Recently Vice President Jagdeo proposed the government’s plan to provide part-time employment to thousands of Guyanese. Not a lot of information was made available about the anticipated structure of the programme, except that we know participants will be paid G$40,000 per month for 10 days of work. This latest policy framework is most likely rooted in the government’s desire to fulfil a manifesto promise of creating 50,000 jobs by 2025.
It should be noted that there is a large body of economic literature on the government as Employer of Last Rest Resort (ELR). ELRs are justified because the private market system often fails to produce consistent full employment. Presently, the Indian government runs the world’s largest ELR programme, employing millions of poor and marginalised rural workers – many of whom are women. The programme, known as The Mahatma Gandhi National Rural Employment Guarantee Act (NREGA), concentrates on well-defined public works in rural areas.
In the case of the United States, the federal government provides direct employment support through heavy military spending and scientific procurement. That country’s real estate builders receive indirect liquidity subsidies through the actions of quasi-government banks such as Fannie Mae and Freddie Mac.
Guyana’s powerful Vice President is obviously facing an uphill battle to meet the manifesto promise of 50,000 jobs. A true ELR programme, however, will require legislation. The PPP/C is a government known for its myriad legislation. It can do these things quickly such as the NRF Act and the monopoly-producing and productivity-depleting local content legislation. If indeed some part-time employment is something that will be a long-term feature of the government’s economic agenda, this programme has to be supported by legislation.
Moreover, it must be audited each year to filter out political favouritism and corruption by the local-level party boys and girls. It must not produce a situation where local political Santa Clauses hand out employment to favoured ones. Statistics on the people employed covering gender, ethnicity and location must be made readily available if it is to be seen as a credible and serious programme. The type of work must be clearly defined as in the NREGA. I am obviously sympathetic to and supportive of such an ELR programme.
To appreciate why such a programme might be necessary for Guyana, one should consider the relationship between economic growth and unemployment. We know for most countries, unemployment falls as the rate of GDP growth picks up. In other words, there is a negative relationship between economic growth and unemployment a good and welcome outcome. When this relationship known to economists as Okun’s law – holds, we can really say that the private sector is the engine of growth.
However, Guyana is a peculiar place when it comes to the relationship between unemployment and growth. Getting high-quality data on employment in Guyana is always difficult. Nevertheless, we are forced to work with what we have. The World Bank has annual unemployment data for Guyana starting from 1991 and ending at 2021 – a reasonable time period to pick up an association between unemployment and GDP growth. This association is illustrated by Figure 1. The horizontal axis has the percent GDP growth rate and the vertical axis shows the percent rate of unemployment.
Figure 1: Unemployment and economic growth in Guyana
It is clear that there is a positive association or correlation, not the expected negative one. The correlation is negative only for a period when there was the gold rush from 2007 to 2020. During this period, many found employment in the gold mining sector. Many workers moved from agriculture (especially sugar) into gold mining. However, it should be noted that a worker in this extractive sector typically does not acquire many transferable skills that could be applicable elsewhere in the economy; unlike, for example, a worker who once worked in the old refrigerator manufacturing plant (Guyana Refrigerators Limited) and is now a top technician owning his own business. The latter is an anecdotal example of what economists call positive spillovers of manufacturing.
We are all aware that an association or correlation is not necessarily causation. For example, the very high oil-induced growth rates of 2020 and 2021 came at a time of a global pandemic. Therefore, high oil-induced growth was associated with higher unemployment rates (16.4%) owing to the pandemic. The high growth rates from 1991 to 2007 included the reintegration of aspects of the parallel economy into the official one with no new job creation. There was also a time in the 1990s when the civil service was being downsized during a growing economy – hence, high growth was accompanied by higher unemployment. There was also the long period of political instability. After accounting for all these factors, as well as the floods of 2005 and 2021, the relationship is still positive. I do find the result to be odd, but that is what the data we have indicate.
Why are we uncovering such an anomalous relationship? One possible explanation might be the very high import penetration rate of Guyana. This was a topic I covered in a 2019 Business Review column: “Import penetration and the current exchange rate pressure” (SN October 13, 2019). I observed then that the import-to-GDP ratio for Guyana is likely the highest in the Caribbean, higher than that of Barbados, Jamaica, Trinidad and Tobago, Suriname and the Dominican Republic.
The implication of a high import propensity, although Guyana earns ample foreign exchange, is a significant leakage owing to the high import of capital goods, fuel and petrochemicals, consumer durables, among others. Therefore, the high import propensity – especially in the oil and gas industry – represents a leakage of national savings that could otherwise be deployed in job-creating private investments.
Another explanation is Guyana is likely experiencing high levels of structural and disguised unemployment. The structural component is associated with the evolution of the economy from labour-intensive industries (sugar) to capital-intensive ones like large-scale mining and oil. The new capital-intensive activities require fewer workers. Furthermore, the new large-scale enterprises have small favourable spillovers to other sectors. The disguised component comes from the self-employed in petty services such as mini retailing and entrepreneurial service with close to zero (or zero) marginal productivity.
Regardless of the explanation, economic growth does not appear to be converting into job creation. Therefore, the government functioning as employer of last resort might become a necessity. As was noted by the Vice President, people will be employed in local government offices to provide social services in the rural areas. Perhaps many could also be employed in maintaining the aesthetics of the various localities.
In closing, part-time employment no matter for how many years – is a case of underemployment. Government policy will have to be structured in a manner for motivating the local private sector to create a lot more full-time employment. The generous incentives given to the private sector during the Jagdeo-Ramotar administration and now the Ali era have not been successful in job creation. The oil companies will employ a relatively few given the high capital intensity of the operations.
Comments: tkhemraj@ncf.edu
