Market structure, jobs, and productivity: Observations from Jamaica

1

’ World Developmenr. Vol. 16, No. 4, pp. 465-482.1988. Printed in Great Britain.

030%750X/88 63.00 + 0.00 0 1988 Pergamon Press plc

. Market Structure, Jobs, and Productivity: Observations from Jamaica

PETER B. DOERINGER* Boston University

Summary. - The purpose of this paper is to study the structure of the formal labor market in Jamaica. Emphasis is placed upon the key institutional features of labor markets as they affect income and employment determination, training and labor quality, labor-management conflict, and industrial organization. In particular, a distinction is drawn between those jobs (principally in the informal sector) where easy entry and work sharing are the principal determinants of income- earning opportunities, and those which are protected by formal sector internal labor markets. This distinction is critical for understanding how employment and productivity are affected by economic change and by institutional forces at the workplace.

1. INTRODUCTION

In recent years, the evidence has been mount- ing that labor markets in developing countries are complex and highly structured. Rather than being seen as an undifferentiated collection of “last resort” subsistence jobs, the informal sector is now also understood to contain jobs requiring considerable skill. entrepreneurial ability, and “social assets.“’ Some informal sector jobs have also been shown to involve connections to formal sector production through various kinds of subcontracting.* Similarly, village labor markets in rural areas appear to have considerable structure.3

There are, however, relatively few counterpart studies of formal sector labor market structures. Until the diversity of labor market practices in both sectors of the labor market are more fully explored, many of the pressing questions about the causes of productivity, job generation, and underemployment will remain unanswered.

This paper seeks to address some of these questions through a study of labor market structure in Jamaica. Emphasis is placed upon the key institutional features of labor markets as they affect income and employment determination, training and labor quality, labor-management conflict, and industrial organization. In particular, a distinction is drawn between those jobs (generally in what is often called the informal sector) where easy entry and work sharing are the principal determinants of income-earning opportunities, and those which are protected

by formal sector internal labor markets. This distinction is critical for understanding how employment and productivity are affected by economic change, and by institutional forces at the workplace.

Section 2 of the paper briefly reviews the recent macroeconomic trends in the Jamaican labor market. In Sections 3 and 4, the economic and institutional dimensions of the labor market, and their implications for microeconomic performance, are examined. Section 5 explores the in- teraction between formal and informal sector employment and its consequences for macroeconomic performance. Section 6 evaluates various options for labor market and employment policy.

2. THE MACROECONOMIC SETTING

With an income per capita of about $1,200, Jamaica ranks among the middle group of developing countries. It has a relatively well- educated population, a modest industrial base, and an economy that experienced several periods of strong growth in the 1950s and 1960s. In recent

*This paper draws upon research conducted on Jamaica in 1983 and 1984. For a complete report of this study see: Vermeulen and Doeringer (1986). I would like to thank Ruth Klinov, Guy Standing, and Paul Streeten for useful comments on this paper. It has also benefited from seminar presentations at Boston University, the Northeast Economic Development Conference, and the World Bank.

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466 WORLD DEVELOPMENT

years, however, growth has stagnated, productivity and real wages have fallen, open unemployment has been unusually high, and inequality may have worsened.4

Chronic unemployment, low productivity, and widespread poverty and inequality are not new to Jamaica.5 The only recent period of improvement in unemployment and real wages was the early 1970s when Keynesian expansionary policies coupled with public employment programs aimed deliberately at alleviating unemployment were briefly in effect. Thereafter, the economy went into a sharp decline as a result of OPEC price rises, foreign exchange crises, and austerity measures intended to correct the balance of payments.

By the end of the 1970s unemployment was well above its level at the beginning of the decade and real wages had fallen as well. Sharp reduc- tions in opportunities for emigration, severely curtailed rural job options, rationalized production in manufacturing, and faltering economic growth in the late 197Os, further combined to aggravate the joblessness caused by economic contraction.

The negative effects of declining labor demand, however, have been felt only partly through job losses and unemployment. Falling labor demand has been partially disguised by the increased marginalization of earning opportunities, as individuals are pressed into less and less productive jobs. Particularly in the informal and small-scale enterprise sector, adjustments to faltering demand appear to take the form of increased work sharing and reduced income rather than “open” unemployment. In fact, in recent years employment has been rising at the rate of about 2% per annum as output has been falling. The result has been a decline in labor productivity and per capita earnings that has been far faster than the decline in output.

(a) The conventional view of labor market problems

These macroeconomic dimensions of Jamaica’s growth and unemployment problems have been well documented. While oil shocks, the collapse of the bauxite industry, and price distortions are seen as major culprits, policymakers in Jamaica have also attributed these problems to develop- ments in the labor market.

Based upon a stylized view of labor markets in which structural considerations play only a small role, there has been a tendency to see slow growth, productivity decline, and unemployment

as symptomatic of deficiencies in human capital - poor skills and poor work attitudes - and of market distortions caused by militant trade unions. The solutions to these problems are framed in similar terms. Improvements in vocational skills are proposed to raise labor productivity and increased competition in product and labor markets is recommended as a means of reducing distortions caused by unions.

(b) A contrary view of the labor market

The findings of this study suggest that this in- terpretation incorporates an inadequate understanding of labor market structures and labor market institutions. As the paper will indicate, there is little evidence of serious skill bottlenecks except at the highest levels in the Jamaican labor market. Nor does union militancy appear to be seriously out of line with the long-term experience of comparable countries.

Instead, there is circumstantial statistical evidence, supported by survey research and field interviews, that the recent decline in aggregate labor productivity in Jamaica masks a diverse pattern of productivity change. In some parts of the economy, productivity has been increasing whereas in other parts it has been declining more rapidly than the average. One pattern of productivity change is centered in the formal sector where staffing and production are being re- organized so as to raise labor productivity. The second is in the informal and small-scale enterprise sector where increasing amounts of surplus labor, generated both by population growth and by labor displaced from the formal sector, are being absorbed.

This labor absorption in the small-scale and self-employment sector appears to be accomplished mainly through work and income-sharing arrangements that bring down average productivity and earnings in that sector as the labor force expands more rapidly than output. Because the composition of employment is shifting from the contracting formal sector to the rapidly growing small-scale sector, aggregate labor productivit and earnings also decline faster than output. Y

The presence of these divergent patterns underscores the importance of distinguishing among labor market processes in different sectors when interpreting aggregate labor market data. Institutional differences, such as work and income-sharing arrangements and management practices, appear to be one root cause of the observed changes in employment. earnings, and productivity.

MARKET STRUCTURE, JOBS, AND PRODUCTIVITY 467

3. THE SMALL-SCALE AND SELF- EMPLOYMENT SECTOR

There are few in-depth studies of Jamaica’s small-scale enterprises or of self-employment. There have been studies of the informal and small-scale sectors in Jamaica, but these have concentrated mostly on statistical descriptions of its component industries and businesses. Accord- ing to a 1978 survey by Davies et al., for example, 38,000 small establishments, with an average employment of 2.1 workers, accounted for 11% of total employment in Jamaica.s Of these small establishments, roughly one-third were in manufacturing and half were associated with some form of distribution. The largest industry in the informal sector was commerce (largely grocery stores) and the second largest was food services. Within manufacturing, the largest informal sector industry was apparel, followed by various craft and artisanry activities, repairs, woodworking, food processing, and metalworking.

