JOBS WORKING PAPER Issue No. 83 Jamaica Jobs Diagnostic Jose Manuel Romero, Clemente Avila Parra, Alexandra Gordina JAMAICA JOBS DIAGNOSTIC Jose Manuel Romero, Clemente Avila Parra, Alexandra Gordina 1 © 2024 International Bank for Reconstruction and Development / The World Bank. 1818 H Street NW, Washington, DC 20433, USA. Telephone: 202-473-1000; Internet: www.worldbank.org. Some rights reserved This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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Further permission required for reuse. 2 Contents Acknowledgements............................................................................................................................................................. 4 Acronyms ............................................................................................................................................................................. 5 Overview .............................................................................................................................................................................. 7 1. Introduction .............................................................................................................................................................. 12 1.1. Report Objectives ........................................................................................................................................... 12 1.2. Jobs Diagnostic Framework ......................................................................................................................... 13 1.3. Organization of Report ................................................................................................................................. 15 2. Overview of Labor Market Structure and Economy Attributes ...................................................................... 16 2.1. Key Characteristics of Jamaica’s Economy and Labor Market ............................................................... 16 2.2. Productivity and Sectoral Composition of Economy and Employment............................................... 18 2.3. Capital Stock and Investment Overview .................................................................................................... 21 2.4. Job Quality, Labor Market Segmentation and Employment Types ....................................................... 23 2.5. Skill Content of Jobs in Jamaica ................................................................................................................... 26 2.6. Firm Growth Outcomes................................................................................................................................ 27 2.7. Labor Market Inclusion ................................................................................................................................. 30 2.8. COVID-19 and Russia’s Invasion of Ukraine Effects on Labor Market .............................................. 32 3. Structured Demand Side Analysis: Constraints to Economic Growth from Firm Side .............................. 34 3.1. Low Profitability and Returns to Economic Activity ............................................................................... 36 3.2. Potentially Profitable Opportunities but Low Ability to Appropriate Returns from Investment .... 41 3.3. Low Access or High Costs of Finance........................................................................................................ 46 4. Structured Supply Side Analysis: Constraints to Better Jobs Outcomes from Worker Side ....................... 50 4.1. Human capital as a constraint to better jobs outcomes ........................................................................... 50 4.2. High Reservation Wages ............................................................................................................................... 63 5. Labor Market Failures and Distortions ................................................................................................................ 69 5.1. Skills Mismatch ............................................................................................................................................... 69 5.2. Labor Market Inclusion ................................................................................................................................. 71 5.3. Other Labor Market Frictions: Labor Market Regulations, Minimum Wages, and Monopsony ...... 82 6. Conclusion and Policy Options ............................................................................................................................. 84 References .......................................................................................................................................................................... 92 Annex 1. Section Detailed Analyses ............................................................................................................................ 100 Annex 2. Data Sources ................................................................................................................................................... 119 Annex 3. Data References ............................................................................................................................................. 121 3 Acknowledgements This jobs diagnostic was financed by the World Bank Group SDG Partnership Fund (WBG-SDG). The WBG- SDG Fund is supported by the generous contributions of the Swedish International Development Cooperation Agency (Sida), Republic of Korea Ministry of Economy and Finance (MoEF), and Hyundai Steel, without which this work would not have been possible.1 This report was authored by Jose Manuel Romero (Economist and lead author, HSPJB), Clemente Avila Parra (Sr. Social Protection Economist and Task Team Leader, HLCSP), and Alexandra Gordina (Consultant, HLCSP). The authors wish to acknowledge extensive contributions from Harry Edmund Moroz (Economist, HLCSP), Alejandro Núñez Arroyo (Consultant, HLCSP), and Jorge A. Corti (Consultant, HLCSP), as well as valuable editing support provided by Ignacio Camacho (Consultant, HLCSP). The report was produced under the leadership of Federica Saliola (Manager, HSPJB) and Pablo Gottret (Practice Manager, HLCSP). The report was enriched with advice and feedback from Timothy Johnston (Program Leader, HLCDR), Nataliya Mylenko (Program Leader and Lead Country Economist, ELCDR), Theresa Osborne (Sr. Economist, HSPJB), and Maddalena Honorati (Sr. Economist, HSPJB). Valuable comments and advice were provided by the peer reviewers: Truman Packard (Practice Leader, HLCDR), Eliana Carranza (Sr. Economist, HSJDR), and Robert Utz (Lead Economist, EMFTX). The team benefited from internal consultations and inputs from World Bank teams from the Global Practices on Education, Poverty and Equity, Finance, Competitiveness & Innovation, Macroeconomics, Trade & Investment, Transport, and Energy, among others. The team would like to acknowledge inputs and insights from Frederic Verdol (Program Leader and Senior Energy Specialist, ILCDR), Victoria Levin (Sr. Economist, HLCED), Pascal Jaupart (Economist, HLCSP), Roy Katayama (Sr. Economist, ELCPV), Rohan Longmore (Sr. Country Economist, ELCMU), Fadwa Bennani (Sr. Financial Sector Economist, ELCFN), Amadou Dem (Sr. Economist, ELCFN), and Rochelle Simone Johnson (Energy Specialist, ILCE1), among others. The team is grateful for insights and comments obtained during consultations with the representatives of the Ministry of Labour and Social Security (MLSS), Ministry of Economic Growth and Job Creation (MEGJC), Development Bank of Jamaica (DBJ), Jamaica Promotions Corporation (JAMPRO), Private Sector Organisation of Jamaica (PSOJ), Planning Institute of Jamaica (PIOJ), as well as BPO sector companies and MSMEs from the tourism sector, among others. 1The findings, interpretations, and conclusions expressed in this report do not necessarily reflect the views of the World Bank, the Executive Directors of the World Bank, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 4 Acronyms ALMPs Active Labor Market Programs ILO International Labor Organization AML/CTF Anti-Money Laundering and Counter- IMF International Monetary Fund Terrorism Financing BoJ Bank of Jamaica IP Intellectual Property BPO Business Process Outsourcing IPPs Independent Power Producers CAPE Caribbean Advanced Proficiency IRENA International Renewable Energy Agency Exam COAV Children in Organized Armed ISCED International Standard Classification of Violence Education CPSD Country Private Sector Diagnostic ITU International Telecommunication Union CSEC Caribbean Secondary Education JAMPR Jamaica Promotions Corporation Certificate O CVQ Caribbean Vocational Qualification JIS Jamaica Information Service DBJ Development Bank of Jamaica JMD Jamaican Dollars DTI Deposit-Taking Institution JNCVS Jamaica National Crime Victimization Survey EYS Expected Years of School JOIN Global Jobs Indicators Database FAO Food and Agriculture Organization JPS Jamaica Public Service Company FATF Financial Action Task Force JSE Jamaican Survey of Establishments FDI Foreign Direct Investment JSLC Jamaica Survey of Living Conditions FSAP Financial Sector Assessment Program KMA Kingston Metropolitan Area FTE Full-Time Equivalent KPO Knowledge Process Outsourcing GDP Gross Domestic Product LAC Latin America and the Caribbean GEM Global Entrepreneurship Monitor LAYS Learning-Adjusted Years of School GFC Global Financial Crisis LCU Local Currency Unit GNI Gross National Income LF Labor Force GoJ Government of Jamaica LFP Labor Force Participation GSHS Global School-based Student Health LFS Labor Force Survey Survey HEART Human Employment and Resource MEGJ Ministry of Economic Growth and Job Trust/NTA Training Trust/National Training C Creation Agency HHs Households MFIs Microfinance Institutions HLO Harmonized Learning Outcomes MLSS Ministry of Labor and Social Security I2D2 International Income Distribution MoEYI Ministry of Education and Youth Database ICT Information and Communications MSME Micro, Small and Medium Enterprises Technology s IDB Inter-American Development Bank NDC Nationally Determined Contribution IFC International Finance Corporation NEET Not in Employment, Education or Training 5 NEI National Education Inspectorate UNFPA United Nations Population Fund NSSC National Secondary Students Council UNICE United Nations International Children's F Emergency Fund NVQ-J National Vocational Qualification of UNOD United Nations Office on Drugs and Jamaica C Crime OAD Occupational Associate Degree US United States OECD Organization for Economic Co- US DHS US Department of Homeland Security operation and Development OLF Out of the Labor Force US US Bureau of International Labor Affairs ILAB PATH Programme of Advancement US-ACS US American Community Survey Through Health and Education PCT Patent Cooperation Treaty UWI University of the West Indies PER Public Expenditure Review VA Value Added PEVC Private Equity and Venture Capital WAP Working Age Population PIOJ Planning Institute of Jamaica WB ES World Bank Enterprise Survey PPP Purchasing Power Parity WBG World Bank Group PROTEqIN Productivity, Technology, and WDI World Development Indicators