised export expansion as a key driver of employment creation

JC=F ( Agg Demand, @)

JOB CREATION PROCESS SEARCH-MATCHING MODEL:

Assumes that unemployment is due to labour market frictions and that “supply creates its own demand”

The product market is competitive and the labour market has frictions so that job creation needs an understanding of both markets

Job Creation in a firm depends on: The availability of workers ( ie unemployment) The number of job openings in other firms ( labour

market hoarding) Job Creation depends on the degree of unemployment or

labour supply—if the supply of labour increases firms will open up more vacancies and more matches will be formed.

Firms search for productive workers and workers search for higher paying jobs and search continues until matching occurs

JC= F( Unemployment, @)


PRODUCTIVITY MODEL If labour productivity increases relative to real

wages, then the profit rate increases and firms would hire more workers.

Productivity enhancement due to several factors: Improvements in technology Greater utilisation of capital goods Enhanced skill development of workers Research and Development resulting in new products New organisational changes/ layout

Technological shocks/Innovations can lead to increased productivity and reduced output prices followed by increased demand for goods/services and job creation/employment


Lewis’ Dual Labour Market Model Given a surplus of labour in subsistence sector and

fixed wage rate Capitalist makes a profit which is reinvested Investment/capital accumulation raises labour

productivity which in turn increases the demand for labour in the capitalist sector.

The new employed workers can come from low productivity areas ( subsistence sector). Assumes that there is matching of labour supply quality and skill needs.

Over time productivity in subsistence sector rise and result in an increase in the wage to the capitalist sector ( turning point)

JC=F( Productivity, @)

JOB CREATION PROCESS INNOVATION MODEL:

Assumes that entrepreneurs lead the innovation process ( Schumpeterian). Schumpeter argued that economic development and innovation depend critically on CREDIT and FINANCE going to entrepreneurs

Various forms of Innovation: New production methods New markets New products or quality of good New technologies/techniques New organisational structures New sources of supply of inputs

Innovation leads to investment and job creation which is greater than job destruction –net employment growth

JC=F( Entrep. Profit, @)


SELF EMPLOYMENT MODEL Self employed individuals create small and medium

size enterprises (SMEs) which employ other individuals ( incorporated)

Several factors influence persons to become self employed and subsequently employ other persons Maturing of previously micro or informal businesses Tax and regulatory policies that encourage business

formation Maturing of technologies that allow smaller firms to operate Demographic factors –mid age (30s and 40s), better

educated, having some wealth base (eg housing stock) Innovations in the market

Business formation (SMEs) is a significant driver of long term economic growth and job creation

JC=F( Bus Formation, @)


In summary, the models of the Job Creation process point to: Increasing aggregate demand Unemployment Productivity growth Innovation and Entrepreneurship Self employment and SME development/business

formation Empirical research on the determinants of

employment growth in the Caribbean suggests an aggregate demand/output growth factor, which is in turn influenced by exports, financial development (credit) and capital investment. The growth of self employment has also been a factor in the process.


The World Economic Forum’s classification of development stages puts Trinidad/Tobago in the innovation stage with Barbados is transitioning to this high stage.

The WIPO’s Global Innovation Index ranks the region in the middle to low range with relatively low rates of innovation efficiency defined as the ratio of Output Innovation( knowledge and technical output, creative output) to Input Innovation ( institutions, human capital and research, infrastructure etc). Hence innovation- driven job creation is likely to be low in the region

JOB CREATION PROCESS Using data for the change in employment over

the period 2000-2013 for Barbados, Jamaica, St Lucia and Trinidad & Tobago, the following observations can be made: There have been challenges associated with job

creation in Barbados and St Lucia esp since the Great Recession of 2008. Job Destruction has been generally greater than Job Creation

Job Creation has been a major issue in Jamaica since 2008

Trinidad & Tobago has done better than the other countries but it has also been affected by the shock of the Great Recession

These observations reinforce the critical role of demand/output expansion(shocks) in the job creation process.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

-60

-40

-20

0

20

40

60

80

100

BarbadosJamaicaSt LuciaTrinidad

Change in Employment 2000-13 (000)

JOB CREATION PROCESS The job destruction process has been significant in the

agricultural and to some extent the manufacturing sectors The job creation process has been taking place in the

services sector Development Plans and Strategies have been developed to

accelerate the growth process in the region. CARICOM has recently completed its Strategic Plan for the region.

These Plans and Strategies have identified Renewable Energy, Creative Sector, New Manufacturing, Agro-processing, ICT, Specialty Tourism, Transportation and International Business as key areas of New Growth and Job Creation for the Caribbean.

