Explaining High Unemployment in ECCU Countries

33 Pages Posted: 7 Aug 2019

See all articles by Ronald James

Ronald James

Caribbean Development Bank

Jemma Lafeuillee

International Monetary Fund (IMF)

Mike Xin Li

International Monetary Fund (IMF)

Gonzalo Salinas

International Monetary Fund (IMF)

Yevgeniya Savchenko

World Bank; Georgetown University

Date Written: July 2019

Abstract

In recent years, unemployment rates in some ECCU countries have been among the highest globally. This paper evaluates several factors that could explain them, finding that high unit labor costs, in a context of strong unionization, are significantly associated with high structural unemployment, while the global crisis added a cyclical component. Our analysis also suggests that high-paid jobs in the public and tourism sectors, which have been growing considerably in recent decades, could have increased the reservation wage and lowered labor force participation. We find no indication that high structural unemployment is related to the phase out of EU preferences on bananas/sugar exports or to a skills mismatch. As expected, unemployment has been substantially, but only temporarily fueled by large natural disasters.

Keywords: Human capital, Labor supply, Social security, Public sector wages, Labor force, Real sector, Caribbean, labor market factors, unemployment, ECCU, GRD, LCA, VCT, global crisis

JEL Classification: J01, J08, J21, J31, J51, J60, E2, J3, E01, D4, Z13

Suggested Citation

James, Ronald and Lafeuillee, Jemma and Xin Li, Mike and Salinas, Gonzalo E. and Savchenko, Yevgeniya and Savchenko, Yevgeniya, Explaining High Unemployment in ECCU Countries (July 2019). IMF Working Paper No. 19/144, Available at SSRN: https://ssrn.com/abstract=3433134

Ronald James (Contact Author)

Caribbean Development Bank ( email )

P.O. Box 408
Wildey
St. Michael W.I. BB11000
Barbados

Jemma Lafeuillee

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Mike Xin Li

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Gonzalo E. Salinas

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Georgetown University ( email )

Washington, DC 20057
United States

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