Innovation PWT Penn World Table WEF World Economic Forum R&D Research and Development YGHR Yale Global Health Review REBS Real Estate and Business Services SFP Sixth Form Pathway SLB Students’ Loan Bureau SMEs Small and Medium Enterprises SRLF Student Revolving Loan Fund STATIN Statistical Institute of Jamaica TVET Technical and Vocational Education and Training UK United Kingdom UMICs Upper Middle-Income Countries UN DESA United Nations Department of Economic and Social Affairs UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Programme UNESCO United Nations Educational, Scientific and Cultural Organization UNESCO UNESCO Institute for Statistics UIS UNFCCC United Nations Framework Convention on Climate Change 6 Overview This report seeks to identify Jamaica’s main jobs problems, analyze their underlying causes, and provide policy options to foster debate on how to improve job outcomes. Utilizing a diagnostic approach,2 the assessment focuses on identifying deep-rooted jobs problems in Jamaica by considering its current level of development and conducting a comprehensive benchmarking exercise.3 In this framing, jobs problems (e.g., large informal sector) are viewed as symptoms that are driven by underlying factors. Hence, identifying jobs problems is insufficient to draw clear policy recommendations per se. We analyze potential causes, including policy fundamentals such as macroeconomic stability, and determine the likely critical factors obstructing improved jobs outcomes. Our assessment takes a holistic and iterative approach, by exploiting the data available, with its limitations, and consulting with sector specialists and a large number of public and private sector stakeholders. This work has built on, expanded, and—in instances—informed recent work by the World Bank on Jamaica.4 The result from this exercise is a set of proposed evidence-based policy priorities that can promote debate on how to unlock the creation of better and more inclusive jobs. Jobs context and main problems Jamaica has had poor economic performance throughout most of its history. GDP per capita growth from 1975 to 2019 was 0.2 percent, with high volatility during this period. In contrast, regional peers grew at an average rate of 1.9 percent, leaving Jamaica behind. Jamaica’s productive structure has remained mostly unchanged over the past three decades, with a slight increase in services and slow decrease in manufacturing. It also continues to be a tourism-dependent economy, mostly focused in low valued-added services. Macroeconomic stability and the rule of law, prerequisites for economic growth, have been longstanding challenges in Jamaica. While Jamaica’s macroeconomic stability has been improving, it remains fragile. The country’s debt-to-GDP remains high despite a significant reduction since 2013. Jamaica’s economy is exposed and vulnerable to shocks, driven by its economic reliance on tourism and its location along a hurricane track, thereby increasing the market’s perceived risk of investment (Coface 2023). Moreover, the rule of law in Jamaica has significant shortcomings5, especially in crime and violence. Jamaica has had among the highest murder rates in the world for decades. Crime and violence are prevalent, hindering private sector development. The cost of crime protection acts as an implicit tax, reducing competitiveness of larger firms. Small firms, with limited resources, are more vulnerable to crime and can face devastating effects from economic losses. Crime also induces changes in firm operation and customer behavior, such as shorter operating hours and consumer avoidance of less secure areas. Moreover, crime also affects households and individuals’ behavior, including through a negative influence on educational attainment. Jamaica’s development can be characterized by a mix of positive outcomes, emerging opportunities, and structural challenges. Jamaica has significantly reduced poverty over the last decade. Structural unemployment, a major issue averaging over 10 percent annually for most years until 2015, has largely diminished despite limited economic growth. Prior to the pandemic, the unemployment rate had already decreased to 7.2 percent. Following the pandemic, it reached record lows at 6.6 percent in July 2022. 6 Jamaica is currently in the middle of a “demographic dividend” with dependency ratios projected to be at their lowest in the next 10 years, creating an opportunity window. Ageing is expected to happen at a more accelerated rate than in peer countries. Jamaica’s high level of migration encompasses a complex blend of opportunities and 2 This diagnostic applies Osborne’s (2023) methodological approach, building upon the growth diagnostic framework by Hausmann e t al. (2008, 2005). 3 This Jobs Diagnostic features a systematic benchmarking exercise using a pre-identified set of countries including: (1) Regional Caribbean peers included in the Jamaica Systematic Country Diagnostic (SCD), such as Barbados and the Dominican Republic, plus Belize, which shares characteristics with Jamaica, such as being small Caribbean countries with tourism-based economies, similar GDP per capita levels, and vulnerability to shocks; and (2) other Latin American Upper Middle-Income Countries, which have comparable data, similar income levels, and serve as broader regional peers. 4 This includes the Country Private Sector Diagnostic (CPSD), Systematic Country Diagnostic (SCD) and the upcoming Country Partnership Framework (CPF), the Poverty Assessment, Gender Assessment, and the Digital Economy Assessment. 5 Rule of law captures perceptions of the extent to which agents have confidence in and abide by the rules of society (i.e., quality of contract enforcement, property rights, courts, and the likelihood of crime and violence). Jamaica underperforms compared with peer countries (WB 2022a). 6 Statistical Institute of Jamaica (STATIN), 2022. Labor Force Survey, July 2022. Employment rate has also significantly recovered after the pandemic. 7 challenges. This includes a large global diaspora, high remittance levels, and the emigration of skilled labor. There is a job quality problem, at the core of which is low labor productivity. As measured by value added per worker, labor productivity has been falling for the last two decades, from nearly $14,000 (constant 2015 US dollars) in 2000 to less than $12,000 prior to the pandemic. While peer countries have witnessed growing labor productivity during this period, Jamaica’s has been declining since 2000. This trend has recently accelerated, with greater reductions in the late 2010s than in the previous decade. The proximate drivers include a reduction in the capital stock per worker and a rapidly growing working age population (WAP). For instance, although Jamaica has tended to have higher gross fixed capital formation than peer countries in the last 20 years, its capital stock per worker has been declining. Moreover, while the business and real estate services sector remains promising, with its employment size doubling from 2008 to 2019 and reaching 90,000 workers in 2019, there has been a rapid decline in its sectoral labor productivity during the same time period. The permanence of a dual economic structure is also at the core of the job quality problem. Jamaica is characterized by a dual labor market, with a larger low-productivity segment than peer countries. Larger firms in Jamaica have on average higher wages, skilled jobs, and productivity—as is the case in most countries. However, Jamaica has a relatively small number of large firms and the latest comparable available data (2010) show small firms are less likely to become large firms, by a significant margin, compared to peers. More recent data from JSE 2018 confirms the prevalence of smaller firms. Relatedly, there are also relatively fewer workers in wage employment and a lower share of jobs in high-skill occupations compared to peer countries.7 Besides the problem of job quality, labor market inclusion stands out as the other main job-related problem for Jamaica. While some labor market conditions have improved, such as all-time lows in aggregated unemployment, parts of the population stand out from the rest by having some combination of high levels of economic inactivity and low labor earnings. Women, youth, persons with disabilities and workers from low- income households experience significantly worse labor market outcomes than the national averages in multiple indicators of economic participation and job quality. Key underlying causes of job problems Considering the prior findings, a structured diagnostic was conducted to assess barriers to enhancing job quality in Jamaica and better understand the labor market challenges faced by disadvantage groups. The structured analysis considers a large number of potential constraints, including associated symptoms and underlying causes, following a logic decision tree (Osborne 2023). Constraints are grouped into (i) labor demand, (ii) labor supply, and (iii) issues related to the functioning of the labor markets. Within these categories, policy fundamentals, such as macroeconomic stability and rule of law were also analyzed. As a whole, the structured analysis covered issues related to costs of production inputs; access to and cost of finance; skills deficiency in the labor market; labor market regulations and frictions; the effects of public sector employment; and migration and remittances; among others. The analysis of challenges to specific labor market segments of the population was less ambitious in terms of taking a structured diagnostic approach. To adequately identify underlying causes of the job problems for each of the disadvantaged groups, a much deeper analysis would be needed, which is beyond the scope of this report. While this assessment captured shortcomings in many policy areas, we focus on key bottlenecks to improve job outcomes in Jamaica. This approach follows Hausmann and Velasco (2007).8 Beyond the broader policy fundamentals, which are considered prerequisites for economic growth, private sector investment and job creation, the key obstacles identified are: • High cost of production inputs, especially energy and electricity. The returns to economic activity appear to be low due to the high cost of inputs, especially for energy and electricity. Jamaica Enterprise Survey (2018) and the World Bank Enterprise Survey (2010) data point to electricity cost as a key constraint. 7The occupation classification used for level of skill is from the ILO, based on the International Standard Classification of Occupations (ISCO). 8 This approach underlines the importance of focusing on the most binding constraints, highlighting it is the most practical and most promising of all the approaches considered (e.g., wholesale reform; do as much as you can, as best as you can; second-best reform; among others). 