Decent Work Pilot Programme

Transcription

1 Decent Work Pilot Programme Country Brief: Panama I. National Context With per capita national income of nearly $4,450 in 2004, Panama is a middle-income country of just over 3 million people. A member of the WTO, Panama has an open economy and liberalized trade. As is the case for most countries in Latin American, Panama has been deeply affected by global economic integration and structural adjustment. Global Economy Globalization was a feature of Panama s history long before the term became common currency. The Panama Canal, opened in 1914, remains a lifeline of international maritime transport. Its reversion to national control in 1999 has, if anything, underscored its global character. Panama also lends its flag to a sizeable merchant shipping fleet, most of which is owned and operated by non-residents. And Panama has woven tight linkages with the international financial community through its banking centre. Panama adopted the U.S. dollar as its currency early in the 20 th century. It has no central bank and is not exposed to foreign exchange risk. As a result, its rate of inflation is low by international and regional standards. While these features distinguish Panama from other Central and Latin American countries, there are also many similarities with the rest of the region. It had sluggish economic growth during the 1980s, a decade that ended with a military invasion deposing a military dictatorship, partly due to a mounting fiscal deficit and external public debt. Panama also entered into a structural adjustment process with the assistance of the IMF. Following a deep recession in , macroeconomic stability returned in the 1990s along with positive rates of economic growth. GDP growth was on average higher in the 1990s than the previous decade. Nonetheless, growth has been well below rates needed for employment generation to keep up with growth in the labour force. In addition, governments have tended to view employment as a residual of economic policy-making. Unemployment, Poverty and Debt As a result, Panama s unemployment rate has remained stubbornly high, averaging 13.9 per cent during the 1990s. The employment situation recently began to show some improvement, however. Unemployment was estimated at 9.6 per cent in 2005, down from 11.8 per cent in 2004 and 13.1 per cent in Lack of adequate job creation also has meant a burgeoning informal economy, particularly in urban areas, which involves jobs with low incomes and productivity. This is part of a wider picture of poverty and inequality, with about half of Panama s labour force eking out a living in both rural and urban areas. Income inequality is 1

2 among the highest of Latin America. Despite the country s middle-income status, World Bank surveys estimated that 37 per cent of the population lived in poverty in More recently, an October 2005 survey by the Comptroller General s Office showed that 66.3 per cent of Panamanian workers earned less than $400 a month. This included 14.9 per cent earning less than $125 a month, less than half the statutory minimum wage of $242 for urban workers. There were wide regional variations in wages. Also of major concern is the national debt, which increased throughout the 1990s despite economic growth and adjustment policies. Total public debt, including domestic debt, was equivalent to 72 per cent of estimated GDP in The late 1990s also brought a big expansion in the current account deficit on the balance of payments. This reflected soaring imports following the reduction of tariffs in 1997, which were accompanied by only marginal growth in exports. More recently, a favourable global environment has helped to boost Panama s exports, particularly of services. This is bringing down the current account deficit, which the Economist Intelligence Unit expects to total 3.6 per cent of GDP in 2006 compared with more than 8 per cent in However, the EIU cautions that the dominance of service exports and earnings from transhipment makes Panama s external accounts particularly sensitive to regional and global trade patterns. A slowdown in world trade could therefore lead to a serious deterioration in the country s external accounts. Shift to Services Panama has become a service economy over the past three to four decades, with agriculture and manufacturing gradually relegated to marginal roles. By 2003, services accounted for 76.2 per cent of GDP, compared with 16.3 per cent for industry and 7.5 per cent for agriculture. Panama opted for a big bang approach to trade liberalization, with the aim of introducing greater competition into its domestic economy. In the event, however, reductions in tariffs helped fuel demand for imports, but did not succeed in boosting exports or stemming the decline in manufacturing and agriculture. Moreover, Panama s use of the dollar meant the country could not resort to exchange-rate policies to stimulate exports and restrain imports. The country s problems were compounded by a strong dollar in the 1980s. Panama s experience points to the need for trade liberalization to be part of a wider set of policies and measures aimed at supporting exports and strengthening sectors and enterprises that compete with imports. Moreover, the sequencing of liberalization and other policies can help determine their success. For example, the big bang method adopted by several Latin American countries stands in stark contrast to the experience of East Asian nations, which first pursued selective export promotion policies before gradually liberalizing imports. 2

