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Government intervention in Labour Sector dragging down output

Thursday, December 29 2016

The labour sector in Trinidad and Tobago is in urgent need of reform, as State involvement in the labour market keeps dragging the country’s output per worker.

That’s the view of senior University of the West Indies economics lecturer, Dr Roger Hosein, who in his year-end analysis of the country’s labour force, has concluded that continued involvement of the state in the labour force compromises not only the output per worker, but also the country’s gross domestic product (GDP) by starving other sectors of the economy that are in desperate need of workers.

According to Dr Hosein’s data, real output per worker peaked in 2013, to just over $165,000 but has been steadily declining to somewhere around $160,000 in 2016. (Figure 2)

Hosein said the decline must be halted, as there is no space in a competitive global arena for sliding real output per worker.

“This is a reflection of a structural burden effect at work in the economy in which the state allowed too much workers to migrate into areas with relatively lower output per worker ratios. In planning ahead efforts have to be made to promote higher productivity employment growth,” he said.

From 1999 to 2015, the number of state hires skyrocketed by 64.6 percent, superseding gains in every other occupational grouping. (See table 1.2) The manufacturing, agricultural and textile industries, by contrast, have taken big hits, with employment levels falling 44.3 percent, 45.7 percent and 67.4 percent respectively. These are industries that also traditionally absorb excess capacities of unskilled/semi-skilled workers.

The State needs to get out of the labour market and apply a more minimalist approach, Dr Hosein said.

Ironically, he noted, by intervening to encourage increased employment in areas of underemployment, the State’s rearrangement of the labour market has facilitated in lowering the national output.

“The heavy State involvement in the labor market would have compromised the total product of the economy especially if the average product of labor in those sectors where the State intervened was below that of segments of the economy from which labor was drawn,” he said, adding that this needs to be rectified and the state needs to show the political will to do it.

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