8 While other sources rank electricity cost less prominently (WEF 2018; GEM 2016), other evidence confirms electricity is likely a bottleneck, given that Jamaica has the fourth highest cost in the world (World Bank 2022a). In addition, 81 percent of firms have experienced electricity outages, compared with 59 percent for Latin America and the Caribbean region (World Bank 2022a). With recent changes in the legal framework, some firms and individuals have started to produce their own electricity to reduce its costs and increase reliability. This high energy and electricity cost has hampered profitability, likely contributed to the underinvestment in some sectors, and limited the growth potential of firms. Other input costs that are considered above peer countries include internet, with a fixed broadband basket equal to 7.9 percent of GNI per capita in Jamaica. • Limited entrepreneurial knowhow. Scarce entrepreneurial knowhow, despite limited quantitative data, especially for cross-country comparison, has been flagged as a critical issue based on multiple sources of evidence. Symptoms of this include a lack of business dynamism, no evident business pivoting as markets evolve, poor innovation compared to other peer countries, and a lack of entrepreneurs in some economic activities reportedly stunting growth (e.g., computer animation). Business performance, particularly for SMEs, suggests insufficient available capable entrepreneurs and business managers, as evidenced by low business survival rates, among the lowest success rates of SMEs transitioning to large enterprises among all peer countries, and entrepreneurs with the potential to be job creators ranking among the lowest in the region.9 The lower level of tertiary educational attainment of Jamaican entrepreneurs, the private sector reports highlighting limited availability of capable managers as a critical issue, and data showing inadequate digital skills further support this argument. In contrast to the 2018 Jamaican Establishments Survey responses, in which access to finance was the second most frequent response as an obstacle to businesses, the issue seems to be on the demand side. Interventions have recently been launched to give SMEs access to capital for business expansion and start-ups; however, early results show most of the large number of applicants are being rejected due to unviable business plans. Key stakeholders have stated the problem is on the demand side of financing during multiple consultations. While further reforms to increase access to finance can play an important role, the challenge seems to lie in entrepreneurs securing available capital. • Deficiencies in skilled labor supply, especially on tertiary educated workers. Although Jamaica has made significant progress in education, particularly in secondary education completion, skills remain a critical obstacle. The limited supply of skilled workers is affecting firm growth and deterring investment in high-productivity economic activities that require skilled workers.10 For instance, there are fewer firms in Jamaica that rely on skilled workers, and these firms have smaller average sizes than in peer countries. Also, large firms more frequently report facing difficulties in finding skilled workers. Jamaica has a higher share of the working age population (WAP) with at least secondary education than most peer countries, however, it also has among the lowest share of WAP with tertiary education. There are several indicators of a shortage of skilled workers, particularly with tertiary degrees. These include consistently high earnings premiums, higher labor force participation and employment rates, among tertiary-educated workers, and a greater likelihood of tertiary-educated workers securing high-skill occupations compared to peer countries. While there are high returns to tertiary education and skilled workers have lower unemployment, the wage gap is significant between what these workers get paid in Jamaica and elsewhere. In addition, neighboring countries, such as the US and Canada, offer a wider range of professional opportunities. This partially explains a paradox of skills shortages and emigration of skilled workers.11 Bringing in talent from overseas is challenging given the long and burdensome process and substantive fees for work permits. Our analysis identified secondary school student engagement and the quality of secondary education as key underlying factors causing the skills deficit, with a greater impact than the emigration of skilled workers according to the root-cause analysis. In addition to the deficiency of tertiary educated workers, the evidence also pointed to some areas of improvement of secondary educated workers, including in the areas of soft-skills, digital skills, and attainable technical skills that matched growing areas of labor demand. 9 We acknowledge that business performance is determined by several factors, but the evidence is consistent with limited capable entrepreneurs. 10 Even though the necessary skilled labor may only be a modest portion of the total potential labor demand from such activities. 11 Other potential factors include flight from crime and insecurity, with human capital being the most mobile asset, as well as relative ease of emigration given the presence of established Jamaican diaspora, historical ties, and English language commonality, among others. 9 Policy fundamentals, such as macroeconomic stability and the rule of law, are necessary conditions for economic growth, private investment, and job creation. Macroeconomic management has been adequate in recent years, and it remains critical for Jamaica. Government actions have brought debt levels down, although still high in absolute terms; reduced the crowding out of the private sector from domestic credit; restored the international credit rating; and has managed inflation. The government has been successful in achieving sound macroeconomic policy, but risks remain. The worsening of macroeconomic stability could rapidly destroy the progress that has been achieved. Similarly, rule of law is also a needed condition to create an enabling environment to improve job outcomes. Jamaica currently underperforms in rule of law compared to peers (World Bank 2022a). Crime and lawlessness can be dreadful for investment, improved job outcomes, and development overall (World Bank 2013). Regarding labor market inclusion, the analysis confirmed that educational outcomes play an important role in labor market performance. Many of the labor market inclusion issues are linked to the education outcomes of the relevant population segments. As with most countries, women have higher levels of education, but this gap is larger in Jamaica than in most peer countries. The analysis revealed that LFP and unemployment are the most critical areas to address to improve women’s jobs outcomes. The higher female unemployment rate is almost entirely driven by women whose educational attainment is lower secondary, a rate twice the national average. On the other hand, the greater disparity in education between men and women compared to peer countries is primarily due to significantly lower educational attainment among male workers. If male educational attainment were to improve and reduce the education gender gap to the level of peer countries, most of Jamaica’s deficit in tertiary education in the labor market would dissipate. Likewise, for poor households, the worse labor market outcomes observed appear to stem from educational disparities. Addressing jobs challenges for youth is among the most urgent issues. Due to population dynamics, the current youth segment (ages 15 to 24) of the labor market will represent in a few years the largest share of the working age population and workforce, more so than previous and subsequent cohorts. Moreover, youth play a critical role not only in filling skills gaps, but also in potential crime reduction. While some metrics may not initially indicate severe youth issues, a closer look at youth challenges through a gender and education attainment lens reveals a more nuanced picture. Jamaican young women have lower LFP, higher unemployment, and higher Not in Education, Employment or Training (NEET) rates compared to young men. However, compared to regional peers, young males show greater underperformance on LFP and NEET rates, while women are closer to peers. In addition, while youth with post-secondary education attainment have favorable labor market indicators, they account for less than a quarter of the segment population. This suggests that youth with lower educational attainment drive down the performance of the youth group. Policy options To address the key obstacles to better job outcomes, the following are the broader policy priority areas identified, with specific policy options, beyond the policy fundamentals.12 • Pathways to reduce the cost of production inputs, especially energy and electricity prices. To achieve this, it is crucial to increase renewable energy sources and improve energy efficiency. While the government has made substantial efforts on these fronts, private investment can be significantly scaled up in renewable energy projects by updating the renewable energy resource assessments, streamlining feasibility studies, simplifying permitting procedures for independent power producers (IPPs), facilitating competitive procurement by IPPs, standardizing tender documents, and bundling smaller transactions to lower transaction costs (IFC 2022), among other actions. Similarly, energy efficiency improvements can be achieved through upgrades to the electricity grid infrastructure and investments in storage technologies on the supply side, and through the development of energy efficiency standards, provision of incentives for energy savings to end- users, and retrofitting buildings, among others, on the demand side. 12As it has been highlighted before, policy fundamentals remain critical. For specific policy recommendations on macroeconomic stability, and rule of law (including crime and violence prevention), please refer to the 2022 Jamaica Systematic Country Diagnostic (SCD). 