3 I.1 National Priorities In the second half of the 1990s, Panama s government focussed on improving the country s international competitiveness through a structural adjustment package. This aimed at economic stability, growth and diversification to overcome dependence on the canal. Since then, this agenda has widened to include social and economic development goals. The government elected in 1999 as well as its successor, which took office in 2004, both faced the challenge of fighting poverty and inequality in an increasingly open economy. Key objectives have been to raise growth and productive investment, spread the benefits of growth more widely and cut unemployment. It is also necessary to tackle obstacles to growth, most notably falling labour productivity, which reduced the competitiveness of Panama s economy. The ILO s Decent Work Pilot Programme (DWPP) in Panama began in late 2000 with the aim of supporting such efforts. In addition to providing analysis, policy options and proposals, the DWPP sought to encourage government, employers and workers to forge a consensus on specific policies and measures. The latter was especially important given the tradition of conflict among Panama s stakeholders, particularly between unions and top government officials as well as between governing and opposition politicians. Decent work is relevant in a number of ways to the drive to make Panama more internationally competitive. Most prominent of these are expanding productive employment and investment, improving skills and fostering good relations between government, employers and unions. I.2 Decent Work Trends The ILO decent work agenda provides a framework for development that promotes opportunities for women and men to obtain decent and productive work in conditions of freedom, equity, security and human dignity. It calls for policies and measures in four inter-related areas: Respect for, and protection of, basic human rights at work; Promotion and creation of opportunities for full, productive and remunerative employment; Broad social protection; Sustained social dialogue among social partners representing workers, employers and government. The Partido Revolucionario Democratico (PRD) of President Martin Torrijos was elected in 2004, replacing a coalition government led by the Partido Arnulfista (PA). The previous government had been in office since 1999 and was led by the country s first female president, Mireya Moscoso. 3

4 The DWPP aims to help countries integrate decent work into their policy agenda, structures and wider society. By fostering decent work, countries can bolster economic growth and ensure that its fruits are spread more widely. An important part of the DWPP involves reinforcing the capacities of governments, employers and workers through various activities. The pilot programmes are developed together with these constituents and tailored to each country s specific needs. This process includes gathering and analysing information on the decent work trends in participant countries. Such fact-finding is often a component of the DWPP, typically through the commissioning of papers by academics or other experts, discussions with the social partners and work by the ILO secretariat. In addition to helping to ensure that pilot programmes are tailored to the needs of individual countries, the research is part of the ILO s efforts to develop and test statistical indicators for decent work. In Panama s case, there was particular emphasis on research and analysis because the DWPP focused on helping the country position itself better in the global economy. Papers were commissioned as part of an extensive multi-disciplinary effort to provide the basis for a national dialogue on policy options. The papers were wide-ranging, covering the economic and social situation in Panama. Their findings are included in the National Context section as well as below. Informality Grows As mentioned earlier, Panama has had persistently high unemployment. This reflects economic growth that is not fast enough to generate jobs as well as a decline in the manufacturing and agriculture sectors. Employment in services and construction has expanded, however. One consequence of unemployment is an increasingly large informal economy. Informal work represented 30 per cent of non-agricultural employment in 1986, before the country s severe recession, 33 per cent at the peak of the economic cycle in 1993 and 37.5 per cent in Four out of every ten new jobs generated in were informal. In parallel, between 1991 and 2000 non-agricultural employment saw an increase in the share of own-account workers. During the same period, the share of those employed in small companies and domestic work declined. This is a sign of excess labour generating its own jobs in the informal sector, with low entry costs. Informality is commonly associated with lower levels of productivity, earnings and protection. In Panama, for example, average informal income represented 40.8 per cent of average formal sector earnings in the period. Surveys also find a close overlap between poverty and informality. Gender Gap There are clear male/female differences in Panama s labour market, with women often segregated in informal and badly paid work. Women accounted for 35.4 per cent A summary of the analysis is provided in Globalization and Decent Work: Options for Panama, Working Paper No. 3, Philippe Egger, ILO,

5 of the labour force in 2000, with poor urban women less likely to find jobs than those who are not poor. Unemployment is higher among women than men, especially among young women. There are proportionately more women in the informal sector, particularly in wage employment. More than 40 per cent of women employed outside of agriculture are in informal work. Women are twice as likely than men to find employment in the services sector. Women earn on average 10 per cent less than men, but this gap varies according to profession and type of employment. With women much less likely than men to be private sector wage workers, there are proportionately more low-paid men than women in private wage employment. However, the reverse is true for ownaccount workers, where women make up a much higher proportion of the poorest 40 per cent than men. Given the low participation rate of poor women and the overlap between poverty and informality, helping poor women find employment is a priority. Declining Productivity Labour productivity fell during , with job creation outstripping growth in economic output. Agriculture, mining and electricity were the only sectors where productivity increased, and these account for less than 13 per cent of Panama s economic output. Moreover, rising labour productivity in agriculture reflected migration from rural areas to cities. Growth has been highly labour intensive in Panama, especially outside of agriculture. Declining productivity implies that each employed person is adding less value to the economy, which translates into lower wages and labour earnings. Less productive jobs are also lower in quality, requiring fewer skills and offering less protection. The decline in manufacturing and agriculture is a factor in lower productivity, as is the increase in the informal economy. Real wages stagnated in Panama during the 1990s, but labour costs rose when measured per unit. Combined with the data on productivity, this suggests that more than a labour cost problem, Panama has a labour productivity problem. While both of these reduce economic competitiveness, they involve different remedies. Panama would not gain much in terms of competitiveness by reducing its labour costs. In practice, such a move could even hurt labour productivity. There are a variety of ways to make economies more productive. These include investment in new technology, training, better health and working conditions, improved organization of work through greater cooperation and participation of workers and reduced absenteeism. Social Policy Panama spends comparatively more in social areas as a percentage of GDP than the Latin American average, coming fourth out of 17 countries in While health standards and provision are relatively good for the population as a whole, there is a big gap between rich and poor. For example, life expectancy average almost 74 years in 1999, but the figure was 63 years for those living in poverty. Similarly, health statistics are less good in rural areas. 5