Half of all small enterprises are one-person operations, and about 70% of the small enterprise workforce consists of proprietors and family workers. Only one-fourth of the informal small- scale sector workforce is hired labor. Food production (principally bakeries) and, to some extent, metalworking and repair shops are the industries with a significant number of firms with six or more workers, many of whom are hired wage labor.

Proprietors of these small businesses have accumulated substantial physical and human capital. Roughly three-fourths have completed primary education; almost another fifth have completed secondary education; and almost two- thirds had received some kind of formal or informal vocational training. Formal education is often supplemented through an active network of informal training in skills such as marketing, management and production methods.’ The sector also has considerable physical capital, much of which is power driven.”

(a) Flexibility and the survival of small-scale sector establishments

The ability of small enterprises to survive, and their capacity to accumulate capital, is all the more remarkable because of the apparent widespread excess capacity in this sector, the difficulties in obtaining material and parts, and the practice of selling goods and services on credit. One reason for their durability lies in their flexibility. For example, small businesses are often available to customers at all times and are willing

to produce upon demand. They carry little in the way of inventory, and much work is custom or “job” in nature. Raw materials and intermediate inputs are obtained on short notice, often upon the payment of an initial deposit by a customer.

Flexibility is also reflected in their labor practices. Proprietors and family workers provide a “standby” labor supply which is ready to be tapped at a moment’s notice, and which imposes few additional costs when not working. Case studies of these businesses suggest that the pro- prietor and often members of his family, are regularly at work, but that there is often considerable organizational “slack” of the kind usually associated with underemployment. Similarly, small establishments that hire labor maintain workforce flexibility either by laying workers off when there is no work to be performed, or by retaining workers but compensating them through piece rates or fee sharing so that pay commit- ments arise only when work is done.

Intermittent spells of unemployment, exten- sive underemployment, and reliance on an ec- lectic set of part-time and short-term jobs, help to explain why earnings in this sector average about half of formal sector levels.”

(b) Labor market processes in the small-scale sector

While the literature on the informal and small- scale sectors provides little insight into the dynamics of workplace employment and pay practices, certain inferences can be drawn from what is known about the composition of work in these sectors. For example, the importance of small, family-owned businesses and self-employment is consistent with easy entry into work. In developing countries, such jobs are frequently characterized by work- and income-sharing, and employment is often gained through family, kinship, or friendship ties to existing proprietors.‘2

Even in those situations where small-scale enterprises are somewhat larger and organized along more impersonal labor arrangements, the prevalence of fee-splitting and piece-rate payment systems can still encourage work and income sharing. Moreover, even when workers in this sector are displaced from their jobs, they may simply exercise “bumping” rights into some other set of easy entry jobs such as self- employment or jobs to which they have some kinship entitlement. For those whose income de- rives from a stream of very diverse, short-term jobs, this pattern of shifting among income sources may be particularly applicable. t3

Because there is an elastic capacity (and often


a kinship or friendship commitment) to absorb labor in this sector, employment tends to expand easily in this sector when labor supply increases at a faster rate than formal sector jobs, or when labor is displaced from employment in the formal sector. Employment in this sector can, therefore, increase either when product demand is rising or when workers flow into the sector seeking work of last resort.

These adjustment processes highlight the con- nection among easy entry, underemployment, and cyclical shifts in labor productivity by industrial sector. They may also help to explain why open unemployment rates vary so much among various age, education, and sex groups which presumably have different access to informal sector jobs in Jamaica.

4. THE FORMAL SECTOR

Apart from studies of collective bargaining, the literature on labor market processes in the formal sector of large-scale enterprises is equally sparse. There are, however, two surveys that provide some information on how this sector operates.14

To update and expand upon these survey findings, representatives of unions and employer associations were interviewed and an exploratory survey was conducted in 1983 and 1984 with 10 medium and large establishments. The firms surveyed were located in Kingston and covered a range of industries. Combining these interview findings with the available literature points to some general conclusions about how the formal sector labor market operates and allows for some sense of change over time in formal sector employment practices.

(a) Internal labor markets

The most striking feature of the formal sector is the existence of highly structured “internal labor markets” within medium and large private sector establishments. Firms in this sector tend to have a limited number of entry or hiring positions which are filled from the external labor market. Most other jobs are filled through internal promotion.

Once hired, most workers can acquire “iegu- lar” or “quasi-permanent” status, although they may be subject to layoff and recall according to demand conditions. However, the workforce of many formal sector establishments also includes

“casual” workers. Casual workers are hired by the day or the job, and have no rights to con- tinuing employment. These workers are used to fill in for temporary absences, to complete special maintenance or production assignments, and to run occasional errands. The casual labor force is also often used as a pool from which to recruit additional permanent workers when entry vacancies occur within the firm. In times of austerity, it is this casual labor force that is first displaced.

While internal labor markets are a widespread feature of the formal sector, there are some variations in the proportion of jobs that are filled from the external labor markets. For example, in the telephone company almost all jobs are filled internally within various departments. In contrast, apparel firms have a more “open” job structure. Almost all production jobs - stitch- ing, pressing, packing, and cutting - are filled directly from the external labor market. By and large, however, promotion from within is the rule.

There are also wide differences in pay for similar work among different formal sector firms. Those operating in highly competitive markets tend to pay much less than those in more sheltered markets and ability to pay seems also differentiated to pay rates.

(b) Training in the internal labor market

The corollary of internal labor markets in the formal sector is that considerable skill development takes place through employment. Typi- cally, companies with internal labor markets depend upon formal school systems only to provide the general skills required for entry level positions. Informal, on-the-job training is then relied upon to staff the bulk of the jobs filled by promotion. For those few jobs that are filled internally for which more formal skills are needed, companies may supplement on-the-job training with formal programs commissioned through schools, training institutes, and equipment vendors.

This portrayal of the training strategy of employers accords with research in the mid-1970s by Standing.” The importance of informal training is further confirmed by labor force survey data for both 1974 and 1977 showing that almost 90% of the labor force had received no formal vocational training (except for on-the-job training). Among the remaining 10% that received some skill training, there was a mixture of vocational. professional, and apprenticeship training.16

MARKET STRUCTURE, JOBS. AND PRODUCTWTY 469

(c) Turnover and labor retention

Heavy business involvement in on-the-job training carries with it a concern for problems of turnover among workers in whom training investments have been made. The conventional wisdom in Jamaica, however, has been that the workforce has problems of commitment to industrial employment, that it exhibits high quit rates, and that firms have engaged in labor piracy. ” These reported difficulties in retaining labor have often been used as an explanation of why there is so little reliance upon apprenticeship or other formal training activities at the workplace in Jamaica, and may even inhibit the degree of on-the-job training, since turnover of labor is a deterrent to training investments by employers.”

