Earlier this month a document authored by Lea Gimenez, Edwin St Catherine, Jonathan Karver and Rei Odawara on The “Aftermath of the 2008 Global Financial Crisis in the Eastern Caribbean; Impact on the St Lucia Labor Market,” asserted that “The recent financial crisis had significant and long-lasting microeconomic impacts on St Lucia.”
The brief focused on the economy of St Lucia, with statistical information that “should help decision makers and the public in the OECS to develop policy options that can sustain job creation and thereby enhance public welfare. It also can help gauge the effectiveness of policies over time,” and “shows how the recent financial crisis had significant and long-lasting negative impacts on the welfare of St Lucians.”
Of particular interest, the brief, presented evidence and findings that; “are not surprising given the nature of the economies of St Lucia and other OECS economies.”
“St Lucia’s economy grew an average of 1.9 percent during the pre-crisis period (2000-2007) and 1.3 percent during the crisis (2008- 2010). Since the crisis, St Lucia’s major sources of growth have suffered from declining competitiveness and weak external demand related to slow recovery in advanced economies… and have not recovered since.”
The findings gave evidence that “Foreign direct investment (FDI), particularly in tourism-related construction, has historically played an important role in St Lucia. FDI contracted sharply as a result of the crisis. FDI steadily increased from 7 percent of GDP in 2000 to 24 percent in 2007; it was 12.5 percent of GDP on average. From 2008 onwards, however, the flow of FDI declined to an average of 9.2 percent of GDP during 2008–2013. FDI remains much below the pre-crisis level, although it increased slightly in 2013 from the previous year, to 6.3 percent of GDP. With FDI declining since the crisis, construction activity -- in particular, private sector construction activity -- has slowed. In the post-crisis period, it has been difficult for St Lucia to finance tourism-related investment projects. Lack of investment makes it hard to upgrade the country’s tourism assets. The decline of tourism and of construction activities severely affected the banking sector in St Lucia and led to a credit crunch. High numbers of delinquencies and weak domestic conditions have prevented recovery. “
According to the brief, the government of St Lucia attempted to use fiscal policy to boost growth and enhance labour market opportunities in the island. Still, unemployed and underemployed St Lucians together accounted for over 40 percent of the working-age employable population. They suffered a significant decline in welfare in the aftermath of the crisis. They lost not only their income but also the collateral benefits that are often associated with being fully employed in good quality jobs in the “formal” sector of the economy.
“The fiscal balance in St Lucia deteriorated in 2009, when the drag of the global crisis began to be felt in the island’s economy. In 2012, the overall deficit rose to 9.3 percent of GDP, and the primary deficit to 5.8 percent, as the newly-elected government undertook expansionary fiscal policy to support growth and boost employment. As a result of the government’s fiscal consolidation effort, the overall deficit was reduced by over 36 percent in 2013/14 -- down to 5.7 percent of GDP from 9.2 percent the previous year. The reduction was driven mainly by cuts in capital expenditures. Flat FDI growth, further borrowing in the Regional Government Securities Market, and continuing fiscal deficits caused the country’s public debt to grow. St Lucia’s public debt to GDP ratio rose to around 80 percent of GDP in 2013 from the pre-crisis level of 57 percent of GDP (International Monetary Fund, 2014). The reduction in foreign and public investment has diminished the country’s medium- and long-term growth prospects.”
The key findings from 2003 to 2013 indicated that; St Lucia’s labour force grew by 18 percent. But the impacts of the financial crisis on St Lucia between 2008 and 2013 impeded the full exploitation of its demographic dividend, while the negative impact of the crisis on employment prospects was particularly severe among the young (those between 15 and 24 years of age) -- by the end of 2013, nearly half of all young adults were unemployed.
Workers with only secondary education were hardest hit by increased unemployment
“Workers with less than primary education remained employed but received significantly lower wages. Workers with more than secondary education were relatively less affected -- they experienced both lower levels of unemployment and higher wages. The negative impact of the crisis was particularly severe among St. Lucia’s youth (those between 15 and 24 years of age) -- by the end of 2013, nearly half of young adults were unemployed.