6 Similarly, Panama ranks in sixth place among 19 countries in Latin America and the Caribbean when it comes to social security coverage as a percentage of the labour force. But coverage levels vary enormously according to region. Moreover, 46 per cent of the labour force has no old-age, invalidity and death insurance, while 32 per cent has not health and maternity insurance. The pension system is relatively generous in spite of a reform in 1991 that substantially curtailed the benefits for early retirement. A study carried out by the ILO in 1998 at the request of Panama s tripartite partners forecast a deficit in the social security system, particularly the pension fund, by That led the government to propose reforms, which were the subject of a national dialogue among business, union and civil society leaders. An amended reform plan is expected to be adopted in While public spending on education is high in Panama, it is spread in a way that benefits the better off. The poor represent 34 per cent of the school age population (5-24 years), but receive only 28 per cent of total public spending on education. This reflects relatively high levels of spending on university education, which benefits almost exclusively the non-poor, as well as concentration of funding in urban areas. An important objective for Panama is to aim for complete secondary schooling within the next decade, with emphasis on ensuring that children of poor families enrol in and complete basic education. Resources currently directed to university education should be diverted toward primary and secondary schooling. In addition, Panama needs to extend and improve vocational training. Organization, Dialogue and Rights Panama has separate national federations representing employers and trade unions. Estimates of the percentage of the labour force belonging to unions vary widely, with one source putting the union density rate at 11 per cent at the end of the 1990s and another source citing a rate of 21.1 per cent. Employers and workers organizations are represented on various bodies, such as the minimum wage commission, the national vocational training institute, the Social Security Agency and the InterOceanic Authority. Since the early 1990s, there have been a series of consultations and national dialogues aimed at bringing workers and employers closer together. Results have been mixed, with accord proving elusive on some key issues, such as labour reform. The DWPP has helped to intensify efforts at promoting social dialogue. An encouraging development was the agreement reached in November 2005 on reforming the country s social security system. Panama is a founding member of the ILO and has ratified 74 Conventions, of which 67 are in force. These include all eight core conventions on fundamental principles and rights at work. Between 1987 and 2001, there were 19 cases concerning Panama submitted to the attention of the Committee of Freedom of Association. The experts who oversee application of ILO Conventions and Recommendations have also issued a number of observations regarding Panama, many of which concern maritime conventions. Given the large merchant fleet operating under Panamanian flag, working conditions for many seafarers depend on Panama s laws and regulations. 6

7 About 8 per cent of children aged 10 to 14 were estimated to be working in Panama in Two thirds combine work and school attendance, with just 36 per cent working full time. But few working children are likely to enter or complete secondary school. As a result, child labour lowers education levels and helps to perpetuate poverty. Child labour is concentrated in rural areas, predominantly in agriculture and commerce. But some children work in community services and manufacturing, particularly girls. II Focus of the DWPP Given its small and increasingly open economy, Panama s future depends on its ability to compete internationally. However, falling labour productivity and insufficient investment have led to declining competitiveness in much of the economy. Poverty and inequality persist and are linked to high levels of unemployment, an expanding informal economy and inequalities affecting women and indigenous peoples. The DWPP centres on helping Panama improve its competitive position by pursuing policies that bolster growth and reduce poverty. This means including decent work elements, such as employment, poverty reduction and equality, in broader economic and social policies and investment strategies. The focus of the programme is on formulating such policies and on the negotiations required to build a national consensus for their adoption. II.1 Priorities and Policy Responses The DWPP undertook a broad analysis of the economic and social situation in Panama by carrying out 11 individual studies. These explored a range of issues linked to employment, poverty, social exclusion and vulnerable groups. Based on these studies, the DWPP put forward a medium to long-term vision and strategy combined with concrete proposals for immediate action. Faster, Pro-Poor Growth In the medium to long-term, it is essential for Panama to have rates of economic growth of about five to six per cent a year to generate a sustained increase in productive employment. This can be achieved with higher levels of investment in sectors that are most likely to provide employment for the poor, such as agriculture, manufacturing and construction. It is equally important to enable poor people to contribute to economic growth by facilitating their access to productive resources, such as land, credit and physical infrastructure. Extending and improving health and education also helps to increase the economic contribution made by the less well off. Such efforts entail public infrastructure programmes as well as better targeted social spending. Areas for Action To deliver this overall strategy for growth, employment and poverty alleviation, the DWPP called for action in at least five areas. 7