Research in the mid-1970s. however, suggests that labor turnover was becoming less of a problem. I9 The recent interviews among formal sector firms indicate the turnover situation is further improved.

At the same time that voluntary turnover is falling, however, layoffs seem to be becoming more common. Historically, there are some in- dications that employers were paternalistic to- wards their workers and were reluctant to lay off redundant employees.” High turnover may also have encouraged a hoarding strategy whereby firms “overmanned” in order to ensure that there would be enough workers available on any particular day. *’ Finally, Jamaica’s unions may have resisted layoffs vigorously, a practice consistent with the severence pay penalties contained in many of Jamaica’s collective bargaining agree- ments. However, our interviews indicate that employers have shown a greater tendency in recent years to adjust employment to output by laying off redundant workers.

(d) Productivity

Another conventional wisdom about the Jamaican labor force is that it has serious productivity problems.*’ Lack of training, poor attitudes, labor turnover, absenteeism, militancy, and generally low levels of effort and commitment to industrial work, are the most commonly mentioned sources of low productivity. These prolems are traced alternatively to Jamaica’s history of patemalism;” to a cycle of low pay, high turnover and absenteeism which diminishes incentives for training and upgrading;” and to in- efficient work practices, strikes, and pressures to retain redundant employees caused by militant unions.

Whatever the historical accuracy of these vatious characterizations of the productivity “problem” in Jamaica, employer interviews support the view that current productivity problems are rooted more in management practtces than in worker skills or attitudes, and that these practices are improving in the formal sector. Except for deficiencies in basic educational preparation and shortages in certain specialized and highly skilled occupations, employers report no evidence of low skill and inadequate training as a cause of low productivity. Analyses of rates of return to education do not suggest unusual shortages of general education and there are positive returns to specific job tenure.”

Even more important, interviews with formal sector employers consistently revealed recent and dramatic improvements in labor productivity. Managers invariably attributed the improved productivity to a fresh commitment of their companies to modernize and rationalize human resources management. This included a tendency to reduce labor “hoarding” and a greater emphasis upon effort and efficiency. Interviews with union representatives also confirmed the growing management emphasis upon improved labor productivity. While direct measurements of labor productivity are not available to back up these claims of increased productivity as a result of rationalized employment practices, every employer surveyed claimed improvements in productivity ranging from 50% to more than 100%.

Further support for the view that management’s treatment of labor affects productivity comes from a broad-based survey of formal sector workers in 1982, designed to identify the root causes of low productivity and labor relations problems in Jamaica. This study reported that labor-management relations and management practices ranked far ahead of low pay, working conditions, and ‘ob content as a source of worker dissatisfaction.* d Moreover, higher levels of work effort were generally found in firms where management was taking positive steps to motivate production and where work attitudes were favorable.*’

Finally, militant unions and labor unrest are often mentioned as a source of productivity problems in Jamaica. Comparisons of strike frequency with several other countries with industrial relations arrangements similar in some respects to Jamaica’s - Puerto Rico, the United Kingdom, and the United States - confirm the perception that work stoppages are relatively fre- quent in Jamaica (see Table 1). On the other hand, these work stoppages do not translate into comparable increases in working days lost to strikes or in numbers of workers involved. Over


Table 1. Indexes of industrial disputes per thousand employees: Jamaica, Puerto Rico, the United Kingdom and the United States

1972 1973 1974 1975 1976 1977 1978

Average 1972-79

1979 (%)

Jamaica Employed (100s) 611.3 629.5 Disputes/100 0.009 0.014 Workers involved000 4.9 2.9 Working days lost/100 43.6 37.6

Puerto Rico Employed (100s) 743 746 Disputes’100 0.014 0.01 Workers involved/100 3.2 2.4 Working days lost/100 30.0 18.9

United Kingdom Employed (100s) 24.020 24,696 Disputes/100 0.01 0.01 Workers involved/100 7.2 6.2 Working days lost/KJO 99.5 29.1

United States Employed (100s) 82,153 85,064 Disputes000 0.006 0.006 Workers involved000 2.1 2.6 Working days lost/100 32.9 32.9

646.3 682.3 679.1 699.2 702.1 663.4 0.021 0.03 0.021 0.023 n.a. 0.027 3.3 1.6 1.8 1.8 n.a. 3.0

119.0 16.5 20.5 11.7 n.a. 12.4

728 676 691 700 730 745 - 0.01 0.01 0.005 0.005 0.005 0.004 0.009 3.0 17.8 1.2 2.1 1.6 0.48 4.3

40 54.3 48.1 46.5 95.7 6.6 34.9

24,785 24,704 24,492 24,523 24,681 25,010 - 0.012 0.009 0.008 0.01 0.01 0.008 0.009 6.6 3.3 2.7 4.7 4.2 18.4 7.0

59.5 24.3 13.4 41.4 38.1 117.8 55.0

86,794 85,846 88,752 92,017 96,048 98,821 0.007 0.006 0.006 0.006 0.004 0.005 3.2 2.0 2.7 2.2 1.7 1.7

55.3 36.4 42.7 38.9 38.4 35.2

0.02 2.8

37.3

0:&j 2.4

39.2

Source: IL0 Yearbook of Statirtics.

the 197Os, Jamaica’s experience with respect to working time lost due to strikes and numbers of workers involved in strikes is not out of line with these other countries.

Given the lack of an exceptional amount of working time lost due to strike activity, the consequences of union militancy may have been overstated. On the other hand, there is a great deal of year-to-year volatility in these measures, and there may have been periods when high strike activity was particularly damaging to the economy. From interviews, it appears that many strikes have hit the public sector, however, and that neither the business community nor the government mediation apparatus have been well prepared to resolve conflicts when they have arisen.

(e) Institutional explanations of formal sector economic performance

The preceding discussion of the factors affecting labor productivity in the formal sector points strongly in the direction of institutional factors - the training and turnover reduction within internal labor markets, management practices to motivate workers and secure their commitment,

and possibly labor relations practices that affect layoffs and strikes - as important determinants of economic performance. These “invisible” factors do not appear in the national accounting data on labor markets, but they seem to have made a significant contribution to productive efficiency and employment changes in recent years.

(f) Industrial and market structure

A second, and even more subtle, %visible” factor affecting formal sector performance in Jamaica has to do with industrial and market structure. Most studies of the formal sector focus on workplace economic features of that sector - its scale of operation, capital intensity. tendency to pay relatively high wages, and the fact that employment tends to be highly regulated by govern- ments or trade unions. Attention to these details that are common to all formal sector firms has resulted in the neglect of important differences among firms in their economic and employment strategies.

Two sets of differences were noted previously - that wages vary considerably among industries and firms in the formal sector and that there are


wide differences in the quality of human resources management. Equally significant, however, are a set of distinctions relating to the character of market structure and the way in which the production is organized in response to different types of market structure.

