Editorial | Wanted: productivity

Richard Byles is legitimately worried that a tight labour market could spur wages and prices, making it more difficult for him to achieve his inflation target.

But this concern is an opportunity for the central bank governor to throw the prestige of his institution behind a deeper, and more robust, discussion of Jamaica’s crisis of labour productivity, and advocacy for a new approach to industrial planning, fashioned around a labour force of greater skills, earning substantially higher wages. Mr Byles would, in essence, be taking the Bank of Jamaica (BOJ) into a debate he briefly ignited a half a decade ago, when he urged the players in the island’s business process outsourcing (BPO) sector to seek to climb further up the industry’s food chain. That was before he was a central banker, and before the threats artificial intelligence technologies posed to BPO operations was such a full-blown fear.

“[W]e want the BPO business where lawyers are given a part; where accountants are doing work; where paramedics are giving advice,” Mr Byles said at the time. “We want to be in the high-level BPO business.”

The central bank’s current concern about possible upward stresses on wages is driven by Statistical Institute of Jamaica’s recent report that the island’s unemployment rate in April had fallen to a historic low of 4.5 per cent, from 6.6 per cent in July last year. Even if it may not feel that way to many, that figure, by global measures, would be considered nearly full employment, forcing employers to compete for workers.

“If we do get large wage increases and those translate into increased prices, that will translate into an effect on inflation,” Mr Byles told reporters at a briefing this week. “Wage increases should be accompanied by productivity, or not be significantly increased.”

PAY HIKES

Mr Byles’ fear is driven in part that the recent big pay hikes for government employees under a public-sector job reclassification exercise could cascade into the private sector. And given lingering global supply chain and food price issues, he worries, the upshot could be too much sloshing around chasing too few goods, causing the BOJ to miss its inflation target of six to eight per cent by the end of this fiscal year. Inflation is now over eight per cent.

But Jamaica’s problem is not primarily, as Mr Byles knows well, short-term wage issues. It has a deep-seated problem of both labour and low factor productivity.

Indeed, as the Planning Institute of Jamaica highlighted recently in its latest annual Economic and Social Survey Jamaica, in the five years between 2018 and 2022, “labour productivity decreased annually at an average rate of 0.8 per cent”.

“The decline during the period was due to the employed labour force growing at a higher rate annually than real gross domestic product (GDP). The average annual growth rate for the employed labour force was 2.0 per cent, while the average annual growth rate for GDP was 0.5 per cent.”

Over the past decade, Jamaica has made deep cuts into the national debt as a proportion of gross domestic product and achieved macroeconomic stability. That is good, but hardly sufficient to be deeply transformative. Indeed, growth remains puny and broad development slow.

DEEPER PROBLEM

The deeper problem, as the respected Professor Don Robotham argued in a series of articles in this newspaper, is that Jamaica is trapped in “low-value added, extractive raw materials and ‘raw services’ activities”, from which it won’t extricate itself with a low-wage strategy. That is a recipe for remaining a low middle-income country.

Moving up the value global chain demands an assault on the country’s low levels of productivity, which requires an urgent and emergency-style focus on education and skills training, including investment in research and innovation. In the circumstance, that a third of students leave primary school ill-prepared for the secondary system is wholly untenable.

The recent announcement by the skills and digital transformation minister, Dana Morris Dixon, of plans to resuscitate a national apprenticeship scheme and the investment by a group of private-sector leaders to team teachers for STEM are moves in the right direction. So, too, is the signal from the University of Technology that it tends to its core as a polytechnic institution.

But while these are necessary, they are not, as disparate elements, sufficient for a national transformation. They have to be part of a large, cohesive whole that is greater than the sum of the individual bits.

Talking about an industrial policy and identifying winners is in some quarters, these days, tantamount to ideological heresy. But called by any name, that is what is required – a partnership for economic transformation between the Government and the private sector. Which is what the United States is attempting to do in response to the growth of China. They euphemistically refer to the project as ‘Bidenomics’.

Whatever it is called, in Jamaica’s case the matter is urgent.