Trinidad and Tobago: Economic Developments and Selected Background Issues

This paper examines economic developments in Trinidad and Tobago during 1990–94. Economic activity in 1992–93 was severely affected by a fall in output in the oil/gas sector, a sharp drop in the average oil export price, and persisting weakness in the nonpetroleum sector. As a result, real GDP declined further by a cumulative 3½ percent in the two-year period, and unemployment rose to more than 20 percent. Real domestic expenditure fell by 3½ percent a year, with declines in both consumption and investment.

Abstract

This paper examines economic developments in Trinidad and Tobago during 1990–94. Economic activity in 1992–93 was severely affected by a fall in output in the oil/gas sector, a sharp drop in the average oil export price, and persisting weakness in the nonpetroleum sector. As a result, real GDP declined further by a cumulative 3½ percent in the two-year period, and unemployment rose to more than 20 percent. Real domestic expenditure fell by 3½ percent a year, with declines in both consumption and investment.

V. Recent Developments and Policies in the Labor Market

1. Labor force and unemployment

Household surveys indicate that the labor force represented about 40 percent of the population in 1993 (Table 7). 1/ The employed constituted over 80 percent of the labor force. During 1981-93 the labor force grew by 17 percent, and the number of employed grew by less than 5 percent. The number of females in the labor force rose from 31 1/2 percent in 1981 to 37 percent in 1993.

Table 7.

Trinidad and Tobago: Labor Force and Employment

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Source: Central Statistical Office.

Reflecting changes in the structure of the economy during 1981-93, the share of the employment in the services sector increased by more than 10 1/2 percentage points to some 62 percent in 1993. The share of those employed in the distribution and hotel services rose from 14 percent in 1981 to 17 percent in 1993, and those employed in the finance, insurance, and real estate sectors increased from 2 1/2 percent in 1981 to about 7 1/2 percent in 1993. In other services (professional services, domestic services and the self-employed), the share of the employment rose by 3 percentage points over this period to 20 percent in 1993. In contrast, the share of employment in the construction sector fell from 18 percent in 1981 to less than 11 percent in 1993, whereas the combined share of the employed in the agriculture, manufacturing, and petroleum sectors declined by more than 3 percentage points to 25 percent in 1993.

Unemployment rose markedly from 10 percent of the labor force in 1981 to almost 20 percent in 1993, reaching a peak of 22 percent in 1989. Similarly, the unemployment rate of those actively seeking employment rose from 6 percent in 1981 to nearly 14 percent in 1993; accordingly, those not actively searching for employment represented 30 percent of the total unemployed in 1993 (Table 8). Unemployment affected to a greater extent females, individuals in the younger age groups, and persons in mainly unskilled occupations. In 1993, about 23 percent of the females in the labor force were unemployed, and only 17 1/2 percent of the males were unemployed. However, because males made up a larger proportion of the labor force, they accounted for somewhat more than 55 percent of all the unemployed.

Table 8.

Trinidad and Tobago: Unemployed Persons Who Did Not Look for Work During the Survey Week by Reasons

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Source: Central Statistical Office.

Persons in the age groups from 15 to 34 years accounted for 70 percent of the unemployed in 1993; when the age group 34-39 years is added, this ratio increases to some 80 percent. In contrast, persons in the age group 40-49 years represented about 12 percent of the unemployed, those in the age group 50-59 years accounted for some 5 1/2 percent of the unemployed, and few persons of 60 years or older were unemployed. Within the age groups of 15 to 39 years, unemployment did not differ much across gender lines in 1993. Males between the ages of 15 and 39 years represented about 80 percent of the unemployed males while females in the same age group accounted for some 82 percent of the unemployed females.

The unemployed held diverse but mainly unskilled occupations before losing their jobs. In 1993, over 45 percent of the unemployed held previously positions that were classified as elementary occupations, some 17 percent had crafts or related jobs, and close to 14 1/2 percent held service positions (Table 9). Prior to losing their jobs, about 10 percent of the unemployed had been clerks, somewhat more than 5 percent were plant and machine operators, and nearly 4 percent had been technicians. Among the unemployed, few were professionals, senior public officials or managers. When classified by age groups, the occupational groups of the unemployed reflected the same pattern as for the combined age groups.

Table 9.

Trinidad and Tobago: Total Unemployment by Age Group and Occupational Group

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Source: Central Statistical Office.

Unemployment in Trinidad and Tobago was highly concentrated in certain regions in 1993. Four regions (out of the total of 11 regions in the household surveys) accounted for close to 80 percent of the unemployment. Nearly 40 percent of the unemployed lived in St. George (which covers two counties) that includes the largest urban areas outside the capital city and San Fernando (Table 10). About 16 percent of the unemployed lived in Victoria County, some 15 percent in Caroni County, and close to 10 1/2 percent in St. Patrick County. The unemployed in Port of Spain accounted for less than 5 percent of all the unemployed.