Some companies sell standardized products into highly competitive international markets whereas others produce relatively specialized products for market niches that are somewhat sheltered from competition. These differences deserve attention because they help in understanding key questions about the formal sector job generating capacity, productivity, pay, and ability to adapt to structural changes. Moreover, structural differences among formal sector firms may indicate the need for differentiated policy prescriptions.

(i) Specialiiation vs. mass production Because Jamaica is a small country, its eco-

nomy can only support a small number of local firms in many domestic markets. Thus, industries such as food processing and beverages that serve a local market tend to be highly concentrated. Monopolistic competition is further present because many firms also sell differentiated products. In the international market, however, the situation is somewhat different.

Those of Jamaica’s mass production industries, such as apparel and shoes, account for only a minuscule share of production when they sell in world markets. Products are relatively standardized and price competition in world markets is high in such industries. On the other hand, there is a second group of firms (of which metal fabri- cators are a good example) which engage in more specialized production for both domestic and export markets. These specialized firms tend to search for market niches where there are relatively few competitors.

In addition to the degree of competition facing firms, the difference between standardized and specialized production has implications for the type of capital equipment used, the length of production runs, and the type of skill and flexibility required of the labor force. For example, standardized production relies upon mass production methods to achieve high volume of output. Mass production allows skills to be reduced through the division of labor and specialization in relatively narrow tasks. It also favors capital equipment and engineered production lines that are dedicated to producing long runs of a single product trpe. Dedicated equipment and engineered production lines represent fixed costs that demand long production runs to capture scale economies. In Jamaica, such mass production

processes are found in food processing and apparel.

In contrast, specialized or customized production requires highly flexible labor and capital equipment. Typical of such firms are those engaged in metal fabrication for the domestic construction industry or for specialized export markets. The length of production runs for specialized products is typically too short to war- rant the division of labor into simple tasks so that skill needs are higher. Similarly, investments in dedicated equipment and highly-engineered production lines cannot be amortized over short production runs so that general purpose equipment is used that tends to require more skill than “dedicated” equipment.

Moreover, firms engaged in specialized production must often shift from one product to another since the demand for any single product is small and since patterns of demand may be changing rapidly. Responding to such rapidly shifting demand requires further flexibility of labor, capital, and management skills.

(ii) Mass production, specialized production, and competition

Firms that engage in mass production export industries are particularly vulnerable to the adverse consequences of international competition, expecially if they are labor-intensive. The standardized character of the product and the relatively low skill of the mass production labor force, mean that production is highly mobile internationally. Thus, a mass production industry such as apparel, which also has a low capital re- quirement and a very accessible technology, can do little to lower production costs once it has achieved the optimal division of labor. As a result, production is footloose and migrates toward areas with low labor and transport costs.

Firms that serve specialized markets have a different set of problems. They must continually seek out new markets and must have a skilled and adaptable labor force. Once such firms learn how to find market niches, however, they are less subject to the pressures of external competition. In Jamaica, for example, one highly successful metal fabrication company moved quickly from one product to another and was able to maintain employment, pay relatively high wages, and develop export markets.

In Jamaica, these firms are joined by a second set of firms that find niches in mass production markets because they hold an oligopoly position in a protected domestic market. Where unions are strong, as they are in Jamaica, the benefits of protected markets may be shared with labor


through higher wages and greater employment than dictated by efficiency considerations.

(iii) Differences in labor practices and productivity

The mass production exporting firms are con- stantly threatened by competition from similar firms in countries with lower labor costs. They are under heavy market pressure to keep wages low (and often to rely on piece rates to promote productivity and equalize unit labor costs) and to use labor efficiently. They also seem to have the least control over the productivity of their employees. While they have been rationalizing their labor utilization in order to remain competitive in world markets, they have not introduced other productivity-enhancing changes. They tend to be the least advanced in terms of their skills training and to rely most often on publicly-subsidized training. Their human resources management practices are also minimal.

The specialized firms are under less competitive pressure and so may pay higher wages, but they must also train their labor broadly and manage it in a flexible manner in order to compete. The firms that serve oligopolistic local markets or have located product niches in export markets are intensive users of the invisible institutional factors that stimulate labor productivity. They rely almost exclusively on internal training and tend to train workers broadly so that they can be readily transferred among changing production tasks; they are concerned with modernizing human resources management and motivating their workers; and they appear to have a positive, rather than strictly adversarial, approach to their relationships with unions.

(g) Quantitative evidence of institutional influences on productivity

Micro level data to support the interview findings that productivity is improving in formal sector firms, especially those that engage in specialized production, are not available. Nonethe- less, there are some aggregate data that indirectly support this thesis.

For example, one of the puzzles that has arisen in macroeconomic analyses of the Jamaican economy has been a shift in labor output relationships. Overall, productivity, as measured by private sector GDP per capita, has declined since the mid-1970s. At the same time, there has been an increase in labor productivity in manufacturing in the early 1980s that cannot be explained by measurable economic influences.

This shift in productivity has been observed in

two different ways. First, macroeconomic fore- casting models developed by the National Plan- ning Agency began to over-predict employment growth in the early 1980s.2s Second, simple Cobb-Douglas CRS growth accounting models using capital and quality-adjusted labor inputs showed a positive trend in the unexplained “residual” during the same period.29

Taken together, these macroeconomic findings suggest that some “invisible” structural change has been positively affecting the employment- output relationship in the Jamaican economy. The most obvious explanations of such structural change are those suggested by the interviews conducted with employers in the formal sector-the improvements in labor utilization and the new emphasis upon inducing greater labor productivity in the early 1980s.

5. SECTORAL DIFFERENCES IN ADJUSTMENTS TO ECONOMIC CHANGE

There are significant institutional differences between the small-scale enterprise and self- employment sector and formal manufacturing firms that affect the way in which these sectors respond to economic change. In the large-scale manufacturing establishments, occupational pay differentials appeared to be relatively rigid. From interviews, pay appears to reflect the sluggish influences of job content, historical compensation patterns, bargaining power and ability to pay. Competitive forces seemed to be a major con- sideration only for critical bottleneck skills, for those highly transferable skills requiring long training times, and for those jobs in highly competitive industries such as apparel that rely on piece-rate compensation systems.

Since wages in formal manufacturing do not adjust readily to changes in the supply and demand for labor, economic theory suggests that variations in the quantity of labor employed should be the major adjustment mechanism. The relative importance of quantity adjustments is, in fact, supported by the limited data available on employment, hours, and earnings in large manufacturing establishments. Data on quarterly changes in these variables during the late 1970s show that average absolute variations in employment are greater than those in earnings, whereas hours worked show the least variation.