“Unemployment and asset ownership data tracked between 2008 and 2013 indicate that the financial crisis affected the poorest 40 percent of households more harshly than the wealthiest 60 percent in St Lucia. From early 2008 through late 2009, the unemployment rate was around 15 percent for the population as a whole.
“These findings are not surprising given the nature of the economies of St Lucia and other OECS economies. These island states rely heavily on industries such as tourism, construction, agriculture, and financial services. Those in turn depend greatly on external demand from wealthier economies that also were damaged by the financial crisis. Travel and tourism related activities alone are estimated to account for 30 percent of gross domestic product (GDP) and employment in the OECS.
“Moreover, like most of the OECS economies, St Lucia has a high level of national debt. The debt burden limits the ability of the government to invest in social programs and human capital. Debt also compromises the government’s capacity to aid the poor and vulnerable in times of crisis.”
Employment shifted away from the construction and professional services sector to basic services and trade, education, health, and social services
“About 13 percent of the working population remained employed in the tourism industry through the post-crisis period. Sectoral shifts in employment varied by gender. Female employment shifted from professional services to the education, health, and social services sector, particularly between 2011 and 2013. The distribution of male employment moved from the construction sector to the service and trade sector. These labour market trends are generally in line with the observed macroeconomic trends (FDI, construction, tourism and both growth and sectoral composition of GDP). They are also consistent with the policies enacted by the government in response to the crisis, which focused on maintaining employment in the tourism sector, improving the education and skills of the labor force, and aiding the most vulnerable populations (youth and single mothers).”
With regards to the labour market trends in St Lucia, anecdotal evidence and GDP figures for St Lucia indicate that the economic crisis had a significant adverse impact on the nation’s unemployment rate. The crisis led to a decrease in the availability and quality of jobs. The working age proportion of the population increased by 3.5 percentage points from 2008 to 2013. At the same time, unemployment increased by 8.6 points. So workforce growth was not accompanied by an increase in the demand for labor.
“Demographic trends and macroeconomic challenges compounded the rise in unemployment. Population growth slowed down over the last thirty years, declining from an average of 1.6 percent per year between 1984 and 1993 to an average of 1.2 percent per year between 2003 and 2013 (World Development Indicators, 2014). Despite the slowdown, St Lucia added nearly 18,000 people to its total population, an 11.5 percent increase between 2003 and 2013. The working age population (15–64) expanded more rapidly than the total population, at an average rate of 1.9 percent between 2003 and 2013. The result was an 18 percent increase in the size of St. Lucia’s workforce over this period. The bulge in the 10–19 age group in the 2011 population pyramid indicates that the workforce will continue to grow over the next decade (Central Statistics Office of St Lucia, 2011). While a growing labor force can be an asset for income generation and growth, absorbing the wave of new entrants every year poses a major challenge for the labor market. Since 2008, the labor market has not been able to fully absorb the growth of the labor force, leading to both an increase in unemployment and under- employment. In other words, 2 of every 3 individuals who entered the workforce between 2009 and 2013 were unable to find jobs. In other words, 2 of every 3 individuals who entered the workforce between 2009 and 2013 were unable to find jobs.”
“Since 2008, unemployment has been the highest and has increased the most rapidly (17 points) among those 15 to 24 years old. Youth unemployment reached a high of 47 percent in the last two quarters of 2013. The unemployment rate of both adults (25–64) and the elderly (65+) increased by over 6 points. From the second quarter to the fourth quarter of 2013, the adult unemployment rate declined from 20 percent to 17 percent. Despite an increase in late 2012, unemployment of the elderly has been comparatively moderate at around 15 percent. The unemployment rate of females has been slightly higher than that of males, but the rate for both groups increased more than 8 points.