8 Reversing neglect of agriculture and industry. Panama cannot afford to turn its back on two sectors that could contribute significantly to exports and employment as well as poverty reduction. To promote agriculture, the country could increase the level of public investment in infrastructure in rural areas, as well as in basic services, technical assistance. Appropriate land titling procedures would also help. Faster growth in manufacturing could be achieved through public support measures that are compatible with the WTO. Greater support for small enterprises is also needed. Panama should set a target of universal secondary enrolment this decade. This implies shifting resources from universities to secondary schools as part of a wider effort to raise enrolment rates and the quality of teaching. Moreover, the system for vocational training should be reformed to ensure a better link with employers needs and increase the number of people in initial or continuing training. One option would be to offer all interested youth an opportunity to train for at least six months, followed by a temporary position as an apprentice. Better labour market policies. Given that Panama is an open economy without an autonomous monetary policy, wage adjustments should reflect the realities of international trade as well as labour productivity. This implies taking specific measures to stimulate sustained rises in productivity, as well as a capacity to measure trends in productivity at national, sectoral and firm level. One way to do this is to link wages to actual performance. It is also necessary to have much greater transparency in the labour market regarding vacancies and job seekers. Extending social protection. Universal coverage is within Panama s reach and should be considered a major objective. This may imply introducing more flexible options for the self-employed. While social protection has a financial cost, it is important in facilitating changes between jobs, simulating the workforce and enhancing an overall sense of security. It also plays a role in poverty alleviation. For example, a benefit could be provided to low-income mothers on the condition that children attend school. The government should also consider adopting a basic tax-financed pension scheme for the elderly without pensions. This could be means-tested and directed to poor households. Promoting social dialogue and improved management-labour relations. Panama has a history of tense relations among the social partners government, employers and workers. The country s high level of income inequality reflects this weak social cohesion. Social dialogue can be a means to decide on measures to reduce such income inequality, particularly if strong economic growth can be combined with sustained productive employment generation. Progress on this front depends on defining a negotiating agenda in which all three parties have a stake and in which all three can obtain significant results. II.2 Programme Implementation The DWPP was officially launched in late The first phase was devoted to analysis and formulating policy options. This extensive, multi-disciplinary analytical effort provided the basis for a national dialogue on ways to position the country better 8

9 in the global economy. Options were widely shared with constituents, national and regional governments, parliament and presidential candidates. The pilot programme s own evaluation showed that the process adopted was just as important as the policy proposals and agreements reached. Employers, workers and government were involved in the programme from its inception. The Ministry of Finance took part, as did the UNDP, for some activities. The discussions strengthened the capacity of the social partners to undertake collective negotiations in a difficult social climate. For the first time, it has been possible to sustain a process of constructive social dialogue around a common agenda. The programme has been successful in fostering national ownership across the political spectrum at national and local levels. The DWPP coincided with a lengthy pre-election period, which slowed down discussions and delayed progress. Nonetheless, the run-up to the 2004 elections prompted the programme to broaden ownership, holding discussions and distributing findings to a range of political and parliamentary figures. This demonstrates the way in which pilot programmes can adjust to changing circumstances. Given the wide-ranging nature of the analysis and discussion, the programme has produced some concrete results as well as helped to influence the national policy environment. Agreement was reached on an infrastructure investment programme of $200 million, which includes the aim of employment promotion. It is based on DWPP recommendations. There was also an accord on the basket of goods to be used as the basis for determining minimum wages. The country has set numerical targets for growth and job creation. For example, the government is seeking to bring down unemployment by 1 per cent a year. Although the agreement reached in November 2005 among national dialogue participants on social security reform may not be a directly linked to the DWPP, it reflects the important progress in social dialogue taking place in Panama. Under the DWPP, work is continuing in Panama in a number of different areas. This includes discussions on extending social protection to the informal economy, measures to increase productivity at enterprise and sectoral levels and programmes to promote equality between the sexes and among peasant and indigenous communities. Other activities involve: promotion of employment-intensive economic sectors; use of labour-intensive methods for infrastructure projects; development of small and medium-sized enterprises; and moving toward productivity-oriented wages. 9

10 References Globalization and Decent Work: Options for Panama, Philippe Egger, ILO, Decent Work Pilot Programme, Country Briefs, ILO, July Economist Intelligence Unit, Country Report, December