Labor ProductivityIntroductionAs part of our MBA study concerning the subject Micro- and Macro Economics, we had to do a research on labor productivity. Our paper elaborates on the labor productivity on Curaçao and several neighboring islands.What is labor productivity? According to Investopedia, labor productivity is a measure of economic growth within a country. A simple way to describe labor productivity is the measurement of the output of what is produced in a country in a period by a given labor input.
In order to get a better view of an economic growth and to measure the level of economic indicators in a country such as living standards, the labor productivity rate is used.Paul Krugman and Robin Wells (2006) state that the key to long-run growth is raising (labor) productivity, which is the output per worker. This is related to increase of physical capital per worker and human capital per worker as well as advances in technology. Labor productivity has become a hot topic in Curaçao the last couple of years. It was soon agreed upon, for our team to focus on the labor productivity on Curaçao and several neighboring islands and what can be done to improve the productivity. Before we could answer above question, we had to find out which factors have an impact on the (general) labor productivity.
Then the next step was to find out which factors influence the labor productivity of: 1. Curaçao2. Aruba3. Trinidad & Tobago and4. JamaicaFactors affecting the productivity level The World Economic Outlook is still weak and unstable and bringing with it several threats such as falling of investments, declining productivity growth, labor market becoming less dynamic and deterioration of human capital. These threats have had a negative influence on the economy resulting in declining growth rates, increased income inequality, migration and political tensions obstructing constructive reforms.
In order to get an indication of a country’s standard of living, international competitiveness, output growth and social labor productivity, indicators are used according to Freeman (2008). These can help in understanding and examining historical and current changes in an economy. The labor productivity is estimated to observe how production efficiency develops over time, in different economic sectors or compared to other countries in the region.
The labor productivity information is important because increasing labor productivity can unlock growth potential (IMF, 2016). Countries with strong labor productivity growth tend to register high output growth rates as they can produce more goods and provide more services with the same amount of labor. Labor productivity (L) is measured by using the following equation: L= Output / InputL represents labor productivityOutput represents the gross domestic productsInput represents the number of employed personsThe total factor productivity and labor productivity growth have declined markedly in many economies. At the same time, investments have slowed globally and are below long-term average growth rates in several advanced and emerging markets and developing economies.
To the extent that low productivity growth translates into expectations of weak profitability. Investment therefore could be negatively affected. There are also factors that affect labor productivity on a lower level, namely on a company level. These factors have been identified by several company managers. In order to prepare a strategy to improve company labor productivity, it is essential to; identify, understand and evaluate the factors affecting labor productivity.The main factors that have been identified by most companies are:(1) return on investment, (2) government schemes and (3) environmental influences. Company specific factors identified are:(1) location and technology, (2) cultural belief and value, individual attitude, motivation and behavior, (3) international influence e.g.
levels of innovation and efficiency, (4) managerial, organizational, economic, political and legal environments, (5) individual rewards, payment systems, recruitment, training, communication and other incentives.?Labor Productivity and the actual productivity level on CuraçaoFactors that influence labor Productivity on CuraçaoThe size of the population has an influence on the labor productivity in a country. According to Worldometers, the population of Curaçao consists of 161,112 inhabitants (as per January 18, 2018) and ranks number 192 on the list of countries (and dependencies) by population. Article IV of the IMF (Country Report No. 14/239) mentioned that the growth and job creation on Curaçao remains uninspired due to lack of competitiveness, unfavorable sector trend, and rigid labor laws. Next to these, the labor productivity on Curaçao has endured several back draws and is facing many more: Political instability;Uncertainties related to the oil refinery; PDVSA and Guangdong Zhengrong Energy;Several hits on the financial sector; declining investments; Uncertain situation in Venezuela; border closure (ABC islands); Closing of several hotels and businesses including an airline;Other important issues that Curaçao is facing, are minimum wage discussions, general medical insurance (SB) debates and cut in government subsidies, which have led to mayor labor strikes and leading up to political instability.Actual productivity level on CuraçaoThe economic performance on Curaçao has weakened as a result of the factors mentioned above. The weaknesses have been harmful for the economic performance of Curaçao.
The diversified economy must be analyzed and the reallocation of labor from declining sectors to growing ones should be considered in order to increase the labor productivity. The economy of Curaçao is driven by the oil refinery, tourism and the financial sector. The growth of the economy of Curaçao has been weak since the early 2000’s (see Table 1), with high unemployment and negative labor productivity rates.Even though the projections were positive for the year 2017, in reality this was not the case as a result of the economic situation of the island. In order for the labor productivity to increase, the labor market must become more flexible, attractive and dynamic. Welfare support for unemployed should be limited in time and eligibility requirements (including active job search) enforced vigorously, as Sint Maarten has sought to do. According to the International Monetary Fund (IMF), Curaçao should make labor dismissal laws more favorable to cyclical shifts in labor demand, so as to raise employment durably and ease restrictions on hiring foreign workers while enforcing adequate labor conditions to facilitate Foreign Direct Investment (FDI) and the associated inflow of financial resources and know-how.