10 • Interventions to improve entrepreneurial knowhow. To improve job outcomes, entrepreneurship interventions must evolve beyond existing programs that mostly include small-scale, limited support interventions targeting disadvantaged populations. The recommended measures to address the needs of high- growth potential firms are: (i) expand support for these high-growth potential firms by providing support in areas such managerial abilities, access to finance, and access to markets (including through digital technologies). Multi-layer interventions can be considered, combining “filtering” mechanisms with comprehensive support, potentially starting with a low-cost soft skills training, followed by more specialized technical training, and closing with the development of linkages with potential customers and getting financial support. (ii) Facilitate local and international business linkages through business development services. Integrating SMEs into domestic and global supply chains can be achieved by promoting e-commerce, increasing financial and digital literacy, and enhancing relationships between SMEs and large firms through supplier development programs and mentorship initiatives. (iii) Enhancing the entrepreneurship ecosystem through improved coordination and collaboration among the institutions providing support to entrepreneurs; development of a targeted approach, based on strategic objectives and evidence; and improved monitoring and evaluation system to measure the results and impacts of the interventions, and adopt a continuous improvement approach. • Interventions to improve the availability of high-skilled workers in the economy. This requires a multi-pronged strategy including (i) increasing the ability of the secondary education system to strengthen student engagement and ensure sufficient learning outcomes for further studies or employment (including through informational interventions of the economic benefits of education, enhanced teacher training, upgraded school infrastructure, and improvements to the management information system to identify students-at-risk and deliver targeted actions); (ii) improving skills of the current labor force through Active Labor Market Programs (ALMP), which require the development of an ALMP strategy to set clear objectives, coordination mechanisms, and a framework for public and private sector providers, improvements to the labor market information, and revision of the actual ALMP to better align with labor market needs (including through active engagement with the private sector); and (iii) facilitating strategic immigration of skilled workers, based on demanded skills and occupations, can alleviate immediate labor deficiencies, increase productivity, and generate spillovers in the form of workers’ productivity increases. • Targeted policies to improve labor market inclusion of vulnerable groups. While legal and institutional arrangements are in place to address exclusion, their implementation is hindered by prevalent social norms, weak institutions, and limited financial and human resources (World Bank 2023a). Efforts to promote inclusion may be reinforced by interventions that include programs to prevent adolescent pregnancy and reintegrate adolescent mothers into the educational system; raise Programme of Advancement Through Health and Education (PATH) grants associated with schooling for secondary education to increase the opportunity cost of leaving school; develop accessible quality childcare services; strengthen ALMPs to neutralize gender segregation; adjust incentives for employers to hire workers with disabilities (World Bank 2022d); and target interventions to support female-owned businesses. Solid policy fundamentals, coupled with targeted actions to overcome the critical obstacles outlined above, can pave the way for enhanced job outcomes. There are multiple other important policy reform areas not currently included in the above-mentioned policy options that can have positive impacts on job outcomes. This report does not aim to cover all areas comprehensively, but rather provides a structured analysis and framework that can guide prioritization and foster debate on how to improve job outcomes. To better understand the Jamaican economy and its labor market outcomes, it is critical to continue improving data availability and quality to close knowledge gaps. Several data limitations are acknowledged throughout the report and critical knowledge gaps remain. For instance, neither recent enterprise survey data to benchmark countries, nor recent Jamaican wage data were available. 11 1. Introduction 1.1. Report Objectives The objective of this report is to identify Jamaica’s main jobs problems, diagnose its key causes, and provide policy options to foster debate on how to improve job outcomes. To best assess the issues and prioritize policies, we analyze Jamaica’s economic growth path, considering historical economic trends and current characteristics. While the report includes a discussion on recent economic shocks, such as the COVID- 19 pandemic and Russia’s invasion of Ukraine, the focus of the analysis is on the longer-term evolution of the economy and the labor market structure of Jamaica. This jobs diagnostic employs a systematic approach to analyze labor demand, labor supply, and labor market frictions. This framework allows for a comprehensive analysis of Jamaica’s labor market, complementing sector-specific analytical pieces. This report does not aim to focus on sector- or industry-specific challenges, which are beyond the scope of this work. Given the close nexus of job outcomes and economic growth in Jamaica, this report covers some growth-related aspects, but does not intend to be a comprehensive growth diagnostic. We assess job outcomes while considering Jamaica’s level of development along three dimensions: job creation, job quality, and equity of jobs outcomes. Job creation considers the country-level employment dynamics, including employment, unemployment, and job creation among sectors. Regarding job quality, we consider, among others, earnings and whether someone is in wage (vis-à-vis own account) employment. For accessible jobs, we consider aspects related to inclusive labor markets, such as employment patterns for youth, women, and persons with disabilities. Understanding these outcomes requires considering the economic context, including GDP per capita growth, labor productivity, sectoral composition of labor, and population dynamics, among others. Once we assess jobs outcomes and identify shortcomings, i.e., job problems, we conduct a structured diagnostic to understand their underlying causes. The structured analysis extends to factors on the demand side of the labor market, the supply side, and frictions where Jamaica may fall furthest from its peers—and where it is on par. The purpose of the analysis is to identify the key obstacles to achieving improved job outcomes. The final stage of the assessment is to consider the types of policies that should be prioritized to address these key obstacles. The diagnostic is a data-intensive exercise, supplemented with consultations with relevant labor market stakeholders.13 Benchmarking Jamaica’s conditions with select peer economies is conducted to understand where there may be unusual deficits or gaps in jobs outcomes. We use two main peer groups in this report: (i) regional peers, which are comprised of Barbados, Belize, and the Dominican Republic, and (ii) other 12 Latin America and Caribbean upper middle-income countries (LAC UMICs) with over 200,000 inhabitants.14 This data-driven approach brings together a wealth of available data for Jamaica and peer countries,15 although data limitations are also acknowledged and noted throughout the report. Consultations with key labor market stakeholders were conducted and supplement the quantitative analysis to further understand the underlying dynamics and mechanisms and fill information gaps to the extent possible. This analysis provides new insights to those from recent reports assessing Jamaica’s economic and development progress and updates previous findings. Recent reports that the WB has produced for 13 Consulted stakeholders include BPO sector companies, MSME representatives from the tourism sector, various units within public sector institutions, including DBJ, JAMPRO, PIOJ, PSOJ, MLSS, and MEGJC, as well as internal consultations at the World Bank with teams working on education, poverty, finance, macro, infrastructure, and energy, among others. 14 Argentina (2018), Brazil (2019), Colombia (2017), Costa Rica (2017), Ecuador (2017), Guatemala (2014), Guyana (1999), Mexico (2019), Panama (2018), Paraguay (2017), Peru (2017), and Suriname. Years listed in parenthesis are microdata survey dates from the International Income Distribution Database (I2D2). Suriname is not included in this database. Names of surveys included in Annex 2. Data Sources. 15 Microdata analyzed includes over 15 national labor force surveys and five firm surveys, as well as US American Community Survey (ACS) data with information on Jamaican Migrants. For Jamaica specifically, the microdata sources are the LFS, the JSLC, the 2018 survey of establishments, the 2010 WB enterprise surveys. See Annex 4 for data sources for each country included in the peer groups. Country-level information sources that include ILOSstat, Findex database, JOIN, Penn World Tables, and IMF GFS among others. 12 Jamaica include the Country Private Sector Diagnostic,16 the Systematic Country Diagnostic,17 Gender Assessment,18 and the forthcoming Poverty Assessment and the Country Partnership Framework. One of the most relevant predecessors to this Jobs Diagnostic is the 2011 Jamaica’s Growth Diagnostic (WB 2011), which analyzes development constraints, and has a labor markets section. An overarching concept for the analysis presented here is that structural transformation is fundamental to the evolution of jobs outcomes. This transformation involves the movement of a country’s productive resources from low productivity to high productivity economic activities (Monga and Lin, 2019). Along the structural transformation path, countries tend to transition out of having a dual economy where economic activity occurs in two sectors: an organized (“modern”) and highly productive sector, and a traditional, largely informal, low productivity sector. Much of the evidence presented in this report for the Jamaican economy is consistent with the Lewis Dual-Sector model (Box 1). We observe a modern sector that has larger and better capitalized firms that draw most high-skilled workers and pays higher wages. We also observe a low productivity traditional sector composed of small firms facing significant challenges to expand and workers in own account activities. Worker earnings in the traditional sectors, as proxied by own account employment, remain low compared to the modern sector, as proxied by wage employment. The implication from the Lewis model is that there remains a labor surplus in the informal sector which the modern sector cannot absorb because of its limited growth. This lack of transformation is also consistent with Jamaica’s well-known lack of growth in labor productivity over the past decades. Thus, much of the analysis of this report revolves around the patterns that indicate this duality and the different constraints to the growth of the labor share in the high productivity sector. The improvement of jobs outcomes will correspond, in part, to the structural transformation that shrinks this duality. Box 1. Lewis Model and the Modern Sector Wage Premium in a Dualistic Economy This framing is associated with the economic model developed by Arthur Lewis (1954). It posits that this duality is driven by the lack of expansion of the modern sector. The theory is grounded on having limited labor demand in the modern sector, which is better capitalized, has higher labor productivity, and better paying jobs. A key assumption of the model is that there is a surplus of labor in the traditional sector to the point where the marginal product of labor is extremely low. The prediction when there is duality is for there to be a wage premium for similar economic activities between the modern and traditional sectors. The theory predicts that eventually the duality dissipates as the labor market becomes more efficient and wages approach labor’s marginal product and the modern sector wage premium disappears. In the Lewis model, even though the modern sector has a high marginal product of labor, rather than setting wages commensurate with productivity, it pays just enough above the traditional sector wages to incentivize lower earning traditional sector workers to fulfill its labor demand. Factors that affect the size of this premium include the workers’ perceived and realized costs in switching sectors, non-monetary benefits of being in the traditional sector (e.g., flexibility, autarkic food “security”), and firms paying efficiency wages. Consequently, the wages offered by the modern sector are tied to the traditional sector wages and the modern sector wage premium is roughly constant due to it being disassociated with labor productivity. Because of having surplus labor, the movement of labor out of the traditional sector would cause the average labor productivity of the traditional sector (exit of surplus labor would decrease the number of workers without decreasing output). As the excess traditional sector labor supply dwindles— absorbed by the modern sector —the increase in productivity leads to increases in traditional sector wages. 