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Suriname: 2013 Article IV Consultation

Author(s):
International Monetary Fund. Western Hemisphere Dept.
Published Date:
December 2013
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THE LABOR MARKET IN SURINAME1

This note describes the features of the labor market and provides preliminary analysis of its role in allocating employment and sustaining economic growth, based on available limited data.

A. Characteristics of the Labor Market

1. Suriname has a small and relatively young population. The population was estimated at 539,910 persons as of 2011.2 Of these, the working age (15-64) population was estimated at 353,750 persons, making up 66 percent of the population. The population is relatively young, with an old age dependency ratio of 9.82 percent in 2011. However, there are incipient signs of aging, as the old age dependency ratio has crept up from 9.48 percent in 2007.

Estimated midyear population by age, 2007-2011
Population by age group20072008200920102011
A. Young (0-14)150,106150,651151,088151,410151,420
B. Working age (15-64)328,653334,465340,291346,110353,750
C. Aged population (65+)31,15731,93632,76433,65034,740
Old age dependency ratio( C/B)9.489.549.639.729.82
Total509,970517,052524,143531,170539,910
Source: Bureau of Statistics, Suriname
Source: Bureau of Statistics, Suriname

2. Official data indicate relatively low labor participation. The labor participation rate declined from 58 percent in 1990 to 50.1 in 1993 and gradually recovered to 55 percent in 2011, the lowest in the Caribbean region. Female participation lags that of males as females comprise 36 percent of the labor force. The data may however understate the true level of participation, as a survey in 2008 indicated that Suriname has large informal employment estimated at about 53 percent of formal employment.

3. Primary educational attainment is close to regional norms. The available information on primary education completion rate in the selected countries shows that Suriname has close to average primary education quality. The 2004 Census in Suriname (the latest available information), indicated that among the economically active population,3 28 percent had competed only primary education, 41 percent had completed secondary school, 18 percent had completed high school, and 7 percent completed college/university education.

Labor Participation Rate

Source: International Labor Organization.

The total active population by age and highest degree program

Source: General Bureau of Statistics, Census 2004

Labor Market Indicators in Selected Caribbean Countries

Source: World Bank 2011 data

Note: * 2010 data; **2008 data ***2006 data

4. A large share of employment is in the public sector. According to data from the Bureau of Statistics, the government is the largest employer, providing around 41,000 jobs (42 percent of total formal employment) in 2010. The share of government in formal employment has been stable since 2007. The second largest sector is the trade, hotels and restaurants sector, which has been growing strongly, stimulated by buoyant commodity export prices, and accounted for 19.4 percent of total employment in 2010 compared with 17.2 percent in 2007. Agriculture sector ranks third in employment, with a stable share of 12 percent. The construction and industry sectors are also significant employers.

Sectoral Employment, 2010

Source: Suriname General Bureau of Statistics.

5. The official unemployment rate is on the high side, and has only declined gradually despite strong GDP growth. The reported unemployment rate dropped gradually from the peak of 12 percent in 2006 to 8 percent in 2011. Using a “relaxed” definition,4 unemployment has hovered around 13 percent between 2004 and 2011. Employment-Output elasticity analysis based on Okun’s law also indicates low employment elasticity in Suriname at about 0.3, at the low end for countries in the region.5

Unemployment and GDP Growth

Source: Suriname General Bureau of Statistics.

6. There is reportedly a strong preference for government jobs because of access to health and pension benefits and greater employment protection. With the exception of some large companies, employees in private sector do not have employer-provided health insurance and pension schemes, while government employees have both benefits. However, unemployed persons are eligible to apply for medical care support and financial support from the ministry of social affairs and housing. This creates an incentive for job seekers to turn down private sector jobs, claim unemployment and health care benefits from the government, and engage in informal employment while waiting for a position in the government to open up, which in turn increases official unemployment data. Close knit family support networks, including from the large Surinamese population living in the Netherlands, reportedly make this option a relatively viable one for a substantial segment of the population. Clearly, this incentive structure impedes the flexibility of the labor market, notwithstanding the existence of the Labor Exchange Bureau under the ministry of labor which provides job seekers and employers (including government) with relevant services to help match job seekers to vacancies.

7. At the same time, nominal labor costs (wages and other benefits) have increased sharply over 2007-11. The increase was led by the manufacturing, mining, and government sectors. The nominal labor cost in the manufacturing sector more than doubled in this period of time, while that of mining sector increased by 72 percent and followed by government sector, 64 percent. The increase of nominal labor cost in these sectors may reflect the impact of booming commodity (gold and oil) export prices on mining and manufacturing sector profitability as well as on mineral-related fiscal revenues. Skills shortages are also reported to be substantial in the technical fields, potentially increasing wage pressures in those areas.

Nominal Gross Labor Cost Development

(per sector 2007-2011)

Citation: 2013, 341; 10.5089/9781475562354.002.A003

Source: Suriname General Bureau of Statistics.

8. Wage bargaining in the private sector is generally firm-based, but influenced by outcomes of the large employers. Most bargaining is firm-based with the exception of 6 federalized trade unions in the mining sector and one central trade union for government employees. Collective agreements on conditions of employment often cover more than one year, but wage bargaining is typically done on an annual basis, and union demands are typically based on inflation/cost of living, company performance, and the agreements struck by key large companies and government. Thus, given the dominant share of government employment, wage increases granted by government can have a significant effect on wage negotiations in the private sector.