Labor Productivity and the actual productivity level on ArubaFactors that influence labor Productivity on ArubaAruba also faced a difficult economic situation with the closing of the Lago Refinery on March 31, 1985, but has recuperated thanks to assistance of the IMF. The government formulated a policy to restructure the economy. The former refinery dependent island became tourism oriented.Due to the severe lack of information on the development of the labor market, the Central Bank of Aruba (‘the Bank’) has been assessing the economic situation. The lack of adequate statistics in Aruba has been a problem for decades. The calculations of the Central Bank of Aruba indicate that the unemployment rate of Aruba declined with 12.1% at the end of September 2005, compared to the corresponding period a year earlier.
The unemployment rate fell in 2005 from 7.2% to 6.2% compared to 2004.
The mismatch between the needs of the employers and the skills and training of the unemployed, influences the rate and therefore also the labor productivity. This is also being reflected by the constant demand of employers for foreign workers. Indicative for this is the increase in employment. Worldometers state that the population of Aruba consists of 105,488 inhabitants (as per January 18, 2018) and ranks number 198 on the list of countries (and dependencies) by population.Actual productivity level on Aruba According to the Central Bank of Aruba, the employment rate increased with 4.3% in 2005. This rise is almost five times larger than the decline in the number of unemployed persons. The increase in employment reflected mainly in the private sector with 4%.
In addition, the number of public employees went up with 6.3%. The participation rate, being the active part of the working age population, declined slightly from 63.7 % to 63.3% in 2005.Even though according to ….. the labor force participation rate is 64.
7%, it is still low compared to the members of the European Union whose average rate is 72.2%. A low rate is recognized as an obstacle for growth. In order to increase the productivity, attention needs to be paid on improving the business environment, increasing labor force participation rate, skill improvements and technological upgrading. The census held in 2010 has shown that the population above 65 years has increased from 7.
4% in 2000 to 10.4% in 2010, and is expected to double in 2030. Based on this data, the CBS projected three different growth scenarios for the period 2010-2030: being, low, medium and high. Aruba: Central Bureau for Statistics three Scenario Projection 2010-2030?Labor productivity and the actual productivity level in Trinidad and TobagoFactor(s) that influence labor Productivity in Trinidad and TobagoAccording to Worldometers, the population of Trinidad and Tobago consists of 1,371,044 inhabitants (as per January 18, 2018) and ranks number 153 on the list of countries (and dependencies) by population. Trinidad and Tobago major factor that influence productivity is the big mismatch between the available jobs and the capacity (skills) of people on the labor market. If we look at the past two decades the several governments in Trinidad and Tobago (T&T) tried to create a framework to generate and improve the productive labor force by:• Improving the education level of the population;• Developing programs such as on-the-job trainingDespite all this there is still a big gap. Trinidad and Tobago has one of the largest industry sector in the region. The economy of Trinidad and Tobago is based on oil and gas exports and for long it initiated a lot of construction projects.
Despite its well-known engineering and construction expertise, the industry practices are very negative. The construction industry is of great importance for factories and for the big construction projects. Not only in Trinidad and Tobago, but worldwide there are concerns regarding professionals and poor labor productivity in the construction sector. Although there are great breakthroughs made in technology and expansion on the labor market, the construction industry is affected by poor practice on the job site. Labor is a major contributor in a successful construction project.
Construction is the largest unit of human resources in all projects. The most critical issues affecting labor productivity are:• Construction manager’s lack of leadership;• Payment delay;• Communication problems between site management and employees;• Late arrival, early quitting and frequent unscheduled breaks.Actual productivity level in Trinidad and TobagoIn a report that was published in January 2017 by the Inter-American Development Bank (IDB) called “Are oil and gas smothering the private sector in Trinidad and Tobago?” it is stated that the labor productivity in Trinidad and Tobago had a sharp decline since the crisis (from 2010 till 2014). Furthermore, some important non energy sectors were contributing negatively to the labor productivity. The report also states that Trinidad and Tobago firms performed worse than the other Caribbean islands did in terms of sales growth and the level of total factor productivity. From the tables below it can be concluded that above trend changed in the years 2015 and 2016.On a positive note, despite the negative trend of the labor productivity, the unemployment rate fell gradually, from 14.2 % in 1998 to 4.