1.2. Jobs Diagnostic Framework The structured analysis diagnoses the causes of the jobs problems identified above related to job quality and labor market inclusion. Causes can relate to policy, institutional, structural-historical factors and are distinguishable from symptoms or other outcomes. Causes may operate together to constrain better jobs 16 https://www.ifc.org/wps/wcm/connect/eec709f7-0739-4b35-885b-049fe2794dc2/CPSD-Jamaica.pdf?MOD=AJPERES&CVID=o5dUqcA. 17 https://documents1.worldbank.org/curated/en/099602312072238168/pdf/IDU032735ce3086cf049c80bfd00d2010304efe0.pdf. 18 https://documents1.worldbank.org/curated/en/099154502222328619/pdf/P175282042506702e0a7d100b3087a5be64.pdf. 13 outcomes in that alleviating one of them would render the other(s) not as constraining. Figure 1 shows the logical framework used to guide an objective and data-driven diagnosis of the potential key obstacles to better jobs. A comprehensive diagnostic tree facilitates the isolation of those causes that are considered critical and the elimination of those that are unlikely to be critical. It aims to present a complete set of possible proximate causes of poor jobs outcomes and contains primarily factors that are broadly within a given country’s control. Each potential constraint has roots in market or institutional failures, broadly defined, including those arising from (i) asymmetric information; (ii) incomplete risk markets; (iii) public goods; (iv) natural monopoly; (v) market power; (iv) coordination failures; and (v) spillovers or externalities, as well as inadequate or poorly conceived or implemented government interventions to address these failures. By assessing the symptoms associated with constraints at different levels of the tree, one can distinguish which among them are most important. Working through the tree, one rules in or out alternative branches and sub-branches as areas of constraints by asking repeatedly: If this issue/factor were the key constraint to better jobs outcomes, what pattern would I see in the data, and do I see that pattern? Thus, the analyst conducts a series of checks of “symptoms” or hypothesis tests. Discovering common roots of various constraints that emerge as important in the tree can happen. In this case, it is beneficial to characterize a syndrome, as it describes a common set of symptoms, which may have similar causes. For example, poor governance of fiscal resources may show up as high macro risk, as well as slow productivity growth, and a high cost of finance to the private sector (due to crowding-out), which together produce low investment and low labor demand. One may also consider systems of causal relationships wherein certain constraints reinforce each other or high-level constraints (such as a lack of education and road infrastructure) have a common cause (such as low or poorly allocated public expenditures). Figure 1. Summary of Jobs Diagnostic Framework 14 1.3. Organization of Report Chapter 2 focuses on the trends pertinent to Jamaica’s structural transformation and labor market, along with their current state. The chapter’s discussion covers challenges for the economy and labor market, which include chronic stagnant economic growth, limited structural transformation, the prevalence of low- value-added services, and the observed contrast between declining labor productivity and higher than average aggregate investment (relative to peer countries). It also elaborates the assessment of Jamaica main jobs problems, including its dual labor market and aspects of labor market exclusion that is found for workers from low-income households, women, youth, and persons with disabilities. The labor market demand-side analysis is conducted in Chapter 3. The constraints assessed include those related to (i) private sector profitability, (ii) the ability for investors and firms to appropriate profits that they generate, and (iii) the access and costs to finance. Key areas investigated under these sections on the potential of being critical constraints are costs of inputs, including electricity, ICT, and labor costs; impact of crime on profits; entrepreneurship knowhow; tax burden; and access and costs of finance. In addition, areas in which observed improvements that likely contributed to improved levels of unemployment, related to macro stability and public debt management, are discussed. The labor market supply-side analysis is conducted in Chapter 4 and focuses on human capital and the role of reservation wages in labor force participation. The section on human capital starts by establishing that it is a critical constraint. This is followed by a series of assessments that, layer by layer, dig into the root causes of the human capital challenges. The effects of outward migration of tertiary educated workers are among them. The influence of public sector employment, remittances, and crime on reservation wages and labor force participation are covered. Labor market failures and distortions are covered in Chapter 5. This includes potential problems related to skills mismatch and the labor market structure. Analysis for women, youth, workers from poor households, and persons with disabilities is also carried out. The inclusion analysis has a focus on measures related to job access, protection, and fairness for the groups covered. Chapter 6 presents policy options on how to address the most critical constraints, beyond policy fundamentals, with an evidence-based policy approach. The policy options included are actionable items based on country-specific knowledge and borrowing from international best practices. These recommendations aim to foster debate with policymakers and other critical stakeholders. 15 2. Overview of Labor Market Structure and Economy Attributes 2.1. Key Characteristics of Jamaica’s Economy and Labor Market Since its independence in 1962, Jamaica has seen a development trajectory with promise, but whose outcomes have been underwhelming. Growth in GDP per capita has been stagnant at 0.2 percent from 1975 to 2019, with high volatility. Regional peers averaged growth of 1.9 percent during the same period (WDI), leaving Jamaica behind (Figure 2.A). Labor productivity as measured by the value-added per worker tells a similar story. While regional peers saw moderate increases, Jamaica experienced nearly annual declines in labor productivity since the mid-1990s (Figure 2.B). Poor economic performance and economic outcomes have been underscored by crime in Jamaica, both as a cause and as a consequence. The country has remained one of the world’s top 10 most violent countries (by homicides per 100,000 inhabitants), with no clear indications of declines or improvement in this metric over the past two decades. A high level of structural unemployment has gone along with weak economic performance for decades. However, the unemployment rate has steadily declined in recent years despite limited economic growth. The turbulent economic period early in Jamaica’s post-colonial history, which included a bauxite boom that started just before its independence—and led to a decade of strong economic growth—was followed by declining GDP in the late 1970s and stagflation19 in the 1980s. These shocks led to high unemployment rates, peaking at over 30 percent. Beginning in the late 1980s, cyclical unemployment subsided to a high level of structural unemployment20 of around 15 percent (Figure 2.C). The long-term trend for the country has been a reduction in unemployment, on track with its peers. The Caribbean Policy Research Institute (CAPRI, 2023) has highlighted the paradox of rising employment with stagnant economic growth, that is, growthless jobs. As of April 2022—amidst recovery from the COVID-19 pandemic—Jamaica recorded its lowest level of unemployment historically, at 6.0 percent. Jamaica’s economic indicators signal it is experiencing a significant turnaround from these underwhelming patterns. Jamaica has been able to reduce poverty and maintain modest levels of inequality. Poverty decreased from 45 percent in the early 1990s to around 10 percent in 2019, while inequality—as measured by the Gini coefficient—has stayed relatively stable at around 38 percent. The most favorable potential economic growth factor is Jamaica’s demographic dividend, that is, Jamaica has a large share of its population being of working age (WAP) and a low dependency ratio. In 2016, Jamaica’s dependency ratio fell to 51 percent and projections suggest that its share of WAP relative to the dependent population reached a peak in 2020 (Figure 2.D). This demographic dividend can boost productivity and economic growth, increase public revenue, and reduce public spending pressures. Once the demographic dividend ends in Jamaica, in about a decade, the country will face new challenges as their population age structure shifts towards an older population, with increased needs and demands, especially of social protection and health benefits and services. 19High unemployment, high inflation, and negative GDP growth. See Mcnish, Vilma (2002). 20Structural unemployment refers to the long-lasting trend in unemployment due to slow-moving shifts in the structure of the economy’s labor market such as technological changes, human capital, availability of factors of production, and other economic fundamentals. It is the opposite of cyclical unemployment. Frictional unemployment refers to temporary unemployment that arises when people are between jobs or entering the labor market for the first time. 16 Figure 2. Key Characteristics A. GDP Per Capita (1974-2020; Constant 2015 B. Value Added Per Worker (1969-2020; Constant US$) 2015 US$) C. Unemployment Rate (1969-2021; %) D. Dependency Ratio/Working Age Population share (1950-2100; %) Notes: (A) Data from WDI; (B) Data from WDI; (C) Data from WDI; (D) Diamonds indicate when countries reach their minimum dependency ratio. Thicker lines indicate when ratios are below 51 percent. Ratios from 2021 onwards are projected under the medium fertility scenario. Data from UN DESA (2019). Remittances and migration play a critical role in labor market development and Jamaica is no exception. The global Jamaican diaspora is estimated to be slightly larger than Jamaica’s population (IOM, 2018), when considering Jamaican-born and their descendants, and continues to grow steadily in absolute numbers (Figure 3.A). The United States (US) is the main and growing destination, followed by the United Kingdom and Canada. These countries jointly account for 96 percent of migrants and the US alone accounts for 71 percent (UN DESA 2020). The diaspora’s size is reflected in the significant remittances entering Jamaica. More than half of Jamaican households receive remittances (57percent). This income source represents 44 percent of household consumption on average, for remittance-receiving households. At the national level, remmittances represents 25 percent of Jamaica’s final aggregate consumption and 22 percent of GDP. Jamaica is one of the largest per capita recipients of remittances worldwide, well-above its regional peers and other LAC UMICs (Figure 3.B) (WDI, 2020). 