It may be that quantity adjustments are even more significant in Jamaican manufacturing than in United States manufacturing industries, where the combination of wage rigidity and employment variability is thought to be a dominant char- acteristic of the US labor market.30 While both

MARKET STRUCTURE, JOBS. AND PRODUCTIVITY 473

compensation and employment are more vari- able in Jamaica than in the United States, the ratio of employment variability to wage variability is substantially higher in Jamaica. The average percentage fluctuation of weekly earnings in Jamaica was almost 50% higher than in the United States during 1976-79, a period for which comparable data for the two countries are available. However, fluctuations in employment and hours worked are far greater - roughly three times those in the United States (see Table 2).

Similarly, a striking feature from the interviews with formal sector firms was the ability of these firms to accommodate wide swings in employment with little loss of productivity. Firms appear to be able to contract their employment with little overt worker discontent, and experienced workers can be easily recalled during periods of recovery. The interviews suggest that employers have become more willing to exploit this labor flexibility in recent years.

Studies of small-scale firms and self- employment in various countries suggest a ver different set of responses to economic change. x

In contrast to the rigid wages and demand- dominated “hire-fire” employment strategies whereby formal sector firms recruit labor easily during periods of expansion and release it easily during periods of decline, the informal and small- scale enterprise sector is one often characterized by easy entry, employment guarantees, and under-employment.

As described previously, easy entry allows employment in this sector to be driven by changes in supply, as well as in demand. Workers displaced by contractions in the formal sector and increases in labor supply that cannot find their way into formal sector employment often are absorbed in the small-scale sector and by self-employment. Since the relatively low average earnings of the latter jobs are further eroded by the absorption of additional workers, labor is easily released back to the formal sector during periods of expansion. The presence of small-scale and informal sectors in the Jamaican economy has, therefore, helped to stabilize aggregate employment in the face of wide swings in output.

(a) Evidence of laborforce linkages between sectors

While there is no direct evidence on what hap- pens to workers when they are terminated from formal sector employment, contractions in large establishments tend to be associated with the expansion of employment in certain other areas of

the economy. Thus, from the perspective of employment opportunities, the aggregate Jamaican economy can be seen as consisting of two com- plementary sets of jobs: (1) those in both large- and small-scale firms which are fully productive and in which employment changes are largely driven by demand, and (2) buffer jobs located mainly in small-scale establishments, self-employment, and “temporary” public employment in which employment change is also driven largely by supply-side factors.

For example, the period of the 1970s in Jamaica was marked by stagnation and decline in the economy coupled with a rapid growth in population and the labor force. particularly among youth. While unemployment (especially youth unemployment) rose, there were a number of sectors of the economy that helped to absorb the surplus labor in the economy. These buffer sectors included the public sector in the 1974-75 recession, and miscellaneous services, small establishments, and self-employment throughout the decade. This helps to explain why the link between output and employment is relatively weak for the economy as a whole.

While data which distinguishes “buffer” jobs from fully-productive jobs are not available. it is possible to observe some evidence of this process at work through the data on informal sector employment and on self-employment. During 1976- 79, a period for which the data permit some tentative assessments of differences between large (10 or more employees) and small establishments, it appears that the decline in the overall economy was associated with growth in employment in small enterprises and informal work in many parts of the private sector. Within manufacturing, small-scale enterprise and self-employment grew in absolute terms and increased their share of employment from 30% to 50% (see Table 3). The share of such employment rose from 54% to 65% in transportation, and in commercial activities it rose from about 65% to almost 80% of total employment.

Self-employment, the easiest work of all to enter (and in many instances the employment of last resort), also increased in relative importance during the 1970s and early 1980s. This was particularly true for males in sectors such as manufacturing, transportation, and commerce (Table 4). Estimates also suggest that increases in self- employment were outpaced by the growth of small, multiperson firms during this period (Table 5).

These shifts in the structure of employment from formal sector institutional settings to informal institutional settings is consistent with a wide range of aggregate labor market findings. For ex-

Tab

le

2. F

lucr

uari

ons

in e

mpl

oym

enr,

ea

rnin

gs,

und

hour

s of

pro

duct

ion

(%)

for

non-

supe

rvis

ory

wor

kers

in

mun

ufuc

ruri

ng,

l Ju

mui

ca

und

the

Uni

red

Slur

es,

1976

-79

Ave

rag

e C

oef

fici

ent

1976

19

77

1978

19

79

abso

lute

o

f va

riat

ion

JU

fl

Sep

D

ee

Mar

Ju

n

Sep

D

ee

Mar

Ju

n

Sep

D

ee

Mar

Ju

n

Sep

D

ee

chan

get

(S

i:lx

)

Em

plo

ymen

t

Jam

aica

-6

.3

-9.4

2.

5 1.

4 -4

.9

-2.1

-2

.4

0.02

1.

X

-11.

2 -1

.8

-7.6

3.

2 9.

0 6.

6 4.

7 -4

.1

Un

ited

S

tate

s 2.

7 1.

9 -2

.2

0.2

3.6

1.0

-0.5

0.

10

2.9

0.9

0.3

0.4

1.6

0.4

-1.9

1.

4 2.

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Wee

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89

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n

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”


Table 3. Percent of employment in small-scale and Table 5. Self-employment as a percent of informalsector self-employment by industry, 197679’ employment by industry,’ 197679

Industry group 1976 1977 1978 1979 1976 1977 1978 1979

Mining Manufacture Transport,

25.1 22.4 t 19.4 33.1 38.4 46.3 50.8

Manufacture Construction Transport,

30.7 21.5 27.0 23.1 18.4 9.4 12.0 19.6

communications, public utilities -

Construction & 53.8 60.6 65.3

installation Commerce Other services

70.1 76.9 80.8 78.3 - 64.3 68.1 79.4

communications, public utilities n.a. 43.4 33.1 26.6

Commerce n.a. 53.7 51.0 44.7 Other services n.a. 11.4 12.1 10.8 Total - 42.7 39.3 36.3

(excluding govt.) - Total (excl. agric. &

75.7 74.2 81.3

public admin.) - 61.1 64.1 72.3

*Informal sector employment calculated as a residual between the number of workers employed in large establishments with 10 or more employees and the total number employed in each sector. tunreported because of statistical error.

Source: Employment, Earnings, and Hours in Large Establishments, Table 1.1, and The Labour Force. Table 3.6 (Kingston: Department of Statistics. Government of Jamaica), various annual issues. *Not including mining, agriculture, or public administration. Informal sector employment calculated as a residual between the number of workers employed in large enterprises and the total employed in each sector.

