THE IMPACT OF THE GLOBAL ECONOMIC
CRISIS ON CARIBBEAN ECONOMIES:
IMPLICATIONS FOR THE LABOUR MOVEMENT*
Andrew S Downes PhD
Professor of Economics and Pro Vice Chancellor
University Office of Planning and Development
University of the West Indies
[email protected]
* Caribbean Congress of Labour meeting, The Bahamas, October 2013
Structure of the Presentation
1
2
3
4
6
5
The Nature of the Crisis
Overview of the Impact of the Crisis in the
Caribbean
Impact on Caribbean Labour Markets
Response to the Crisis – Labour Market
Perspective
Implications for the Labour Movement
Concluding Remarks
1
Nature of the Global Crisis
• The proximate roots of the current global economic
crisis lie in the collapse in the USA housing (subprime mortgage) market in 2007 and the subsequent
crash of the financial market.
• USA went into recession in December 2007 which
bottom out during the 2nd quarter of 2009..
• Contagion effects to other developed countries’
financial markets resulting in a global financial crisis
in September 2008(eg Lehman Brothers investment
bank collapsed in Sept 2008) . Interconnectedness of
large financial institutions internationally—some
considered ‘too big to fail’.
1
Nature of the Global Crisis
• Global financial crisis led to a global economic crisis as the
financial market effects spilled over into the real sector (i.e., fall
in incomes/wealth and demand for goods/services, decline in
employment—job losses).
• Several other underlying elements to be considered with the
financial/economic crisis –
– inefficiencies in the market with complex financial
instruments
– lack of regulation/supervision,
– market interconnectedness,
– greed, etc.
1
Nature of the Global Crisis
• Unlike previous economic crises which
originated in ‘developing countries’ – Asia,
Latin America-- this crisis has originated in
the world’s largest economy, USA ,upon
which several economies depend (exports,
investment, remittances, etc). Major
contagion or butterfly effects on other
economies.
1
Nature of the Global Crisis
• USA and other developed economies, upon
which the Caribbean economies depend,
experienced:
– Slow down in output: over 1996-2005 period
average growth rate in USA ( and Canada) was
3.4%, but 2.7 % in 2006 to 0% in 2008 and decline
in 2009 of -2.6%
– Increase in unemployment: up to 9.4% in USA,
7.2% in UK, 8.4% in Canada in 2009 (first quarter)
1
-
Nature of the Global Crisis
increase in fiscal deficit to GDP: from -2.4% in
2006 to -4.6% in 2008 for developed countries.
USA value was -10.4% in 2009.
- decrease in world trade volume: from 9.2% in
2006 to 3.3% in 2008.
- fall off in net capital flows to emerging and
developing economies: from US$202.8b in 2006
to US$109.3b in 2008, with a further decline to –
US$190.3 in 2009 (i.e., outflow greater than
inflow)
1
Nature of the Global Crisis
• Recent macro-economic developments:
– Euro area crisis
– Two speed economic growth ( emerging
economies growing faster than traditional
developed countries)
– Sluggish recovery in the developed
economies—USA and UK—double dip!!
– Growing debt in several countries
– Revisiting the globalisation process
– Rise of China as second largest economy.
1
Nature of the Global Crisis
• Caribbean countries have small open
developing economies, hence the
global economic crisis can be
considered as an external shock’ which
has both direct and indirect effects on
Caribbean economies
• Division between tourism dependent
(Bahamas, Barbados, OECS) and
resource- based economies ( Belize,
Guyana, Suriname, Trinidad/Tobago)
1
Nature of the Global Crisis
• Global economic recession has differential
effects on developing countries
• Severity of the effects is dependent on the:
– initial state of country,
– degree of inter-connectedness with sources of the
crisis
– nature of policy responses
– nature of the institutional relationships that exist
1
Nature of the Global Crisis
• Examination of the global crisis on the
Caribbean macro-economies which are
vulnerable to economic and natural shocks
• Special focus on labour market which is the
main source of income for the population in
developing countries
• Implications for the labour unions
given other challenges they face
2
Impact on Caribbean Economies
• Main direct effects on Caribbean economies
felt through reduction in
– The export of goods and services (especially
tourism)
– Remittances
– Foreign direct investment (FDI)
– Access to international credit
• Impact on (i) economic growth (ii) balance of
payments (iii) fiscal balance (iv) labour
market (demand for and supply of labour,
real wages (iv) other socio-economic
variables
2
Impact on Caribbean Economies
• Caribbean economies linked mainly to
Canada, USA, UK and selected European
countries
• Significant decline in economic growth rates
in 2008: from an average of 4% in 2007 to
1.7% in 2008 [see Table 1 and Fig 1]. Further
deterioration in 2009 ( trough of the
recession)
• Fall-off in long-stay tourists (especially the
Bahamas, St Vincent and the Grenadines)
and cruise ship passengers (especially
Antigua, St Vincent, T&T) over the 2007-8
period [see Table 2].