17 Figure 3. Migration and Remittances A. Annual Outward Flow (thousands) B. Remittances Relative to GDP and Consumption 30 25 20 15 % 10 5 0 % of final consumption % of GDP expenditure Jamaica Regional peers Other LAC UMICs Notes: (A) Data from UN DESA (2020); (B) Staff calculations based on World Bank national accounts data and OECD National Accounts data files. Finally, Jamaica faces economic and labor market challenges due to its vulnerability to external shocks and high dependency on tourism. Jamaica is susceptible and vulnerable to external shocks, including climate change events and natural disasters, external economic crisis, pandemics, and conflict and wars. Box 2 summarizes the impacts of climate change on the Jamaican labor market. These external shocks, as has been shown recently, can have significant impacts on labor market outcomes. Moreover, the high reliance on tourism arrivals, which is known to be procyclical, compounds the risk of an economy that is vulnerable to shocks. Tourism is a key source of revenue: it represents 9.5 percent of GDP, 50 percent of foreign exchange earnings, and 354,000 related jobs (GoJ, 2020). 2.2. Productivity and Sectoral Composition of Economy and Employment Jamaica has not seen a significant shift in its productive structure in the last 30 years. From early on in its history, value added (VA) has been concentrated in services, which have accounted for 60 percent of GDP (Figure 4.A). The slow fall in manufacturing’s share can be attributed both to a slight growth in the value of services and a decrease in the manufactured exports, largely due to a decline of the apparel industry (Figure 4.B) (WB 2011). The bulk of manufacturing VA—over 60 percent in 2019—stems from food and beverages. Agriculture’s contribution to GDP has been declining, with sugar cane (main export crop), accounting for approximately 2 percent of GDP in 2019. Overall, a review of sub-sectoral data shows little change in Jamaica’s productive structure since the 2000s, with some exceptions that include a rise in VA from hotels, and telecoms, and a drop in VA coming from transports.21 Jamaica’s peers show similar patterns since the 1990s, except for the reduction in manufacturing’s contribution to GDP. 21 See STATIN national accounts data on VA contribution by sector. 18 Box 2. The Impact of Climate Change on Labor Markets in Jamaica Jamaica is highly vulnerable to climate change threats. Between 2001 and 2017, Jamaica faced many major weather- related events, including eight hurricanes, three floods, five droughts, and two tropical storms. These events along with the rising sea levels pose a major risk to the country as 82 percent of the population and 90 percent of GDP resides within 5 km of the coastal line. The most devastating impact on the economy was made by hurricanes, with Hurricane Ivan in 2004 resulting in a loss and damage equivalent to 8 percent of GDP. It is projected that natural disasters will become more intense and frequent (GoJ 2021). In addition to death and injuries, climate-related events may cause environmentally induced migration (GoJ 2021; Spencer, Urquhart, 2018), and there is evidence that tropical storms increase the probability of workers transitioning to informal jobs (IDB 2017). Agriculture and tourism are highly vulnerable to extreme weather conditions. For agriculture, hurricanes and droughts lead to lower crop yields and diseases. It is estimated that they resulted in a loss of J$ 14.4 billion between 1994 and 2010 (FAO 2013). For about 17 percent (2018) of agriculture workers, natural disasters lead to difficult working conditions and lower labor productivity. Tourism, one of the key economic sectors of Jamaica, faces immediate threats posed by hurricanes and tropical storms. Hurricane Ivan led to a 20 percent reduction in tourist arrivals in 2004 (Granvorka 2013). Adaptation tools in Jamaica include communication and awareness building, climate-resilient infrastructure, as well as developing tools to access geophysical and hydrometeorological hazard data. These measures should reduce the impact on the job and income losses from disasters and may generate gains through higher labor for the construction and maintenance of the climate-resilient infrastructure, technologies, and education. On the mitigation side, in 2020, Jamaica updated its nationally determined contribution (NDC) under the Paris Agreement, pledging to reduce emissions by 25 percent. Most of the mitigation effect comes from the energy sector (UNFCCC 2020). In 2018, fossil fuels were the main source of energy supply, and the share of renewables was 8 percent (IRENA 2019). Jamaica’s National Renewable Energy Policy set a target to raise the share of renewables to 20 percent by 2030 (GoJ 2010). A global modelling study estimated that investing one million US$ in renewables and energy efficiency could create between 7.5 and 7.7 full-time equivalent (FTE) jobs (World Bank 2020a). The same investment in fossil fuels would create only 2.7 FTE jobs. It is estimated that Jamaica’s full transition to renewables and energy efficiency could result in the net creation of almost 22,590 FTE jobs and lead a 59 percent reduction in the private energy costs that could positively affect the profitability of businesses (World Bank 2020a). While the productive structure has had minimal change, there have been moderate shifts in the sectoral distribution of Jamaica’s workforce of almost 1.5 million workers. First, since 2008 there has been a 15 percent reduction in the number of workers in agricultural activities, and a similar increase in trade, which is now the country’s main employer with 250,000 jobs (Figure 4.C). This coincided with the share of the population in rural areas seeing a small decrease in the last decades (49 percent to 44 percent from 1995 to 2019). Other sectors that have seen changes are: (i) hospitality; (ii) construction; and (iii) real estate and business services (REBS) (Figure 4.D). Regarding hospitality, employment in the sector fell after the 2008-2009 financial crisis, but it has recovered since. The most impressive changes have been in the REBS sector, which includes business and knowledge process outsourcing (BPO and KPO). In the BPO sector, growth in employment continues—up to 44,000 by July 2021 from 38,400 by 2020 (and it planned expansion and the sector has 87 operators).22 Over the long run, Jamaica has followed a pattern on the sectoral allocation of jobs whereby it has become more similar to its peers, after starting with a slightly larger share of its workforce in agriculture. 22See Jamaica Gleaner (2021). The BPO sectors accounts for roughly half of the 80,000 jobs in the business and real estate sector in 2020 according to these data. 19 Figure 4. Trends in Sector Contributions to GDP and Employment and Sector Labor Productivity A. VA Contributions by Sector vs. Peers (% of B. Employment Shares vs. Peers (% of total GDP) employment) C. Sector Employment, Large Employers D. Sector Employment, Trending Sectors Notes: (A) Peer countries exclude Barbados; the share in services is estimated as the difference between the GDP and the value added in agriculture and industry for each country; data from WDI; (B) Based on ILO’s modeled estimates; (C, D) 3- quarter rolling average based on the Jamaica LFS. Jamaica’s labor productivity has been falling for many years, although its “demographic dividend” has partially offset GDP reduction. A GDP growth decomposition shows that, without a growing share of the country’s population joining the workforce, Jamaica would have likely experienced a contraction in per capita GDP over the years (Figure 5.A). Labor productivity is a topic that has been the focus of several studies, and its determinants can be varied.23 In Jamaica’s case, the share of the workforce that left agriculture resulted in a slight rise in productivity in the sector (Figure 5.B). However, as much of the labor force was reallocated to REBS, agricultural VA fell approximately 41 percent between 2007 and 2019, from about 1.7M Jamaican dollars (JMD)/year (US$ 11,140) to $1M JMD/year (US$ 6,550) (Figure 5.C). 23Goldin et al. (2021) reviews the recent literature on the global labor productivity slowdown and points to issues including decline in contribution of capital per worker, lower spillover from growth in tangible assets, trade slowdown, and growth in allocative efficiency, and the link with pace of innovation. 20 Figure 5. Trends in Sector Contributions to GDP and Employment and Sector Labor Productivity A. Growth Decomposition in Per Capita GDP (2000-2018) B. Labor Productivity vs. Peers (USD) C. Labor Productivity in Jamaica (select sectors) Notes: (B) Peer countries exclude Barbados; the share in services is estimated as the difference between the GDP and the value added in agriculture and industry for each country; based on data from WDI; (C) Estimates based on combination of shares of VA at basic prices without including financial intermediation services indirectly measured (Statin) and LFS data; (A) Table created by World Bank Jobs Diagnostics Jobs Structure tool based on WDI data. 2.3. Capital Stock and Investment Overview Jamaica has experienced a reduction in capital per worker despite no clear-cut shortage of investment. Capital stock per worker is below its peers and declining, even though there has been a rise in investment since 2015 (Figure 6.A and B). Growth in capital per worker is a driver of structural transformation—but this ratio has seen negligible growth since 1995 and it has been in decline since 2010. Possible reasons for this, which are not mutually exclusive, include the growing number of workers, insufficient investment to counter the depreciation of capital and other well-known factors that can affect investors’ appetite, such as vulnerability to shocks and rampant crime and violence. As a percentage of GDP, investment, measured by gross capital formation, fell from 2007 to 2010, and since 2015, it is slowly rising and approaching the pre-2007 levels. Jamaica’s gross fixed capital formation has also remained above its peers for most years since 2004. Although the 2008-2009 Global Financial Crisis (GFC) resulted in a large outflow of capital in Jamaica, debt restructuring, consolidation of public finances and improvements in governance, among others, contributed to making the country attractive to investors again. In 2009, interest payments were 62.8 percent of revenue—compared to 10 percent for other LAC UMICs (WDI). The high government debt24 in combination with unfavorable post-GFC global investment climate caused Jamaica’s international credit ratings to plummet starting in 2009—reaching RD (“restricted default”) Fitch credit rating in 2010 and 2013 (Figure 6.D) (Fitch 2010; Fitch 2013). As a result, the country experienced a slowdown in investment, combined with a contraction in the return on investment that may be attributed to weakening external competitiveness and limited structural reforms (World Bank 2022b). However, reforms to ensure long-term public finances 24 Jamaica had some of the highest sovereign debt burdens globally, up to 138 percent of GDP in 2012 (WDI). 