1 % in 2017According to the World Bank world development indicators, the labor productivity of Trinidad and Tobago is as follows: Trinidad and Tobago is looking at strategies to improve their labor productivity force. Based on mentioned, below questions arise:Does the government know how to create efficient labor force?Has the government identified systems for improving labor productivity?Are all stakeholders united in their approach to improve labor productivity?The government is trying to address all mentioned factors by implementing trust, unity and cooperation to achieve labor productivity growth. These are the basic concepts that will improve labor productivity, improvement of employee performance and achieve the maximum balance between labor input and labor output. Trust: It is important for the government to have the entire society behind its plans even if they do not fully understand the decisions made. The trust is in their best interest.
All negotiations should be done in good faith. And it is the duty of the government to work and create, use marketing tools and create a base relationship with its stakeholders.Unity: The entire society is needed in order for a country to accomplish its goals, which in this case is the increase of the labor productivity rate. A multipartite arrangement “COMPACT 2000” was signed in the year 2000 by the then prime Minister Basdeo Panday. This agreement was with the labor movements and private sector.
This agreement still plays a critical role when it comes to resolving issues that lead to an increase in labor productivity.Cooperation: To achieve cooperation, trust and unity is necessary. Without the cooperation between all parties, it is difficult to make the public sector competent so it can achieve a higher level of governmental services and therefore increase the labor productivity. Time has taught that if above parties focus on labor productivity they can create a more effective public sector.?Labor productivity and the actual productivity level in Jamaica. Factors that influence labor Productivity in JamaicaJamaica’s population consists of 2,894,9827 inhabitants (as per January 18, 2018) and ranks number 140 on the list of countries (and dependencies) by population, according to Worldometers.
As in every other country, labor productivity is a big part of the economy of Jamaica. A few factors that have a huge impact on the productivity level of this island are: deficiencies in human capital, high levels of crime, fiscal distortions and a poor work ethic.According to the United Nations Development program – Human Development Index (HDI) 2016, 88.
7% of the labor force is literate. For females 31.5 % use the family responsibility and housework as the reason for not seeking work and/or being in school. More females than males are expected to complete the third level of education. Along with the deficiencies in human capital, Jamaica also deals with the influence of the crime rate on the island.
According to the last research done by the World Bank, 5.0 % of GDP was for crime control expenditures. The HDI illustrates that 145 (per 100,000 people) form the prison population of Jamaica. The government’s tax revenues have been reduced by an estimate of 20% due to inconsistent and complex tax. The high debt level of the island reduced the amount that the government could use to increase its public spending and investments. Actual productivity level in JamaicaJamaica’s employment rate has been increasing during the last two years. According to the data of the Human development program, Jamaica is ranking as a high developing country at 94; higher developed country leads to more employees.Calculating the Labor Productivity of Jamaica using the data of the Statistical institute of Jamaica can be concluded that this is developing every year.
Unfortunately Jamaica is confronting the challenge of developing its Human Capital. According to the World Bank world development indicators, the labor productivity in Jamaica is as follows:When comparing the labor productivity rates of Curaçao, Aruba, Trinidad and Tobago and Jamaica, it is more than obvious that the strategy Aruba has implemented to change from a refinery dependent economy to a tourism based economy had a positive impact on the labor productivity.All the other countries can learn from this strategy. When it comes to Curaçao, with its diversified economy it should be easier to analyze the market and change the course in order to improve our labor productivity.By looking at the productivity of Curacao, Aruba, Trinidad and Tobago, and Jamaica, it can be concluded that the key to increase productivity and wealth is scientifical knowledge and technological principles.
Governments not only in the Caribbean but worldwide should invest in the education. The drastic transformation in global economy and international relations, require the reformation of education and training systems according to the World Bank. Final recommendation pendingWhat can be done to improve the Labor Productivity on Curacao?When comparing the labor productivity rates of Curaçao, Aruba, T&T and Jamaica, it is more than obvious that the strategy Aruba has implemented to change from a refinery dependent economy to a tourism based economy was effective / had a positive impact on the labor productivity. All the other countries can learn from this strategy.
When it comes to Curaçao, with its diversified economy it should be easier to analyze the market and change the course and improve our labor productivity.It can be concluded by looking at the productivity of Curacao, Aruba, Trinidad and Tobago, and Jamaica that the key to increase productivity and wealth is scientifical knowledge and technological principles. Governments not only in the Caribbean but worldwide should invest in the education. The drastic transformation in global economy, international relations require the reformation of education and training systems according to the world bank`.