Immigration policies support an increasing unemployment rate
“I am pleased that the labour market has improved last year, and I expect it to further make progress this year,” Premier McKeeva Bush said recently. After reading the recently released Labour Force Survey Report (Fall 2011) I do not share the premier’s optimistic outlook for the local economy.
In fact, I am increasingly concerned that the actions taken by the government and the lack of any real visible economic recovery policies and plans has resulted in a bleak outlook for these islands and has created a situation which becomes increasingly difficult to remedy if the current approach to managing the economy is not addressed immediately.
Simply put, a high level of unemployment signals that the economy is operating beneath the production possibilities curve and the economy is not performing at full capacity. This is significant, as suggested by Okuns law, because for every 1% increase in unemployment, real GDP decreases by 2%.
Cayman’s unemployment is largely structural in nature and some local employers are not able to source specific skillsets, training and experience from within the local unemployed labour pool, leaving them with no alternative but to turn to foreign labour in order to meet the demand for labour generated by their individual businesses. In addition to the almost 10% overall unemployment rate, perhaps the most startling statistic revealed in the report is the fact that the unemployment rate for individuals between the ages of 15 and 24 is currently around 20%.
This is alarming, to say the least, because individuals from this group represent high school and university graduates who are the future of these islands and the statistics indicate that for whatever reasons these young people are facing increasing obstacles finding employment. It is also concerning that a significant number of these individuals are ending up in the court system. Twenty years ago high school graduates in Cayman were faced with a multitude of employment and/or educational opportunities to choose from, but the situation today is dramatically different and it is obvious from the survey results that many are graduating with no opportunities ahead of them.
There are also much wider concerns that cannot be ignored. Cayman is in the rather unique position of being able to import labour from outside the country with little difficulty, mainly because work permit fees are a major contributor to government revenues. This imported labour serves to effectively replace, and causes employers to ignore, the local unemployed labour pool, i.e. the approximately 10% overall unemployed Caymanians, allowing the economy to continue to operate boosted by the external labour supply. The 10% unemployed Caymanians then become a cost to the country as they have to rely on government funded social programs to survive and as the importation of labour continues to proceed unchecked, the unemployment rate can only continue to increase.
The irony in this situation is that as government revenues increase from work permit fees, the increased demands on social welfare caused by unemployment will drive up costs faced by the government. The net effect may well be that government revenues are not being effectively channeled into the most appropriate and constructive initiatives. This creates a vicious cycle which becomes increasingly difficult to reverse. Recent examples of where government has spent public funds assisting the unemployed are numerous but unfortunately become increasingly necessary as more Caymanians encounter difficulty obtaining employment.
Ideally government should direct its economic policies towards keeping unemployment amongst Caymanians around 3% or less, and because we are in the unique situation where the majority of our employment force is non-Caymanian, immigration policies play an important role in controlling the rate of unemployment. The ideal strategy therefore would be to tie our immigration policies to our economic policies in order to effectively regulate the supply of non-Caymanian labour. By doing this we will be effectively controlling the level of unemployment. Left unchecked, our rather generous work permit policies will continue to cause an upsurge in local unemployment as the labour force survey has confirmed is the case today.
It is critical that our education efforts and focus for both local and overseas students be crafted to ensure that these missing skills are being addressed via formal education programs and initiatives. It should also be a clear policy that when these skills are available via the local labour supply, priority will be given to sourcing employment for these individuals, and government must be willing to halt or slow the grant of work permits within these specific areas until the local labour pool has been exhausted or the 3% or less limit has been achieved.
The University College must continue to adopt the highest possible standards and begin to offer a diverse curriculum which is crafted based on the needs highlighted by the local labour market and this can be easily achieved by adopting a consultative and cooperative approach with the private sector. It is therefore more effective to offer educational opportunities to prepare students for careers that are in highest demand. For example if the top 5 careers within the private sector are lawyers, accountants, technology engineers, corporate administrators and fund administrators, these need to become the top 5 educational opportunities available to our students. By taking this approach we align the local labour supply with the local demand for labour.
There is some degree of cyclical unemployment, or not enough jobs to go around, which is partly due to the current recessionary conditions, and in many instances a high level of skill and or training is not required for these positions. Government reaction to this must be to seek to reduce the number of work permits within the relevant areas, allowing the local unemployed labour force to become employed and productive. Cyclical unemployment is perhaps the easiest to address, and least costly, and only requires a clear policy and direction when it comes to the granting of work permits in areas where there are qualified but unemployed Caymanians.
Looking forward, Caymanians must accept that for the foreseeable future there will always be a need to hire foreign labour and that we cannot expect to find sufficient Caymanian labour to operate the economy at full capacity given our indigent population level. It is also clear, however, that there is a direct relationship between the level of unemployment and the subsequent negative effect on government costs and the negative impact on the local economy this creates.
Carefully balanced economic and immigration policies can be utilized to achieve the perfect balance between foreign labour and Caymanian labour. What is required, however, is sensible and responsible management, clear tertiary educational objectives, less pandering to one group of individuals over the other and adopting a more scientific and analytical approach to managing the economy.
The end result will be a reduced local unemployment rate, higher education and training standards among Caymanians, a stable and united workforce and a much stronger economy and government.
This is not a quick fix approach and the benefits will only become evident in a few years, but it is clear that taking proactive steps now will prevent further increases in unemployment, reduce the burden on government to “look after” unemployed Caymanians, reduce the divide between expats and Caymanians, both socially and economically, and stimulate the local economy by putting disposable income into the hands of Caymanians without taking it from the government coffers.
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