21 sustainability, including fiscal consolidation and structural reforms,25 contributed to restoring Jamaica’s investment attractiveness. As an illustrative example, Fitch Ratings hiked Jamaica’s credit rating to B-26 in 2015 with another uptick in 2019 to B+ due to the continued debt reduction along with increased tax revenues. Public sector investment27 remained steady, at less than 5 percent of GDP since before 2010 (IMF GFS; WDI). FDI growth after the GFC28 has not translated into higher labor productivity because it has been centered in sectors with low- and middle-skill jobs. With the improved conditions in 2015, FDI flows had an upward trajectory, mainly through investment in mining and tourism (Figure 6.E). More specifically, since 2017, FDI has been most concentrated in mining,29 which accounts for few jobs. Regarding tourism, although there was an investment rebound in 2015, it has been inconsistent. As highlighted in Chapter 2, only 2.6 percent of tourism workers were in high-skill occupations in 2016, the third lowest out of the 15 sectors where skills were measured. In contrast, during the downturn period—between 2006 and 2013—FDI in information technology and communications, the type of investment associated with improving labor productivity, peaked in absolute value and relative to other sectors.30 25 The 2013 IMF’s program supported the reduction of the debt-to-GDP ratio, centering on fiscal discipline, including a new tax package; restructuring via debt exchange; and structural reforms led by the government, with support from multiple international financial institutions (IDB 2016). 26 B is still defined as “highly speculative,” but it represents a significant improvement from RD. 27 Public sector investment is defined in the budgetary central government as “net/gross investment in nonfinancial assets.” 28 Analysis in Swaby (2007) also found that public investment lowered FDI in Jamaica with data up to early 2000s which may have exacerbated effects from the 2008 GFC. 29 In 2017, the mining sector attracted US$ 218 million in Chinese investment, recovering from the steady fall between 2008 and 2016. 30 This could be due to the GoJ prioritizing the ICT industry 2006-2007. The Telecommunications Policy of 2007, the Electronic Transactions Act 2006, the ICT Strategic Plan implemented 2007-2012. 22 Figure 6. Investment Patterns A. Gross Fixed Capital Formation (as % of GDP) B. Capital Stock per Worker Compared to Peers C. Inward FDI (as % of gross fixed capital D. Jamaica’s Country Credit Rating formation) 0.60 0.50 Normalzed Credit Rating 0.40 0.30 0.20 0.10 Fitch Moody's 0.00 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 E. FDI Composition Over Time Notes: (A) Data from WDI; (B) Data from PWT; (C) Data source is UNCTAD; (D) Data from Fitch and Moody’s credit ratings; (E) Data from BoJ. 2.4. Job Quality, Labor Market Segmentation and Employment Types The share of wage employment31 in an economy is proxy for the level of organized economic activity or economic “development” and is positively correlated with job quality. Most importantly, the share of wage employment captures organizational change in the economy. As a result of the formation and expansion of firms, jobs and workers move from self- to waged-employment, where they normally undertake more productive tasks because of labor-augmenting investments (“capital deepening”). As firms expand, they may also gain from economies of scale and may alter the division of labor through task reorganization into smaller 31Wage employment refers to workers employed by an employer who are receiving regular wages or salaries. Usually, these workers are covered by labor laws and social protection. Own account work refers to a person that works for themselves and is not employed by an employer. Unpaid work refers to persons that report working while their work is not being remunerated. Employer is a firm or person that hires workers and pays them wages or salaries. 23 repetitive tasks done by more specialized occupations. Wage jobs, on average, can be considered “better quality” than their own account counterparts because they tend to pay better, are more likely to be covered by social protection, and be in the formal sector. While there are numerous exceptions, as a general rule in low- and middle-income countries, wage jobs can be considered better quality jobs. Jamaica falls short of peers with regard to the share of workers in wage employment. Although it has a negligible amount of unpaid family workers, the share of workers in own account activities is larger than for peers by a notable margin (Figure 7.A). Own account workers are mostly employed in agriculture (40 percent), trade (29 percent), and community and personal services (8 percent). Mixed farming, on its own, accounts for 25 percent of own account workers. Although the share of vulnerable employment (which combines own account and unpaid family workers) has been decreasing, it is not on a trajectory to catch up with regional peers for many years (Figure 7.B). Employment type and earnings trends are consistent with limited improvements in job quality on average for the last two decades. First, among the most common occupations in the workforce, only one (teachers) of the six with annual earnings of over J$ 400 thousand (approximately US$ 2,660) had growth between 2007 and 2014 (Figure 7.E). Second, while wage employment pays more in most sectors (Figure 7.C), the growth in wage employment share has been miniscule. Third, the wage to own account worker earnings ratio has failed to show steady decline between 2007 and 2016—both in aggregate terms and for the major sectors where both employment types are common—indicates that labor market segmentation has not fallen (Figure 7.D). Similar productive activities are being carried out by higher productivity better paid workers in the modern sector and lower productivity lower paid workers in the traditional sector. These numbers need to be interpreted with caution, given the data limitations and the country context during the 2007-2016 period.32 The earning data we were able to analyze spanned between 2007 and 2016—a period that included the global financial crisis and the IMF’s programs. 32 The earnings data had large amounts of missing values and some unexplained outlier values that had to be adjusted. 24 A. Distribution of Job Types and Informal Sector B. Share of Vulnerable Employment Over Time 2019 C. Correspondence between Earnings and D. Average Labor Income of Wage Relative Employment Type to Own Account Workers Figure 7. Trends in Types of Employment 25 Figure 7. Trends in Types of Employment (Continued) E. Annual Wages (2016) and Growth (2007-2016) in Employment, Common Occupations Notes: (A) Authors’ calculations based on modeled ILO estimates; (B) Vulnerable employment encompasses unpaid family workers and own-account workers; data from modeled ILO estimates; (C). The minimum wage depicted is the legal wage for occupations other than security guards. Other personal services refer to “Other community, social and personal service activities.” Public administration refers to “Public administration and defense, compulsory social security.” Based on LFS; (D) Wages are right-centered at the 99th percentile for each quarter. Graph shows Lowess smoothed ratio between wage and own account earnings medians. Based on LFS data; (E) Trade workers do not include electricians. The salesperson category also includes models and demonstrators. Laborers refer to workers in mining, construction, manufacturing, and transport. The category “Other” includes all other occupations. The growth rate corresponds to the annualized rate of average quarterly geometric returns in employment. Based on LFS. 2.5. Skill Content of Jobs in Jamaica Jobs in Jamaica are heavily concentrated in middle-skill occupations and more so than for peer countries. Using the ILO’s four level occupation skill classification,33 we observe that two of every three jobs are in the low middle skill (S2) occupations (Figure 8.C). The two most common middle-skill occupations34 account for over a quarter of all jobs in Jamaica: market-oriented agricultural producers (17.8 percent) and private protection/security workers (12.2 percent). Compared to peers, Jamaica has fewer workers in low skill jobs (S1) and higher skill jobs (S3+S4). This largely mirrors the peer comparison of educational attainment of the WAP, where Jamaica has more secondary educated adults, but fewer tertiary educated ones. This market- wide skills distribution is largely mirrored in individual industries, which predominantly rely on middle-skilled workers (Figure 8.B).35 Occupational growth patterns are mostly encouraging with respect to the average job skill level in Jamaica (Figure 8.A). Six of the seven occupations with the highest growth rates between 2007 and 2014 are in middle-high (S3) or high-skilled (S4) occupations. In contrast, all low skill occupations saw contractions, with the largest contraction by far being in subsistence agricultural workers. However, even after that growth, most of the high growth occupations remain small in absolute number—none of the six mentioned constitute more than 5 percent of jobs. In fact, in absolute numbers, growth in middle-skill (S2) occupations dominated—the 33 Low skills are for elementary occupations and require primary education (ISCED 1). Middle skills involve operating and maintaining equipment, driving vehicles, storage of information and require completion of the first (ISCED 2) or second stage (ISCED 3) of secondary education or vocational specific education (ISCED 4). Middle-high skills are for occupations with complex technical and practical tasks and require 1-3 years at a higher institution (ISCED 5b). High skills refer to occupations involving complex problem solving and decision-making and require 3-6 years of higher education and an award of a degree (ISCED 5a and higher) (ILO, 2012). 34 See Figure A 7 in the Annex for a detailed distribution of occupations at each skills level. 35 Exceptions are private households, where low-skilled occupations predominate, and the largest portion of high-skilled jobs is in the REBS sector. 