Sources: Employment, Earnings and Hours in Large Establishments, Table 1.1. and The Labour Force, Table 3.5 (Kingston: Department of Statistics, Government of Jamaica), various annual issues.

reflected growing private sector demand, much of it probably represented marginal employment and increasing underemployment.

ample, it helps to explain why employment could continue to grow in Jamaica during the late 1970s and early 1980s while output was falling. It may also explain why real earnings and productivity should be declining faster than output during the same period. It is, therefore, reasonable to infer that, while some of the growth in employment (such as in small manufacturing firms) may have

(b) Differential effects of buffer jobs

The chronic high unemployment in Jamaica suggests that buffer jobs are not available to, or sought by, all workers. Moreover, exposure to job loss and access to buffer employment is not distributed evenly among various groups in the

Table 4. Self-employment as a percent of employment by industry, selected years

Industry Sex 1943 1960 1973 1977 1982

Agriculture, forestry, Males fishing and mining Females

Manufacturing Males Females

Construction Males and installation Females

Transport, storage, Males and communications Females

Commerce Males Females

Public administration Males Females

Other Services Males Females

Total Males Females

46.4 53.4 74.0 75.6 79.5 29.7 41.1 73.9 50.1 59.6 43.3 29.7 13.0 11.2 21.2 74.3 57.1 19.3 12.2 14.6 18.5 11.4 5.2 7.5 13.4 - 9.9 7.7 - 14.3 - 12.7 11.0 26.4 24.9 - 1.0 - - 1.3

56.3 42.8 30.6 35.4 43.2 81.1 60.0 62.3 62.4 64.6 - - - 0.5 0.8 - - - 0.2 0.2 - 7.6 20.1 27.2 24.8 - 4.5 15.2 15.9 17.5

36.8 36.9 38.6 42.0 46.8 30.4 29.6 33.1 30.4 33.3

source: Vermeulen and Doeringer (1986). Table A-28.


labor force. For example, there are marked differences by age and sex in the way workers are displaced and reabsorbed. For the economy as a whole, the brunt of employment instability is concentrated among younger workers. particularly teenagers.” Each older age cohort has somewhat greater employment stability than the one before it until age 55 when instability begins to increase again.

Male and female workers also fared somewhat differently during the downturn in the economy in the mid 1970s. In general, females began to experience somewhat more instability in their employment than males. This was more apparent in the employment rates, than in the unemployment rates, of males and females since females were somewhat more likely to leave the labor force.

Since females are concentrated in certain sectors such as services, commerce, and public administration that are often buffers to reces- sions (and since females are underrepresented in sectors such as agriculture, mining, manufacturing, and construction that are sensitive to exo- genous influences), their employment would be expected to show a different cyclical pattern from that of males. Females, however, were displaced from manufacturing at a somewhat higher rate than males and slightly increased their repre- sentation in agriculture during the 1970s. It was the public sector, however, where female employment showed the greatest gain, particularly during the early part of the decade.

In contrast, males generally moved more rapidly into various kinds of self-employment than did females. In 1972, roughly equivalent proportions of males (38.3%) and females (33.3%) were self-employed. By 1982, almost half of all male workers were self-employed while the proportion of self-employed females remained constant. Growth in male self- employment was particularly rapid in the transportation and service sectors.

These shifts in the employment situation of various groups in the Jamaican labor force por- tray a partial, but consistent, picture of the pattern of gains and losses in the Jamaican economy. For example, shifts from “demand-dominated” jobs to “supply-driven” buffer jobs suggest an economy with a deteriorating mix between better and worse jobs. The employment situation of young workers also deteriorated relative to older workers as the economy declined and the youth labor force cohorts expanded rapidly during the 1970s.

Less certain, however, are the consequences of changes in the economy that have affected males and females differently. In the mid 1970s the employment situation for females relative to

males deteriorated. particularly in manufacturing where females lost jobs at a higher rate than males. The only significant offset to these adverse trends was public employment, where females gained in their share of jobs. Unfortun- ately, available data on income by sex is too im- precise to determine the net effect of these trends.

6. POLICY CONSIDERATIONS

Discussions of labor market policy in Jamaica have focused on three areas: (1) skill bottlenecks and labor force training; (2) labor productivity; and (3) labor-management relations. Failure to improve performance in each of these areas has been thought to inhibit job creation, stifle economic growth, and worsen poverty and inequality. Solutions to these problems typically concentrate on skill deficiencies in the formal sector, and on the reduction of union power. For- mal sector skill bottlenecks are to be addressed by expanding the vocational training capability of the education system; inadequate labor productivity is seen as being rooted primarily in low skill; and union power is to be lessened through invigorated labor market competition.

Close analysis of labor market processes in Jamaica, however, leads to a significantly different analysis of Jamaica’s labor market problems. While a number of important questions still remain to be answered, the findings suggest that various modifications in current policy approaches may be appropriate.

(a) Skill bottlenecks

The formal sector has developed a variety of effective strategies for meeting major changes in the level and skill composition of its labor force. There seem to be no insurmountable skill bottlenecks as the companies interviewed seemed well equipped to handle skill development in response to a variety of fairly substantial changes resulting from growth, new technology, and the introduction of new products.

The internal training capability of these large enterprises is strong. When it is necessary to go outside the firm for skills, however, formal sector companies have developed partnerships with in- dividual vocational schools to provide specialized training tailored to the company’s particular needs. Where training facilities are unavailable within Jamaica, such as when specialized machinery is brought on line requiring a small number of newly-skilled workers, companies have


found suitable programs in the United States and Canada to which they have sent key employees.

Jamaican employers do turn to the international labor market on those rare occasions when internal recruitment and training, or ven- dor training, cannot provide a particular set of highly specialized skills. Such foreign recruitment typically involves technical, professional and managerial occupations for which demand cannot yet be met quickly enough within the Jamaican labor market and its education and training system.

A further skilled labor reserve is also being tapped through a reverse “brain-drain,” the re- patriation of skilled and educated workers who have emigrated to work abroad. If income- earning opportunities at home improve, this pool of already-qualified individuals represents an important source of skilled labor which requires no additional educational investments.

(b) Labor productivity

Labor productivity has improved substantially in recent years in Jamaica’s formal sector. This improvement occurred without major changes in either skill levels or technology. Interviews with business executives suggest that much of this improvement can be traced to changes in management practices with respect to the organization of production and the utilization of labor. In addition, there have been improvements in the quality of human resource management, in the interpersonal and organizational skills and attitudes of supervisors, and in the financial and non-monetary incentives provided at the workplace. The extent to which productivity improvements also reflect workers’ reactions to the weakened economic situation, however, could not be determined.

Although productivity does not appear currently to be a serious issue within the formal sector, it is a very real problem elsewhere in the economy. The shake-out in formal sector employment that occurred during the recent re- cessions, coupled with a growth in the youth labor force, has forced an expansion of employment in the informal sector without a corres- ponding growth in output or productive jobs. Thus, output and earnings per worker inevitably declined, and underemployment has presumably accelerated in the informal sector. Aggregate statistics which report employment and output for the entire economy, therefore, conceal the divergent trends in productivity and earnings between the formal and informal sectors.

Yet, as in the formal sector, problems of low

productivity cannot be solved through policy strategies that rely exclusively on education and training. Surveys of the informal and small-scale enterprises suggest that the problems of inadequate demand, shortages of intermediate inputs, and capital availability are also serious threats to small enterprise performance.

Many small businesses survive, in spite of these problems, on the basis of long hours of work, un- paid family labor, and flexibility and ingenuity in small enterprise management. The challenge for policymakers is to find ways of exploiting these generic strengths of the informal sector by help- ing them to identify and move into new markets for products that require flexibility, ingenuity, and low labor costs.

