1 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 * Caribbean Congress of Labour meeting, The Bahamas, October 2013
2 Structure of the Presentation 1 The Nature of the Crisis 2 Overview of the Impact of the Crisis in the Caribbean 3 Impact on Caribbean Labour Markets 4 Response to the Crisis Labour Market Perspective 6 Implications for the Labour Movement 5 Concluding Remarks
3 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 2 nd quarter of 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.
4 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.
5 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.
6 1 Nature of the Global Crisis USA and other developed economies, upon which the Caribbean economies depend, experienced: Slow down in output: over 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)
7 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 decrease in world trade volume: from 9.2% in 2006 to 3.3% in 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)
8 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.
9 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)
10 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
11 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
12 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
13 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 period [see Table 2].
14 2 Impact on Caribbean Economies Fig 1 Average Annual Growth Rate of CARICOM Countries (%)
15 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.
16 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 , there was a slow down in 2008 and 2009 (especially in Guyana and Jamaica) [see Table 4]. Slow Recovery since 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.
17 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 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.
18 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].
19 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
20 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].
21 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.
22 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.
23 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]
24 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)
25 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
26 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)
27 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.
28 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).
29 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.
30 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.
31 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
32 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