Table 10.

Trinidad and Tobago: Total Unemployed by Age Group and Administrative Area

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Source: Central Statistical Office.

2. Some explanations for the unemployment

The changes in economic activity and the variations in the size of the labor force represent the main reasons for the changes in unemployment in Trinidad and Tobago. However, other factors also help explain the changes in unemployment, particularly the changes in the structure of the economy--including a mismatch of skills and rigidities in the labor market.

As economic activity boomed following the sharp increase in international oil prices, the unemployment rate declined from a steady level of 15 percent in the mid 1970s to a low of 10 percent by the early 1980s. 1/ As output began to decline in the mid 1980s, unemployment climbed steadily to 22 percent by 1989, but dropped to 18 1/2 percent in 1991 as a result of a temporary recovery in economic activity. However, unemployment rose again to almost 20 percent as real GDP contracted by almost 3 1/2 percent in 1992-93.

The changes in the labor force participation, in part associated with output developments, have contributed to the variations in the unemployment. Labor force participation increased during 1981-93 without a commensurate increase in employment opportunities, prompting changes in the year-to-year unemployment. The decline in the labor force participation led to a drop in the unemployment rate by 2 percentage points to 20 percent in 1990 and the greater participation of females in the labor force led to an increase in the unemployment rate in 1992.

Temporary unemployment, owing to the time spent in-between jobs and the increased reliance on part-time employment, is an important factor in explaining some of the unemployment developments. 1/ Temporary unemployment arises as employers and employees do not commit to a long-term working relationship as a result of institutional barriers, uncertainties about the course of economic events, and structural changes that no longer require full-time employment. In recent years, the structural changes in Trinidad and Tobago also have reflected the liberalization of the trade regime and the greater ease in importing state-of-the-art technology that would seem to have shifted production towards technologies that are more capital intensive. In 1993, the duration of unemployment was up to three months for about 30 percent of the unemployed, and up to six months for about 45 percent of the unemployed (Table 11). This short duration indicates some flexibility in the labor market owing to the transferability of skills that allows some of the unemployed to alternate easily between periods of employment and unemployment.

Table 11.

Trinidad and Tobago: Total Unemployment by Gender, Duration of Unemployment and Age Group

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Source: Central Statistical Office.

The increased reliance on part-time employees to perform certain tasks could be the result of the legislation relating to dismissals and severance payments. The legislation states that there may be consultation between employees and employers prior to the issuance of formal dismissal notices and specifies a minimum period for these notices to become effective. If disagreement ensues at any point in time, and no acceptable solution is found, the Minister of Labor could intervene at his own volition or if requested by one of the parties. The legislation specifies that wages must still be paid to employees during the period of consultation and the intervention by the Minister of Labor. Moreover, if separation indeed takes place, the legislation requires minimum severance payments amounting to two weeks for each completed year of service for employees with unbroken service of one but less than five years, and three weeks for each completed year of service for employees with unbroken service of five years or more. The legislation states that the Minister of Labor may determine other relief payments.

According to the household surveys, about 33 percent of the unemployed remained without a job for more than six months, and over 25 percent went without working for one year or longer in 1993. This long duration in unemployment could be explained by unemployment resulting from job search (search unemployment), which comes about from the decision to remain (or even become) unemployed in the hope of finding a job at a wage that at least compensates for the expenses incurred in the search period. 1/ However, search unemployment would require the existence of a support system. In Trinidad and Tobago, this support would appear to come mainly from the extended family and, to a lesser extent, from activities in the informal sector.

The long duration of unemployment also could reflect structural factors, including a mismatch of skills and rigidities in the labor market. As the structure of the economy has been changing, some of the unemployment could be explained by a mismatch between the skills possessed by potential employees and those required for employment. The mismatch of skills could indicate the existence of a group of hard core unemployed, particularly in the case of those who have been jobless for over one year or have stopped searching for employment, and thus could explain in part the persistence of unemployment. 2/

In addition, the long duration of most unemployment in Trinidad and Tobago could point to the existence of rigidities in the labor market such as the minimum wages and trade unions as well as to the dismissal difficulties mentioned above. 3/ However, there are indications that their importance is limited as suggested by the large number of persons working below the minimum wages and the likely diminished role of the trade unions in the context of high unemployment.

3. Alleviation policies

The Government has established short- and long-term policies to alleviate the adverse effects of unemployment. 4/ In the short term, the Government is relying mainly on the Unemployment Relief Program (URP), the Youth Training and Employment Partnership (YTEPP), the National Apprenticeship Program and the Civilian Conservation Corps, and more recently also on the program called Retraining for Displaced Workers.