2
•
Impact on Caribbean Economies
Fig 1 Average Annual Growth Rate of CARICOM Countries 2003-12
(%)
6
5
4
3
2
1
0
2003
-1
-2
-3
2004
2005
2006
2007
2008
2009
2010
2011
2012
2
Impact on Caribbean Economies
• Inflation remained relatively low over the
period with a decline during the height of the
Great Recession as world prices declined
[see Table 3]
• Inflation is driven in the Caribbean largely by
external factors ( import prices) and a lesser
extent by internal policy measures ( tax,
wage, interest rate increases)
• Countries with “floating exchange rates”
would have felt the effects of depreciation.
2
Impact on Caribbean Economies
• Also decline in construction activity –both
residential and commercial (e.g., second homes –
Bahamas and hotels)
• After a steady increase in the flow of remittances
over the period 2003-8, there was a slow down in
2008 and 2009 (especially in Guyana and Jamaica)
[see Table 4]. Slow Recovery since 2009.
• With respect to the BOP, current account deficit as a
percentage of GDP increased in all countries (except
T&T) between 2007 and 2008 (especially in Barbados
and Belize) [Table 5].
• Structural Balance of Trade deficit exists in
countries.
2
Impact on Caribbean Economies
• OECS countries already had high ratios [see
Table 5].
• Some deterioration in capital account as a %
of GDP in Barbados, Bahamas, Belize and
OECS over 2003-4 and 2008/9 periods [see
Table 6].
• Slippage, as expected in foreign exchange
reserves between 2007 and 2009 [see Table
7].
• Some depreciation in the exchange rate (with
USA $) for Jamaica, Guyana and, to a lesser
extent, Trinidad and Tobago.
2
Impact on Caribbean Economies
• Increase in the overall fiscal balance as a percent of
GDP between 2008 and 2009 [see Table 8]. Little
government savings on current account, thus little
fiscal space for significant fiscal expansion. T&T,
with its oil and gas revenue, maintained a fiscal
surplus over the period. Suriname also had a small
surplus.
• Growth in public sector debt associated with
borrowing and reduced revenue flows and slow
reduction in expenditure [see Table 9]
• There was a decline in FDI to the region [Table 10].
2
Impact on Caribbean Economies
• IMF assistance to Dominica, St Kitts and
Nevis and St Vincent. Grenada, Antigua,
Barbados and Jamaica [see Appendix 1]
• Associated collapse of CL Financial ( CLICO
and companies) and Stanford Group of
companies
• Reduced profits or losses for companies
engaged in financial markets in USA
3. Impact on Labour Market
• Decline in employment and rise in
unemployment especially among young
cohorts. Youth unemployment usually 2-3
times national rates [see Tables 11 and 12].
• Job destruction has been generally greater
than job creation.
• Low levels of average employment
elasticities for most of the countries[ Table
13]
• Increase in unemployment insurance claims
in Barbados [see Table 14].
3. Impact on Labour Market
• With respect to labour market participation,
discouraged worker effect likely to outweigh
the added worker affect. [Table 15]. No
significant evidence of “child labour”
• Decline in remittances can affect household
labour market decision-making and
household poverty. Farm/Temporary Labour
programs in North America affected.
• Significant levels of poverty in the region
[see Table 15]. Recession is expected to
increase individual and household poverty.
3. Impact on Labour Market
• Expansion in informal sector activity
(hustling/moonlighting to make ends meet).
• Moderation of wage/salary increases – some
freezing, short-working hours, work sharing.
