The Guyana unemployment scenario

Development Watch

By Tarron Khemraj

Introduction

Tarron Kemraj

Tarron Kemraj

It is never a straightforward task to write about the Guyanese unemployment rate. This is because there is no consistent periodic labour market survey conducted in Guyana. Therefore, the analyst typically has to use the number from the population census and the outdated Household Income and Expenditure Survey (HIES). Moreover, we cannot say how the unemployment rate changes from one year to the next, let alone understand quarterly change. Given the dearth of labour market data, the Guyanese public must be wary of politicians who toss about numbers on the unemployment rate.

An individual is unemployed if he/she is actively seeking work but cannot find one. To be counted as unemployed, the individual just cannot think about work but must report specific attempts to find a job – example a job interview. The unemployment rate, therefore, is the number of such individuals (who are actively seeking work but cannot find one) divided by the total labour force.

However, the unemployment rate – in developing economies in particular – does not tell the entire poor employment scenario. This is because many individuals are underemployed. Workers could be underemployed when they can only obtain seasonal employment (rice and sugar workers for instance) or employment for a limited period of time. Underemployment also results when workers have to accept jobs that require skills below their education and qualifications. One suspects that in Guyana a significant percentage of the underemployed seeks work in the underground sectors.

Since many Guyanese might have lost hope to find a job, they tend to drop out of the labour force. These are discouraged workers. One measure that can help us to figure out the extent of the latter problem is the labour force participation rate, which is the total labour force divided by the population aged 16 and older. Therefore, if this ratio is falling it could signal our workers are giving up hope to find reasonable work – they simply drop out from the labour force. The problem, however, is Guyana is not good at measuring either the unemployment rate or the labour force participation rate. Thus the public’s perception is susceptible to the unemployment numbers tossed around casually by the politicians or even by organizations like Go-Invest, which is not equipped to make accurate pronouncements on the Guyanese labour market and unemployment rate.

The unemployment rate
According to the last population census Guyana’s unemployment rate in 2002 was 11.7%. Incidentally, the HIES recorded a rate of exactly 11.7% for 1992.  This number however does not tell the story of the underemployed and discouraged workers who have lost hope to find meaningful employment. Also, it does not tell what percentage of the workforce has decided to stay at home and live off remittances or wait until a visa is realized. The latter would make an interesting study for the local economists.

How does Guyana’s unemployment rate compare with other CARICOM states? This is given by the table below. This data is taken from the website of the Caribbean Centre for Money and Finance (CCMF). One thing to note is the high rate of official unemployment throughout the Caribbean, although there is a downward favourable trend for the economies. In 1993 and 1995 the CCMF records Guyana’s unemployment at 11.7% and 12%, respectively. It is interesting to note that Guyana, according to a recent World Bank Policy Research Working Paper, has the highest rate of outward migration of skilled workers among the countries in Table 1.

Table 1, Selected CARICOM countries unemployment rate – %

20091028table

Is Guyana’s unemployment declining?
Are Guyana’s unemployment and underemployment situations getting better? As I have noted above, it is not easy to answer this question without reliable data. Nevertheless, we would need to infer the answer using reasonable theoretical and institutional understanding. First, Guyana’s unemployment would depend on rapid growth that leads to more labour employment rather than labour-saving technologies. The inverse relationship between economic growth and unemployment is often encapsulated into Okun’s law – named after economist Arthur Okun. However, in Guyana’s case the strength of this negative relationship would ultimately depend on whether employment is actually increasing from growth.

Second, the private investment rate would be important for reducing unemployment. As I have noted in an earlier column, Guyana’s private investment rate has declined continually since 1992 (SN Aug 12, 2009). Third, the slack in private investment could be taken up by the heightened government investments.  However, the success in the government’s most significant investment in the Skeldon sugar factory is dependent in part on labour-saving techniques. Also, much infrastructure work by government creates seasonal and temporary employment.

Third, we also noted in an earlier column the limited level of development of private manufacturing sector in Guyana. With suitable linkages, a dynamic manufacturing sector (e.g. agro-processing) could provide a significant source of growth and employment creation for the entire economy. In the early column, we had termed the important connection between productivity growth and manufacturing growth as one of Kaldor’s growth laws. Moreover, an important implication of Kaldor’s growth laws is manufacturing not only enhances employment by absorbing labour from official sectors with diminishing returns (and the informal sector), but also increases the productivity of workers, which is essential for higher wages and living standards. Wages cannot simply be increased by printing money.

As an aside, but an important point nevertheless, sugar workers would begin to experience the adverse implication of these growth regularities summarized several decades ago by Nicholas Kaldor. In simple terms, because sugar is not a very valuable commodity the success of the investment in Skeldon would depend on squeezing the wage of sugar works. Therefore, the masses in Berbice shall stay poor and underemployed in spite of this massive government investment. This is a price the poor workers must pay for voting against their economic interests by continually picking sub-optimal leaders. Of course, a very tiny class of individuals – the Guysuco board members, several politicians and GAWU representatives – would do very well and these are the folks who will try to convince the masses that their plight is only temporary and good days are in the near future. But there can be no good days ahead unless Guysuco makes a product that is valuable and has a high income elasticity in the domestic and export markets. In my opinion, the latter would require moving into the manufacturing of energy-based commodities. Energy, not sugar, is demanded relatively more as people experience rising incomes – hence it is more income elastic. This kind of manufacturing represents one channel through which the labour from the fields can be absorbed and their welfare be enhanced.

Fourth, we have also noted in previous columns that Guyana is yet to experience the structural production transformation in spite of a rich array of strategies and proposals such as the National Development Strategy (NDS) and the National Competitiveness Strategy (NCS). For instance, the NDS and NCS recognize the importance of a manufacturing export processing zone (EPZ). Imagine if this EPZ could be linked backward with Guyana’s farm produce. Perhaps Guyana could concretize the proposal for EPZs with something akin to an Industrial Expansion Act (as was done in 1993 in Mauritius). Of course, Guyana would need to focus its EPZ with respect to its current trade agreements such as those with respect to CARICOM and the United States. Finding markets for traditional crops like rice (for instance in Venezuela which by the way claims 3/5 of Guyana’s territory) is good, but it is even more important to develop alternative production sectors bearing in mind the current trade agreements that carve out potential markets.

Conclusion
We are not able to say to what extent Guyana’s unemployment is due to cyclical fluctuations of GDP – owing to the business cycle – because there is no regular data. As Table 1 shows, other Caribbean countries update their unemployment data each year. No Guyanese leader since independence seemed too keen to do so. One has to wonder, therefore, how exactly the policy makers are going to pursue economic strategies without surveys of the labour market. How we are to know whether the NCS is being successful? We also do not understand what percentage of unemployment is due to labour market frictions – example the lack of vocational training (to correct functional illiteracy), which the National Development Strategy noted is essential for easing the unemployment and underemployment situation.

Also insidious is underemployment. In my opinion, the latter is rooted in an outdated production structure that breeds low wages (owing to low output per worker – productivity) and seasonal employment. In other words, our underemployment is structural since they are reflective of the production structure of the Guyana economy. As I noted in an earlier column (SN July 22, 2009), when government letter writers and the IMF alluded to Guyana’s sound macroeconomic fundamentals, they often ignore the adverse production structure that is uncompetitive in global markets and which moreover engenders underemployment.

Kindly send comments to: tkhemraj@ncf.edu



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