The URP is the main unemployment program. It aims to place the 25-45 years old unemployed to work in the building or refurbishing of infrastructure and construction projects (roads, bridges, community centers, schools, police stations and sports complexes), community self-help projects, and one-off projects (for example, flood controls). The program works on a rotational basis, and thus only 7 percent of the unemployed hold URP sponsored jobs at any one time. In light of the high unemployment and given that the URP finances 150,000 jobs a year with an average duration of five weeks, the demand has far outstripped the supply of jobs provided under this program. In 1993, the Government spent TT$124 million on the URP, or about 1/2 percent of GDP and 23 percent of all expenditures on the social programs.

The YTEPP program was initiated in 1993, with December 1995 set as the ending date. The program, which is being financed in part by the World Bank, provides the unemployed youth (15-25 years old) with career enhancement abilities, vocational skills training (in some 14 areas) and post-training support. In 1993, some 5,100 youths completed the program and TT$25.6 million were allocated to the YTEPP program in 1993.

The National Apprenticeship Program, which is administered by the Ministry of Education under the direction of the National Training Board, targets youths (15-25 years old) who are looking for their first jobs and are already out of school. Priority is given to YTEPP participants. The program’s objective is to place participants in apprenticeship programs preferably in the private sector. The period of placement varies from six months to three years depending on the qualifications of the participants. One half of the wages paid to the participants is covered by the Central Government and the other half is paid by employers. The wages are based on the minimum wages, but may be higher in some cases. In 1993, some 5,700 participants in the program were placed with support from the Government being TT$8.5 million.

The Civilian Conservation Corps (CCC), which is administered by the Defence Force, started in 1993. This program places persons 15-25 years old--with little education and skills--on conservation projects, including reforestation, establishment of nature trails, beautification of beaches, and restoration of historical sites. The experience provides these persons with practical training as well as motivational skills. In 1993, some 2,600 persons participated in this program in three cycles each lasting four months.

The Retraining for Displaced Workers program, which is administered by the Ministry of Education, aims to cushion the impact of structural adjustment measures by enabling workers (25-45 years old) to re-enter the ranks of the employed as employees or self-employed. To participate in the program, the workers need to have been dismissed, retired on grounds of ill-health, or accepted voluntary separation. The program is based on on-the-job training for up to three months. Some 1,700 displaced workers are participating in the program, but the Government intends to expand it to provide training for up to 6,000 persons a year. Some 56 areas for on-the-job training have been identified by the Ministry of Education.

As part of the long-term policies, the Government is strengthening the flow of information between potential employees and employers, and has introduced further fiscal incentives for the creation of employment opportunities. The Government is expanding the National Employment Service through the opening of four new offices. This program relies on voluntary registration of the unemployed and efforts by Ministry of Labor to find appropriate placements. The Government is proceeding with the establishment of the National Human Resource Management Information System (NHRMIS) that would provide entrants into the labor force with needed information on employment opportunities in different economic sectors and occupational categories. Moreover, this program would allow public and private institutions to be aware of the human resources available, to seek potential employees who possess the skills necessary to fill vacancies, and to help in shaping the training needed to enhance the skills of potential entrants into the labor force.

The fiscal incentives being provided by the Government to encourage the creation of employment opportunities include exempting commercial banks from paying corporate income tax on up to 50 percent of the interest earned on loans to small businesses and agricultural enterprises that lead to the creation of employment opportunities. Moreover, local investment in the tourism sector is being encouraged by allowing investors to claim 25 percent of their equity investment as a tax deductible expense. Given the potential of creating more employment opportunities in the construction sector, the Government has exempted from personal and corporate income taxes all rental incomes from properties constructed after January 1, 1993. In this regard, the Government has introduced procedures to speed up the implementation of major public and private sector construction projects.

References

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  • Summers, Lawrence H. Understanding Unemployment (Cambridge, Massachusetts: The MIT Press, 1990).

1/

The labor force includes all persons of 15 years or older and who classify themselves as being in the labor force. The household surveys are conducted on a quarterly basis by the Central Statistical Office.

1/

See Hilaire (1992) and Auty and Gelb (1986) for a description of the changes in the unemployment rate following the sharp increase in international oil prices in the early 1980s.

1/

Gregory (1994) describes the increasing reliance on part-time employees in Trinidad and Tobago.

1/

Search unemployment also can explain unemployment of short duration. Because temporary unemployment requires at least some search process, search unemployment and temporary unemployment might be undistinguishable in the short term, unless specifically differentiated in household surveys. See Summers (1990).

2/

For instance, in the United States the longer persons remain unemployed the more difficult it becomes for them to be re-employed. As a result, these persons are more likely to join the ranks of the hard core unemployed. See Summers (1990).

3/

As explained by Lindbeck, et al. (1988), labor market rigidities explain in part the high unemployment in some industrial countries.

4/

See Section VI for details on the various social safety net programs in Trinidad and Tobago.