(c) Other changes in employability

The benefits and costs of economic change are not being spread evenly through the labor market. There appears to be a general shift in employment practices that has favored prime-age adults (25-54), especially females. These workers not only experience employment gains relative to young workers, they also showed improvement relative to older males and young adult females. The employment rates of adult female workers (25-54) have risen relative to those of adult males, but this has been accompanied by sharp increases in their labor force participation rate. As a result, unemployment rates among adult women are more than three times as high as among men in the same age group.

Similarly, wage differentials continue to be substantial by sector, and workers in some sectors are far more vulnerable to layoffs and real earnings declines than in other sectors during periods of recession. Even where employment rates have been improving, much of the growth has occurred in sectors of the economy, such as services and self-employment, where low earnings and underemployment are a persistent problem.

This unevenness in the incidence of change in jobs and earnings indicates the presence of a broad range of structural problems affecting the employability of various demographic groups. Solving problems of growth and productivity are not likely to correct these inequalities, absent programs targeted at improving employment opportunities for particularly disadvantaged groups.

(d) Labor-management relations

The stridency of union-management relations


is often cited as a cause for concern in the labor market. Historically, there has been a long tradi- tion of animosity and distrust between employers and-workers in Jamaica. Unions are blamed for inflationary pressures in the economy, for dis- rupted production, and for inflexibility and op- position to productivity enhancements at the workplace. Management is termed old-fashioned and insensitive to the working conditions and welfare of their employees.

In spite of these perceptions, aggregate measures of strike activity do not indicate that Jamaica is unusually strike prone, particularly for a country with a relatively large unionized sector. This apparent paradox may stem from the fact that strikes are only one manifestation of a troubled industrial relations climate. An adversarial relationship between workers and managers can have an adverse impact on productivity even without actual strikes.

It may also be that the degree of unpredictabil- ity in labor-management relations creates a sense that the conduct of business in Jamaica is especially difficult. Inter-union rivalries and the weakness of the governmental industrial relations machinery contribute to conditions of un- certainty. They create a volatile atmosphere in which unexpected work stoppages may occur for non-economic reasons. Where relations are poor to begin with, minor altercations can trigger major disputes.

For policymakers intent on encouraging private investment and accelerating the process of job creation, the industrial relations system in Jamaica has advantages as well as disadvantages. Although the highly political nature of the trade union movement in Jamaica encourages both businesses and politicians to settle disputes in a politically expeditious manner which may not always be conducive to economic growth, a well organized work force can also be a great asset for economic development. The close relationship between the government and the unions, combined with both high levels of union organization and the presence of a tightly- knit business community in the formal sector, provide an institutional vehicle which can be used to link economic policy with industrial relations policy.

This potential for harmonizing growth and industrial relations policies is an important key to making private investment more attractive, and thus could be vital for accelerating employment growth in the future. At present, however, the country lacks any strong and effective labor relations agency that could provide leadership in this area.

(e) Specialization, mass production, and development strategies

As the discussion on product market structure, competitiveness, and productivity suggests, there is also an important set of labor market policies which involve industrial structure and the demand side of the labor market. In particular, there are questions of development strategy involving the choice of product lines and the modes of production that need to be explored.

Building an economy around standardized mass production industries has its advantages. Other things being equal, products that are standardized and technologies that are relatively established require less managerial and technical know-how than those that are specialized. Be- cause production occurs on, a relatively large scale, it is also possible to economize on various kinds of managerial, marketing and distribution inputs. In addition, production labor need not be skilled.

When standardized product markets are relatively free of competition, as is the case where domestic markets are small and protected by trade or transportation cost barriers, jobs in these mass production firms can pay well and be relatively secure. If, however, these protections are not available, competitiveness depends largely on wage costs and industry can be relatively footloose.

Compared to mass production, specialized industry is more difficult to manage in that it de- mands skills in product development. marketing, and human resources development. On the other hand, specialized industry can yield higher earnings and more value added per unit of labor than mass production industry of equivalent capital intensity. Because specialized industry depends upon a skilled labor force, it is also less readily undercut by low wage competition from other countries. These factors can help make markets and jobs secure without recourse to protection.

The experience with the firms interviewed in Jamaica supports this analysis. Export-oriented, mass production firms tended to experience wide fluctuations in demand and to be exceedingly sensitive to labor costs and foreign exchange shifts. Their success depended largely upon keep- ing their wages as low as possible, working their labor as hard as possible, and hoping that their proximity to the American market would insulate them from competition from other countries with lower wages. Only those mass production firms in protected domestic markets were able to provide relatively secure and well-paying jobs.

In contrast, employment in specialized firms had a number of positive features. Wages were

. MARKET STRUCTURE, JOBS. AND PRODUflIVITY 479

relatively high, job security depended more upon managerial initiatives than upon wages and exchange rates, and modem human relations practices were followed.

This suggests the importance of an industrial- ization strategy that is tailored to market structure and wage levels, rather than directed at increasing jobs and output alone. For those domestic markets where there are technical barriers to entry, mass production industry can be a useful vehicle for growth. Similarly, where there is a skilled labor force, or the capacity to train a skilled labor force, specialized export-oriented industries can provide a long-term foundation for growth. For all but the lowest wage countries, however, mass production industry is likely to be a source of jobs only in the medium term and these jobs are likely to be particularly vulnerable to competition in the international economy.

(f) Policies to support specialized production

Most of the traditional policies to encourage industrial development through subsidies and protection apply with equal force to both mass production and specialized industries. In addition, however, specialized industries can be strengthened by a number of policies targeted at the needs of specialized production.33

The presence of formal sector firms of relatively modest scale, of the kind prevalent in Jamaica, and the absence of bureaucratic management structures that characterize large-scale firms are a definite asset to a strategy of specialized production. Specialized production, however, also requires skilled and flexible labor of the kind not always available historically in Jamaica.

If, however, Jamaica can exploit its advantages of non-bureaucratic firms and can continue to improve upon its capacity to develop skilled and flexible labor, it should become an increasingly attractive place to do business for firms with specialized product lines. Targeting industrial recruitment activities at firms that already operate in specialized markets in industrialized countries and that are relatively labor intensive, rather than on standardized apparel and shoe production, is likely to have a longer-term payoff because specialized firms would be capitalizing on the generic strengths of the Jamaican economy. Likely areas include machining and metal fabrication, woodworking, and even mass production industries that involve relatively short production runs.

(i) Promoting innovation Product specialization can also be promoted

through the fostering of product innovations. In- novation opens new markets and new markets, by definition, initially involve small-scale and specialized production. Small and medium-sized firms in a developing country such as Jamaica, however, are at an inherent disadvantage in the research and development (R & D) area because of the large fixed capital and labor costs that are often involved in establishing laboratory facilities. The field interviews confirmed that there is little capacity in Jamaica for the types of scientific research and development that characterize industrialized countries.

