Explaining High Unemployment in ECCU Countries

IMF Working Papers, July 11, 2019

Source details

Authors: Ronald James, Jemma Lafeuillee, Mike Xin Li, Gonzalo Salinas, Yevgeniya Savchenko
Published: July 11, 2019
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9781498318709.001

By Ronald James, Jemma Lafeuillee, Mike Xin Li, Gonzalo Salinas, Yevgeniya Savchenko
July 11, 2019
Working Paper No. 2019/144, Volume: 2019, Issue: 144
Pages: 32
DOI: https://doi.org/10.5089/9781498318709.001
Stock No: WPIEA2019144
ISBN: 9781498318709
ISSN: 1018-5941

In recent years, unemployment rates in some ECCU countries have been among the highest globally.
High unit labor costs, in a context of strong unionization, are significantly associated with high structural unemployment.
The global crisis added a cyclical component to unemployment.
Growth of high-paid jobs in the public and tourism sectors, which have expanded considerably in recent decades, could have increased the reservation wage and lowered labor force participation.
There is no indication that high structural unemployment is related to the phase out of EU preferences on bananas/sugar exports.
There is no indication that high structural unemployment is related to a skills mismatch.
Large natural disasters have substantially, but only temporarily, fueled unemployment.

Labor costs and institutions:
- High unit labor costs correlated with high structural unemployment.
- Strong unionization provides the institutional context amplifying the labor-cost effect.
Cyclical vs. structural components:
- The global crisis contributed a cyclical component on top of structural unemployment drivers.
Sectoral composition and reservation wages:
- Expansion of high-paid public sector and tourism jobs likely raised reservation wages, potentially reducing labor force participation.
Excluded explanations:
- Phase-out of EU preferences for bananas/sugar exports not supported as a driver of high structural unemployment.
- No evidence found for a skills mismatch explaining high structural unemployment.
Natural disasters:
- Large natural disasters caused substantial short-term increases in unemployment, but these effects were temporary.

Subject: Employment, Labor, Public sector wages, Unemployment, Unemployment rate, Wages
Keywords: Caribbean, Central Asia, country, demonstration effect, East Asia, ECCU, ECCU country, ECCU economy, ECCU wage, Employment, Global, labor market factors, Public sector wages, reservation wage, Sub-Saharan Africa, unemployment, Unemployment rate, wage, wage growth, wage inflation, Wages, WP

IMF Working Papers — "Explaining High Unemployment in ECCU Countries" (Working Paper No. 2019/144, July 11, 2019).