Focus also on Green and Blue Economy jobs along with Personal Care and Leisure activities for retired/aged


Job creation, especially the creation of “good quality jobs” is driven by: Changes in consumer demand ( domestic and

foreign) Demographic change Technological change and Innovation Deliberate policy action

Job creation policy formulation must take into consideration the main drivers in the Caribbean while being mindful of the job destruction elements

SKILLS DEVELOPMENT FOR THE LABOUR MARKET

It is important that the Job Creation process be synchronised with the Development of Skills given the “time to educate and train”

The range of skills can be broadly classified into: Basic Skills such as Content Skills ( literacy,

numeracy etc) and Process Skills ( critical thinking etc) –which facilitate the acquisition of knowledge

Cross Functional Skills such as Social skills, Technical skills, Problem solving skills, Resource management skills, System skills –which permit a person to perform effectively on a range of job settings

SKILLS DEVELOPMENT FOR THE LABOUR MARKET Significant percentage of the adult population has

no certification ( Barbados 2010 Census- 47.7% with no exams taken or passed, T&T 2011 Census –38.7 % no exams passed)

Low percentage of Labour Force with tertiary level attainment and in some countries a significant percentage have primary or less education. T&T has shown an increase in tertiary level educational attainment between census years (5%in 2000 to 10.3% in 2011)

These features suggest that a major up-skilling of the labour supply to meet higher order skills needs esp for the Innovation Stage of Development ( cp with Factor and Efficiency Stages)


Labour Force by Educational Attainment (%)-Kandil et al (2014)

Country Less than Prim

Primary Secondary

Tertiary Other

Bahamas(2006)

2.6 8.8 63.0 25.5 0.1

Barbados(2007)

0.5 14.8 65.3 18.4 1.0

Belize (2012)

45.9 28.8 12.0 6.2 7.1

St Lucia(2011)

* 50.3* 39.9** 9.8 --

Trinidad/Tobago(2008)

0.3 26.9 67.0 5.5 0.3


Human resource needs can be met at different levels and reflect the time to educate and train: HIGH LEVEL SKILLS – engineers, health/medical

persons etc ( 4-7 years in tertiary institutions) MIDDLE LEVEL SKILLS-- technicians, para-

professionals (1-3 years in post secondary institutions)

LOWER LEVEL SKILLS – customer services, data entry, office assistants ( weeks/months in formal or on-the-job skills training)

These levels have been formalised in the Caribbean Qualifications Framework with 2 basic Access Levels and 8 Achievement Levels. They are also linked to the Caribbean Vocational Qualification (CVQ) five(5) levels which cover Lower and Middle Level Skills


Educational and Institutional training facilities are widespread throughout the region: High and Middle Level Skills —Universities

and Colleges( UWI, UG, UTech, UTT, U of Belize,USC, BCC, BIMAP,COSTAATT, COBah, Colleges of the OECS,

Middle Level Skills –Technical and Vocational Education and Training (TVET)—( HEART/NTA in Jamaica, YTEPP, NTA etc in T&T, Skills Training in Barbados and OECS

Lower Level Skills ---School system, Skills Training Programs, Private institutions, NGOs


There are however deficiencies in the institutional provision of skills in the regions—low completion rates in TVET; lack of adequate facilities and personnel; inadequate monitoring and evaluations of skills provided; insufficient funding; poorly prepared students

Weaknesses in the primary and secondary school system throughout the region. CXC-CSEC experience indicates Low pass rate for Maths (37%) and English A

(59%) over 2005-13 period High absenteeism from exams ( 30+% for

several subjects) in recent times Low enrolment in so called STEM and

vocational subjects

SKILLS DEVELOPMENT FOR THE LABOUR MARKET Attempts at the vocationalisation of the

secondary school system in some countries with varying level of success

Non-institutional training ( ie on-the-job training) favoured by employers in the region due to lower costs and the specific nature of training. Employers still have problems with attitude to work and poor soft skills by employees

Recent focus on entrepreneurial training and training for self employment as there has been a growth in SMEs—focus on youth

Some concern with polarization in the labour market with a “missing middle” of technical and para –professionals ( with the growth of professional and elementary occupations)

SKILLS DEVELOPMENT FOR THE LABOUR MARKET Migration/labour mobility within the region seen

as a means of resolving the short run HR needs/requirements ( esp given the external migration of skilled persons)

Phased approach to labour mobility within the CSME adopted (university graduates, media workers, artistes, musicians, sports persons) with other categories ( domestics, nurses, teachers etc ) coming afterwards

Uptake on the issue of skills certificates still at a slow pace

Work permits in highly skilled areas still issued to extra-regional personnel and for some categories in high demand (agricultural workers, construction workers etc)