“Between 2008 and 2013, female employment shifted from professional services to the education, health, and social services sector, particularly after 2010. The distribution of male employment moved from the construction sector to the service and trade sector. These trends are consistent with the implementation of government programs, such as SMILES, which targets single women, and NICE, for which 70 percent of beneficiaries are women (NICE Administrative Data).”
However, according to the brief, “employers are looking for workers with higher education levels than the unemployed have, and ” to compete in the job market, job seekers not only need higher education — they also must develop “soft” skills that employers value. “Between September and November of 2012, 44 percent of employers reported wanting workers with tertiary education to fill job openings; 31 percent required at least secondary education certificates; and only one of every four employers claimed to need employees with less than secondary education. On the supply side, 60 percent of job seekers and the unemployed reported having less than secondary education; 33 percent had attained secondary education; and only 7 percent had tertiary education.”
Households with more wealth fared better than those with less wealth; wealth disparity increased after the crisis
“A study by the United Nations Development Programme (2010) found that the diverse impacts of the crisis in St Lucia included: “Sale of household assets to make ends meet”… and that “higher unemployment was associated with diminished household wealth.” “The changes in the distribution of welfare by employment status and the increasingly positive relationship between the welfare index and both education and reported income suggest that the sale or non-replacement of assets, reflective of a tightening credit environment, were used as a coping mechanism to endure the negative impact of becoming unemployed.”
Also, the brief revealed that there is no sign of wage growth. Real wages stagnated. “Between 2008 and 2013, education is the most significant factor in predicting inequality in income; higher education is associated with significantly higher levels of income. On average, employees with tertiary education earned over XCD 27,000 per year more than workers with no formal education.”
Social disparities in St Lucia increased after the 2008 global financial crisis
“The poorest forty percent of households were nearly indistinguishable from the top sixty percent in 2008. By 2013 individuals in the bottom forty percent were significantly less educated and more likely to be unemployed, residing in urban areas, and in a female-headed household. Similarly, by the end of 2013, individuals in the bottom forty percent were twice as likely to work in the agricultural sector, more likely to work in the construction and manufacturing sector, and significantly less likely to work in the education, health, social and professional services sectors.”
Debt and macroeconomic conditions limit the government’s ability to invest in social protection or in human capital, and generally limit its capacity to respond effectively to economic distress
“There is some evidence that government programs in response to the crisis have been successful at improving the job opportunities of the groups that they target. Nevertheless, unemployment, poverty, and social disparities in St Lucia increased after the 2008 crisis.
“The difficult reality is that St Lucia, like most of the OECS member states, faces a unique combination of micro and macro-economic challenges that compromise the ability of the government to reach the poor and vulnerable. Among these challenges are high levels of national debt, insufficient economic diversification, and a lack of monitoring and evaluation systems in place to measure the impact and effectiveness of social programs and public expenditure.”
Notes
The brief was produced under the general guidance of Louise J. Cord, (Practice Manager, World Bank - Poverty Global Practice) and Francisco Galrao Carneiro (Program Leader, World Bank - Caribbean Countries Country Management Unit).This report is the direct result of a collaboration between the St. Lucia’s National Statistical Office and both the Poverty and the Macro & Fiscal Management Global Practices of the World Bank. The report is also the result of an important partnership to support evidence based policy making in the OECS being led by the OECS Commission with the support of the United Nations Development Program (UNDP) and the World Bank.
Melanius Alphonse is a management and development consultant. He is an advocate for community development, social justice, economic freedom and equality; the Lucian People’s Movement (LPM) www.lpmstlucia.com critic on youth initiative, infrastructure, economic and business development. He can be reached at malphonse@rogers.com
*************************
DISCLAIMER
This article was posted in its entirety as received by SKNVibes.com. This media house does not correct any spelling or grammatical error within press releases and commentaries. The views expressed therein are not necessarily those of SKNVibes.com, its sponsors or advertisers
St. Lucia News