Possible internal devaluation in some countries with
inflation and little or no wage increases
• Reduced regional mobility of labour as all
economies have been affected adversely ( except
Guyana—reverse migration)
• Social dialogue and national consultation (tripartite)
adopted in several countries. Barbados with its
social partnership and protocols is used as a model.
Jamaica has rekindled it model.
3. Impact on Labour Market
• Adverse impact of the crisis and response on
both the “working class” and the “middle
class”—vulnerability to poverty
• Possible rise of a “precariat class”“growing number of people across the world
living and working precariously, usually in a
series of short term jobs, without recourse to
stable occupational identities or careers,
stable social protection or protective
regulations” [Guy Standing, ILO 2011]
4
Response to Crisis –Labour Market
Perspective
• Use of macroeconomic stabilisation policies to keep
up aggregate employment levels – modest fiscal
expansion. Problem of limited fiscal space –
housing, road works and social infrastructure have
been targets of fiscal expansion. Also cut in taxes
and interest rates and credit to businesses.
• OECS program of stabilization and growth adopted
[see Appendix 2]
• Labour market measures have included
– Training and re-training programs (almost all
countries)
4
Response to Crisis –Labour
Market Perspective
– Improved UI benefits (Barbados) and UI schemes
established in the Bahamas and Antigua( not
implemented).
– Conditional cash transfers (Jamaica, St Kitts,
T&T, St Lucia)
– Social assistance – health, housing, education
and transport
– Micro credit and special funds for training and retraining
– Social dialogue – concession bargaining [ see
Appendix 3]
• Several governments adopted a policy of “no
lay-offs in the public sector”
4
Response to Crisis –Labour
Market Perspective
• At household level- reduced savings, microenterprises, training, reliance on remittances,
reduced discretionary spending, use of sharing
mechanism, reliance on credit union loans etc
• Individuals engage in debt consolidation to reduce
payments but banks have noted some degree of
delinquency esp with credit cards
• Business tried to avoid lay offs as much as they
could and negotiated new working arrangements
with trade unions ( work-sharing, gain sharing, wage
and salary freeze etc)
5
Implications for the Labour
Union Movement
• Response at two(2) levels:
– National/Regional
– Enterprise/sectoral
• At the National/Regional Level:
– Work with the Governments and Employers to
design a National Plan of Action to counteract the
decline while keeping a long term strategic focus.
CARICOM can be involved at the regional level
(CARICOM Single Development Vision and Strategic
Plan for Regional Development)
– Strengthen the Social Partnership in the process.
5
Implications for the Labour
Union Movement
– Renew the call for the adoption of decent work in
workplaces
– Educate workers about the nature of the crisis and
identify their role and responsibility in help the
country to get out of it with minimum fall out
– Push for new legislation with gives labour market
flexibility while ensuring security for workers
– Develop a regional approach to dealing with the
crisis in the context of the CSME (to avoid fall out
from migration from more severely affected
countries).
5 Implications for the
Labour Union Movement
• At the Enterprise/Sectoral Level:
– Seek to balance real wage increases with
employment security and productivity increases
– Some degree of job sharing may be necessary in
some severely affected enterprises
– Return to negotiating Gain-sharing schemes (
productivity bargaining). Several schemes have
been borne out of crisis situations at the enterprise
level ( eg Scanlon scheme). Adoption of a ‘share
economy’ where part of wages linked to firm
performance---issue of information sharing.
5 Implications for the
Labour Union Movement
– Emphasis training and re-training of workers and
more worker involvement in workplace decision
making ( while not undermining the right to
manage)—use of unemployment insurance funds
and severance payments funds
– Ensure an adequate social safety net for
unavoidable lay offs
– Undertake greater enterprise research to inform
suggestions for improvement and resolving
issues.
5
Conclusion
• Framework for labour and social policies
include:
–
–
–
–
–
–
Enhanced social partnership and dialogue
Development of LMIS
Active labour market policies
Improved social protection system – UI, CCT, etc
Concession/productivity bargaining
Modern legislation for labour market flexibility
5
Conclusion
• Caribbean Labour Movement needs to:
– Enhanced its economic surveillance system—
greater research
– Promote training of workers for the ‘new
economic environment’
– Engage in greater advocacy at the regional level
– Develop creative remuneration packages for
workers
– Undertake greater information sharing