Skills Development is critical to personal welfare and overall growth and development in the region. Also to the creation of “good quality jobs” ( wage/salaried/self employment)

Job Creation in the “new economy” areas ( and even revamped traditional areas) will require a re-structuring/modernising of the education and skills development process/institutions

Skills Development and Job Creation must be synchronised in the form of a HRD and Job Creation Plan developed by the economy’s key stakeholders

POLICY MEASURES FOR THE NEXT DECADES

Job Creation and Skills Development policies require an understanding of the labour market and also other markets ( financial, commodity, education/training)—an integrated approach

The World Bank’s MILES framework provides a useful basis for developing policies for the Caribbean

In addition the ILO’s Global Jobs Pact which incorporates decent work and promotes economic recovery via investment, employment generation and social security complements the MILES framework.


MILES FRAMEWORK

Factors Affecting Employment Performance

Policy Issues

Macroeconomic Conditions Conditions for Growth, Macroeconomic Stability

Investment Climate Regulations, Governance, Taxes, Financing, Infrastructure, Incentives

Labour Market Policies and Institutions

Regulations, Wage Setting, Non-wage Costs, Unions, Social Dialogue, Migration

Education and Skills Basic Education, Higher Education, Training and Lifelong Learning

Social Protection Social Insurance, Social Risk Management,


GLOBAL JOBS PACTELEMENTS POLICY ACTION AREAS

Decent Work Employment Creation and Enterprise Development with productive jobs and fair income

Social Dialogue ( Government, Employers and Employee Reps)

Social Protection for workers and families

Labour Standards and Respect for Rights at Work and Equality of Opportunity

Global Action Shaping and Promoting Fair Globalisation

POLICY MEASURES FOR THE NEXT DECADES Development of National and Regional Growth and

Development Plans and Strategies—CARICOM’s Strategic Plan and CARICOM Commission on the Economy provide a basis forward

Growth strategy and policies include—private sector development, development finance, trading and marketing, institutional reform etc [see Downes ( June 2013)]

HRD Plan and Strategy to complement Growth and Development Plan and Strategy ( see the Barbados case) Reform education and training system to fit skills

needs (improved educational output quality) Ease the transition from school to work---internships

etc Development of frontier skills and skills for future

POLICY MEASURES FOR THE NEXT DECADES Create an environment for macroeconomic

stability—fiscal balance, stable and competitive exchange rates, low inflation rates, affordable interest rates, available foreign exchange etc

Funding for R&D and Innovation and promotion of entrepreneurship – direct and incentives. Support for sustainable development of SMEs.

Reduced transactions cost of doing business esp in government offices—revise legislation/rules/regulation [World Bank’s Reports on the Caribbean]

Take advantage of trade agreements eg EPA, to expand export opportunities. Strategic use of foreign missions.


Support the free mobility of labour within the Caribbean with establishment of Pan-Caribbean companies—development /promotion of CVQs and associated certification/accreditation

Promote new sectors in the green economy ( green jobs) and the blue economy ( maritime sector jobs) in small island developing states. Also ICT jobs in a globalised world with a 24/7 economy.

Establishment of a Regional LMIS as data challenges exist with analysis of labour and associated markets. Assist with job search and matching within the regional on an e-platform


Use of public sector employment programmes as part of a “crowding in” process more so than a welfare assistance/crowding out exercise

Establishment of a social safety net for the vulnerable who may be temporarily displaced in the adjustment process ( can include job and wage subsidies)—ie passive labour market policies

Promotion of Social Dialogue and democratic involvement in national decision making—aim at labour market flexibility ( functional, numerical, financial , temporal etc) and decent work

CONCLUSION Lecture has looked at Job Creation and Skills

Development in the Caribbean It notes major challenges in the Caribbean labour

market with respect to unemployment ( esp youth), low labour productivity, poverty-human capital link, brain drain, mismatch of educational system and labour market and weak social protection system

Building on Adlith’s survey of the models of the Caribbean, policy action is needed on promoting ( export) economic growth, enhancing productivity and keeping wages in line, revamping the structure of incentives and regulations which increases the costs of doing business, boosting innovation, entrepreneurship and HRD.

I hope that my presentation has encouraged you to further examine the issues( in spite of the data challenges) in keeping with the spirit of Adlith Brown.

THANK YOU VERY MUCH FOR YOUR ATTENTION

SKILLS DEVELOPMENT AND JOB CREATION: LABOUR MARKET POLICIES FOR THE 21 ST CENTURY CARIBBEAN* ANDREW S DOWNES PhD PRO VICE CHANCELLOR and PROFESSOR OF ECONOMICS.

Documents

labour market policies

labour market effective

labour market policy

labour services

commodity market

educationtraining market

development of human

development households