Wed | Feb 19, 2020

Andre Haughton | Decrease in unemployment, increase in underemployment

Published:Wednesday | January 22, 2020 | 12:19 AM

An increase in employment without sufficient increase in economic growth is signalling an increase in underemployment of the Jamaican people.

 

WHAT IS THE UNEMPLOYMENT RATE?

Jamaica’s unemployment rate has fallen to 7.2 per cent at the end of 2019. A significant decline, coming from about 12.7 per cent in 2017, the unemployment rate has been reduced by about 5.5 percentage points over a two-year period.

As more and more people become employed, economists expect the nation’s economic growth to accelerate in pace with its employment levels. However, the Jamaican economy continues to grow at one per cent per annum, its 50-year average. This is indicating that the increase in the amount of people employed has not been having the desired effect on economic growth as economics practitioners would have hoped for.

 

WHAT AMOUNT OF GROWTH WAS EXPECTED?

In 2016, the Government and the Economic Growth Council hypothesized that their style of economic management would allow Jamaica to grow by five per cent per annum by 2020. It is now 2020 and Jamaica continues to grow at the usual one or two per cent, and there are no signs that the economy will be able to grow by five per cent in the near future based on projections.

The economic growth that was hypothesised to be achieved in four years has been translated to a 5.5 per cent reduction in the unemployment rate. An overall lack of understanding of how truly to engineer a sustainable, steady growth path for the country has left Jamaica in the same output growth position as it has been in over the last 50 years.

SHOULD ECONOMIC GROWTH BE INCREASING?

In economics, if more people are being employed such that the unemployment rate is falling especially as drastically as by 5.5 percentage points, as is the case of Jamaica over the last two years, there should be some spillover into economic growth.

Give that the two go hand in hand, in a properly functioning economy there should be some meaningful increase in GDP growth when unemployment falls considerably, if the economy is being properly managed to increase efficiency and create value added output.

If the unemployment rate is falling but the economy is producing relatively the same amount of goods and services, then there seems to be an increase in underemployment.

 

WHAT IS UNDEREMPLOYMENT?

People are underemployed when their jobs does not use their skills and competence to carryout assigned tasks, so these workers are underused. Many university graduates find themselves working in call centres and BPOs where they do not utilise the skills and knowledge garnered from their university education, making them underemployed.

Underemployment also classifies a scenario where people are employed less than full-time or inadequate hours. This means that people employed short term for a day or for a week are underemployed as well.

 

 

HOW DOES UNDEREMPLOYMENT FUNCTION?

Think about a company that is making 12 patties but hires two people – that is six patties per person. It then hires a third person and they are still making 12 patties – that is four patties per person. So the extra person adds nothing to the productive process. Employment increases, but total output remains the same. This is indicating that the third person is not adding much value to the output process and therefore is underemployed. Jamaica is employing more people but the economy does not grow, means that Jamaica is underemploying its people.

INNOVATION ABSORPTION IS IMPORTANT?

Jamaica has directed much of its national resources to expanding industries just to create jobs without increasing long-term sustainability and value added. Tax breaks, incentives and government benefits need to be directed now towards industries that increase efficiency and value added through innovative processes, procedures, goods and services. We propose creating a Technology and Innovation Absorption Fund (TIF) that will be used to invest in these ventures.

This fund should be similar in size or larger than the Tourism Enhancement Fund (TEF).

 

WHO INNOVATES?

Germany is ranked the number one most innovative country in the world, according to Bloomberg’s latest statistics. Rounding up the top 10 most innovative countries are: Korea (second), Singapore (third), Switzerland, Sweden, Israel, Finland, Denmark, USA and France.

“Innovation is important to growth and prosperity,” highlighted Tom Orlik, Bloomberg Economics’ chief economist in business. As a result, if Jamaica expects to grow and create prosperity as outlined by the Government, we have to invest in innovation now.

 

WHAT SHOULD WE FOCUS ON?

The innovation index focuses on the use of research and development, how do manufacturing companies create value added, productivity, high technology density, tertiary-level efficiency, research concentration, and the amount of patents that the country holds. This is now the real source of economic value.

Dr Andre Haughton is a senator and senior lecturer in the Department of Economics, UWI, Mona. Email feedback to editorial@gleanerjm.com and haughton.andre@gmail.com.