Nonetheless, specialized firms in Jamaica can and do engage in very applied kinds of product development involving technical and craft skills. Thus, it may be possible to attract the types of industries where such applied innovation is possible. Moreover, it may be possible to establish industry-wide R & D capabilities to assist smaller firms in industries such as metalworking that have already achieved some specialization.

(ii) Labor market implications of specialization In Jamaica, there are signs that the labor mar-

ket is beginning to generate a pool of skilled and flexible labor of the kind needed to support strategies of specialization in a wide range of industries. This has been accomplished by a structuring of the formal sector labor market into internal labor markets that provide skills training. Such training, however, may be more narrow than is needed for specialized production because wide fluctuations in employment at the establishment level inhibit broad training investments. Industrial development efforts should seek to strengthen and improve upon these informal training activities by encouraging improvements in general education, by promoting training in broad craft and technical skills, and by stabilizing demand.

Pursuing such a strategy will create new, long- term responsibilities for the formal school system. Traditionally, the schools were not expected to play a major role in maintaining the skill base of the economy because skill development was satisfactorily conducted through on-the-job training. Few companies have relied on local schools for skill training and much formal technical training has been provided by equipment vendors or by schools outside the country.

If, however, there is growth in employment in specialized firms, the demand for transferable vocational skills is likely to grow and employers may find that competition for such labor discour- ages on-the-job training. An increase in the

-1so WORLD DEVELOPMENT

demand for skilled labor, combined with the prevalence of small and medium-sized firms and a generally volatile employment climate, suggest that one important way to strengthen the connec- tion between formal education and the shop floor would be to promote apprenticeship training.

The essence of apprenticeship is that it pre- pares workers with broad skills that allow them to produce a wide variety of products, sometimes in different firms and often in a customized production setting. By training broadly, workers become more flexible and can be productive without passing through a long period of learning by doing. Because apprenticeship training has an on-the-job component, training content is kept up-to-date by regular contact with employers. The resulting skills of the journeyman are the very kinds required by an economy engaged in specialized and customized production. Apprenticeship training is also well-suited to small and medium-sized firms that cannot other- wise afford broad training and to situations where wide fluctuations in employment levels deter investments in broad training.

(g) An integrated labor market and industrial strategy

There is little disagreement concerning the problems that need to be addressed by policymakers in Jamaica. Job creation is critical as additions to the labor force are outstripping employment growth. At the same time, increased productivity is needed, both to keep Jamaica’s exports competitive on world markets, and to make possible increases in real incomes.

The findings of this study differ from those upon which much of current policy is based, in that relatively greater importance is placed upon an understanding of institutional relationships in the labor market. The historical character of the Jamaican economy, the contemporary social and political relationships which constrain economic

decisions, the role of trade unions and employer associations, and differing product market and technological strategies of firms, must be taken into account along with more traditional economic variables. These institutional forces have shaped both the current structure of the economy, and many of the perceptions concerning policy options which are open to decisionmakers. They often are key determinants of success and failure in the implementation of new policies.

Concerns over the accumulated effects of the loss of skilled labor through emigration, and a desire to increase the productivity and employability of the Jamaican work force, have led to an emphasis on expanding programs for vocational education and on-the-job training as the key tools of labor market policy. This study suggests, however, that the current strategy for training is unlikely to achieve its objectives because it does not sufficiently address the realities of the informal training process, the need for structural improvements in the economy, and the importance of management practices and strategies as sources of productivity improvement.

Effective labor market policy requires that account be taken of the variations in workplace employment practices in different sectors of the economy. Hiring procedures, patterns of job access, skill requirements of employers, training strategies, job stability, wage structures, wage determination procedures, working conditions, and fringe benefits all differ fundamentally in various parts of the economy. Programs and incentives need to be tailored to fit these specific and distinct sets of employment practices.

Moreover, labor market policy must be guided by industrial policy. Skill needs depend critically on the type of product, technological mix, and the size of enterprise. A decision to build economic growth around strategies or specialized production, for example, requires a labor force with broader and more transferable skills than one that focuses on mass production. The dictum that jobs, industry. and training must be governed by a consistent set of policies is too often ignored.

NOTES

1. See, for example, Portes and Sassen-Koob (1987); 5. Part of the reason for high reported unemploy- Hansen and Radwan (1982); and Jagganathan (1983). ment is the inclusion of “non-seekers” in the labor

force. Nonetheless, open unemployment has been per- 2. See Portes and Sassen-Koob (1987); Beneria sistently high. See guttari (n.b.):

(1987); Birkbeck (1979); and Bromley (1978). pp. 1161-1171. 6. Ibid. See also Vermeulen and Doeringer (1986);

Klinov (1987); Center For Development Technology 3. See Hart (1986). (1985); World Bank (1982).

4. See Vermeulen and Doeringer (1986). 7. I am grateful to Paul Streeten for bringing to my


attention an earlier paper by Joan Robinson describing 21. Ibid.. p. 45. this process whereby a contraction in high wage employment translates into an increase in employment of 22. Ibid., Chap. 1 and pp. 111-113 and 121. -last resort.” See Robinson (1937). pp. 82-101.

23. Ibid., pp. 45 and 140. 8. See Davies, Fisseha and Kirton (1979). pp. 9-15.

See also Fisseha and Davies (1981); and PREALC 24. Ibid., pp. 112-118 and 126133. (1976).

9. Davies er al. (1979). pp. 15, 7681. 25. See Klinov (1987) and Center for Development Technology (1985).

10. See, for example, Davies er al. (1979), p. 14 and the case studies in PREALC (1976).

11. See Dreher (1982).

12. See Dey, Papanek and Wheeler (May 1985).

13. Dreher (1982).

14. The first of these surveys was conducted in 1974 for Guy Standing’s work on female labor force participation and unemployment. See Standing (1981). especially Chap 5, pp. 110-149. The second, conducted by Carl Stone, is reported in Stone (1982).

15. Standing (1981) pp. 129-130.

16. Ibid., p. 132.

26. See Stone (1982a), pp. 10-11.

27. See Stone (1982a). pp. 19-20.

28. Using fued coefficient relationships between output and employment, adjusted for long-term trends in unit labor output.

29. See Klinov (1987).

E7 7y4e Hall (1980). pp, 91-124; and Hall (1982). pp.

31. See, for example, Bromley (1978) and Jagga- nathan (1983).

32. See Vermeulen and Doeringer (1986). Tables A28-A31,

17. Ibid., p. 112.

18. Ibid., pp. 126 and 129.

19. Ibid., pp. 112, 129, and 130.

33. For a further discussion of product specialization see Piore and Sabel (1984). For an analysis of specialization in the context of underdevelopment see Doeringer, Terkla. and Topakian (1987).

20. Ibid.. p. 16.

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come determination model for labor abundant countries: Empirical evidence,” Mimeo (Boston: Boston University, Center for Asian Development Studies, May 1985).

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Market structure, jobs, and productivity: Observations from Jamaica

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