9. Employment protection is stringent. According to the 2012–2013 World Competitiveness Report, Suriname is ranked 137 out of 144 countries in hiring and firing practices. Practically all firing decisions require employers to seek some kind of permission from regulators, and pursuant to the Dismissal Permits Act, it is impossible for the employer to give notice to terminate an employee without a valid reason. For example, for immediate dismissal due to employee misbehavior, an employer should notify the Head of the Labor Inspection under the ministry of labor within 4 days after the act. After receiving notice, the Head of the Labor Inspection will decide whether the dismissal was valid within 14 days. If the Head of Labor Inspection disagrees with the dismissal, it will be invalid and the employee would be made whole for any salary lost due to the dismissal. If an employer wants to terminate an employment contract due to other reasons such as restructuring or economical reasons, the employer should first apply for dismissal permit from the Dismissal Board in the ministry of labor, technological development and environment. Within 30 days, the Dismissal Board will notify the employer whether the permission is granted or not. In case of economical reasons, the employer is required to produce a report explaining the fragile financial position of the company, the selection procedure and the way consultations were conducted on the position of the company and solutions to prevent dismissal. Depending on the employment duration, the fired person could have up to 6-months severance payment after dismissal. For government employees, dismissal is even more difficult so that in practice, government employees are typically only suspended and continue to receive their salaries (and raises) and benefits.

Labor market efficiency indicators
IndicatorsValueRank/144 countries
Cooperation in labor-employer relations4.192
Flexibility of wage determination5.076
Hiring and firing practices2.8137
Redundancy costs, weeks of salary*931
Pay and productivity3.2123
Reliance on professional management4.269
Brain drain3.564
Women in labor force, ratio to men*0.60115
Source: World Competitiveness Report 2012-2013Note: Values are on a 1-to-7 scale unless otherwise annotated with an asterisk (*).
Source: World Competitiveness Report 2012-2013Note: Values are on a 1-to-7 scale unless otherwise annotated with an asterisk (*).

B. Policy Recommendations

10. The authorities’ plans to establish a national health care and pension system will achieve laudable social objectives and could also substantially improve labor mobility. In addition to improving health outcomes and old age security, a universal system that equalizes access to social benefits between the private and public sector, between large and small companies, and between the formal and informal sector, would substantially reduce current impediments to job-switching, thus enhancing the flexibility and allocative efficiency of the labor market. The new system, to be implemented by early 2014, should also improve the accuracy of labor market statistics, as incentives to falsely report unemployment in order to secure social welfare benefits would be eliminated. The informal sector is also likely to be sharply reduced.

11. Relaxing employment protection could also boost job creation and the development of the private sector, helping to sustain robust growth over the long run. The current stringent policies likely discourage job creation, as employers are likely to be cautious about hiring employees that cannot be easily let go in bad economic times. Moreover, strong employment protection may encourage unions to demand substantial wage increases that are not necessarily consistent with productivity growth or the long run profitability of companies, ultimately undermining the competitiveness of the economy. For the government sector, relaxing employment protection could improve accountability and efficiency, encourage increased mobility from government to the private sector, and reduce the size of the public sector wage bill.

12. Plans to implement a minimum wage should be approached with caution as they could hinder job creation at the low wage end of the market. During the Article IV mission in 2013, staff was informed that as one pillar of social security system reform, tripartite meetings were held between government, employer representatives and trade union representatives to discuss the establishment of a minimum wage in Suriname. The minimum wage will be in the range of SRD 3 per hour to SRD 5 (equivalent to the current salary of a cleaning job in the public sector) per hour. To the extent that there are substantial portions of economic activity currently being remunerated at less than the envisaged minimum, instituting the minimum wage could hurt job creation at the lower end of the wage scale or drive such activities into the informal sector, which would be detrimental to the very people the law is designed to help. It would be advisable to gather more data about wage developments in a broad cross section of society to inform the decision on the appropriate minimum wage.

13. Improving the business environment will help diversify economy from relying on natural resources and create more job opportunities. Suriname is ranked 114 out of 144 countries in global competitive index, indicating significant potential to improve business environment, including labor market efficiency.

14. Enhancing labor market data quality and frequency will help policy makers to better understand its development and provide needed information for good policy. One important constraint for analysis is the lack of high frequency and timely labor market data. Data available to staff only comprise the Estimates Midyear Population by Age Group and Sex, period 2007-2011, projected population by gender for 2013 to 2024, annual unemployment rate from 1998 to 2011, and data on sectoral employment and nominal gross labor cost from 2007 to 2010 complied by the Bureau of Statistics. The latest census was done in 2004.

Prepared by Qiaoe Chen.

There are also around 300,000 Surinamese living in the Netherlands.

Economically active population comprises persons aged over 15 who were either employed or unemployed during the referring period.

In the relaxed definition, the unemployment rate is measured as the proportion of unemployed and discouraged workers in the total of employed, unemployed and discouraged workers.

According to the IMF working paper on Labor Market Issues in the Caribbean: Scope to Mobilize Employment Growth(forthcoming), the employment elasticity in selected Caribbean countries are between 0.16–1.64.

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