26 three most common middle skill occupations36 had positive growth rates. Another concerning pattern is the reduction in some middle-high and high-skill professions that include corporate managers (S3), associate teaching, scientists and engineers and life science and health jobs (S3), and corporate managers (S4). Additionally, between 2000 and 2015, Jamaica also experienced a declining share of workers in most of the more easily automated occupations (Figure A 8 in Annex). Figure 8. Occupations and Skills in Jamaica A. Growth of Occupations (2007-2014) B. Skill Level by Sector, 2016 C. Cross-Country Comparison of Skill Level of Total Jobs (2016) Private households Commun./social/pers. service Health/social work Education Pub. adm./defence/soc. secur. Real est./rent./busin. activities Financ. intermediation Transport/storage/communic. Hotels/restaurants Trade/repair of motor vehicles Construction Electricity/gas/water supply Manufacturing Mining/quarrying Agric./forest./fish. 0 50 100 Low skills (S1) Middle skills (S2) Middle-high skills (S3) High skills (S4) Notes: (A) Share of employment in the occupation’s mean quarterly share. Growth corresponds to the geometric mean of quarterly growth in employment from 2007 to 2014, excluding 2011; based on LFS; (B) Values correspond to the quarterly average shares in 2016. Employed workers, excluding those who do not report their occupation and armed forces occupations. Based on LFS; (C) Based on I2D2 microdata. 2.6. Firm Growth Outcomes 27 Compared to peers, Jamaican firms are smaller and younger. With a mean firm size of 30, Jamaica does not stand out relative to regional peers (31) but does so compared to the rest of LAC UMICs (52). Enterprise average age is also the same (Jamaica 21, regional peers 17, rest of LAC UMICs 20). However, the firms size distribution shows that in Jamaica the majority of firms (slightly more than 50 percent) are concentrated in the small category (six to 20 FT workers). Whereas from the other two peer groups, this size category is about slightly more than a third (Figure 9.A). More striking is the lack of large enterprises in Jamaica of more than 50 workers with peer groups having double the firms in the category: 15 percent in Jamaica and about 33 percent for the peer groups. More recent data confirms the prevalence of smaller firms. JSE (2019) report outlines that 46 percent of enterprises employed less than five people on a continuous basis, 40 percent had 6-20 employees, while only 5 percent had more than 50 employees. Figure 9. Firm Size Trends in Jamaica A. Firm Size Distribution vs. Peers (2010) B. Median Sales per Workers (PPP US$, thousands) (2010) 50.4 84 81 62 66 60 60 60 60 37.9 48 50 36.1 45 38 31.5 31 32 34 29.2 26.6 24.3 24.6 13.9 Jamaica Jamaica Jamaica Jamaica Jamaica LAC UMICs LAC UMICs LAC UMICs Regional Peers LAC UMICs LAC UMICs Regional Peers Regional Peers Regional Peers Regional Peers 5.7 5.9 4.7 5.0 2.9 1.3 Micro (<5) Small (6 to 20) Medium (21 to 50) Large (51 to 250) Largest (251+) Total Micro (<5) Small (6 to 20) Medium (21 to Large (51 to 250) 50) Jamaica Regional Peers LAC UMICs C. Adjusted Success Rates of Small Firms that Started between 1990 and 2010 at 2010 40% 41% Probability of having over 50 FT workers 39% 39% 39% 39% 40% 37% 37% 32% 34% Notes: (A) based on data from WB ES; (B) For peer groups 29% the bar represents the arithmetic mean of country medians; 26% 26% based on available WB ES microdata; (C) The bars represent at interview the probability that a firm that started as a small firm (<20 17% workers) would be a large firm (>50 workers) in 2010 after 12% controlling for age, age square, and sector of activity; based on available WB ES microdata. Small firms in Jamaica are, on average, performing decidedly worse than in peer countries. The data show that after controlling for firm sector and age, small firms in Jamaica had the lowest likelihood of becoming a large firm (or transitioning) among the 16 peer countries where the WB ES microdata is available. Half of the countries have a success rate twice as high as Jamaica and all but one twice the rate (Figure 9.C). More recent data from GEM confirm this trend, showing that Jamaica significantly lags behind peers on the high job creation expectations.37 Only 0.5 percent of Jamaican newly established businesses expected to have high job creation in 2016, compared to 14 percent in regional peers and other LAC UMICs. Sales per worker is also indicative of productivity and where Jamaica falls behind peer groups, with Jamaica’s median of 38,000 US$ per worker annually compared to average sales per year while peer groups are in range of 60,000 (Figure 9.B). Differences 37 Percentage of those involved in the total early-stage entrepreneurial activity who expects to create six or more jobs in five years. 28 in the sales per worker in the small firm category, where most Jamaican firms are concentrated, is where it stands out most as below its peers: Jamaica is at US$ 34,000, while regional peers are at US$ 60,000 and other LAC UMICs at US$ 50,000. The data make a case for tying firm size to improved job quality and highlight the extent of the dual nature of economic activity in Jamaica. As firm size increases, the likelihood of operating in the informal sector dissipates, thus increasing jobs associated with social insurance and pension. Operating at scale, larger firms are better able to efficiently use labor. This is consistent with what is observed at the sector level: sectors with larger average size of employers are most productive (Figure 10.A). This aligns with findings from the World Bank Private Sector Diagnostic (World Bank 2022a) which point to firm productivity in Jamaica being positively correlated with its size. Tertiary educated workers are seldom in small firms—nine in 10 tertiary educated employed workers are in firms with 10 people or more (Figure 10.C). Firms of more than 50 workers account between 30 percent and 40 percent of tertiary degree holders even though they account for about 20 percent of employment. The same applies to skills, with larger firm categories progressively rely more on high- skilled workers. Viewed through labor earnings, there is a clear pecking order: every year from 2007 to 2016, average earnings corresponded to the size of employer (Figure 10.B). A similarly evident ranking is found regarding skill level and occupations. Large employers disproportionally hire more tertiary educated workers and account for more high-skill jobs. Whereas firms with two to nine people have one in 10 employees in high- skill work, for firms with 50 or more people, it is one in four employees. Most large firms are concentrated in the tourism, finance, electricity, and agro-processing sectors (World Bank 2022a). MSMEs,38 which provide more than two-thirds of jobs, are mostly engaged in wholesale, accommodation and food services, and agriculture. Despite the absence of a meaningful decline in vulnerable employment, there has been a rise in the average size of employers (Figure 10.D). Large firms went from accounting for around 13 percent employment in 2007 to about 18 percent in 2019. This was largely driven by the expansion of BPO sector growth, under REBS. However, this growth lacked an improvement in job quality. In Jamaica, larger firms are growing in employment shares, which would suggest growth in wage employment and productivity. 38The GoJ defines firm categories by number of employees or total annual sales/turnover. Miro are up to 5 workers/J$10 million; small 6-20 workers/ 10 million-20 J$ million; medium 21-50 employees/ 50-150 million J$. 29 Figure 10. Correlation between Firm Size, Performance, and Job Outcomes A. Firm Size vs. Labor Productivity B. Worker Earnings by Firm Size Category C. Share of Employment of Worker that Obtained D. Distribution of Firms by Size a Tertiary Degree Notes: (A) Author estimation based on Jamaica LFS 2019 Q4 and STATIN National Accounts. Lowess fit in dashes; (B) Wages are right-centered at the 99th percentile for each quarter. Data from LFS; (C, D) Data from LFS. 2.7. Labor Market Inclusion Labor market inclusion refers to differences in the opportunities and obstacles faced by specific segments of the labor force. The data show that Jamaica faces similar challenges to its peers regarding inclusion. For a top-level assessment, we reviewed jobs outcomes along the dimensions of gender, rurality of location, and age. A select set of outcomes disaggregated by these grouping is shown in Figure A 24 in the Annex. In the following paragraphs we explain the most significant findings. When compared to its peers, Jamaica’s labor metrics point to a less inclusive labor market for women. Women in the labor force face disadvantages that are observed for the listed peer economies—they have lower employment rates of 58 percent compared to 71 percent for men, and earnings are lower when factors such as education are accounted for (Figure 12). Moreover, young women have greater rates of not being in employment, education, or training (NEET). Like in other countries in the region, when women are employed, they tend to be in higher skills jobs (16 percent) and are less likely to be in vulnerable employment (30 percent) compared to men (8 percent and 38 percent respectively). Addressing youth employment is one of the most urgent issues for Jamaica, especially considering the country’s age profile. There has been a population bulge going back to the early 2000s (Figure 11.A), and by 2020, most of this segment of the population had entered working age (Figure A 26 in Annex). Population projections indicate that as the current youth cohort ages, they will remain the largest portion of the WAP 30 (Figure 11.B). Unlike prior trends, subsequent youth cohorts will not outsize them. Therefore, more so than in previous decades, supporting youth will be crucial for Jamaica’s future. Figure 11. Population Pyramid for Jamaica A. 2005 B. 2030 Notes: Data from U.S. Census Bureau International Database. Current labor market outcomes of Jamaica’s youth are not encouraging. Jamaica youth employment rates at 30 percent lag behind comparison countries (Figure 12). At the same time, NEET rates in Jamaica (23 percent) are similar to peer economies (26 percent in regional peers and 20 percent in other LAC UMICs). This points to an economic inclusion challenge. A silver lining is that youth who are able to find a job are less likely to be in vulnerable employment (15 percent) or in the informal sector (as measured by employers contributing to social protection and/or pensions). Youth’s role in Jamaica, combined with the current cohort’s size, calls for focusing policy on this demographic group. Various features of the Jamaican economy and labor market lead to youth employment being more crucial than in other MIC settings. A conspicuous dimension is crime: youth, especially young males, are the main perpetrators and victims of crime39 while, at same time, in a period of their life where their involvement in crime may not yet be cemented. The current cohort is especially influential with regards to another key challenge for Jamaica: human capital. Youth have greater educational achievement than the older labor force40 and are also in a stage of life in which choices regarding education are still being made. On average, youth tend to face fewer restrictions with regards to family commitment and responsibilities (e.g., parenthood.41) They tend to be less path dependent; they are not as “locked in” to economic activities, careers, or sectors as compared to workers with more work experience and a longer labor market history.42 Another important consideration is that their experience in the labor market now could have long-term effects. Evidence shows this “scarring effect” can cause, for example, significant long-term reductions in income.43 Moreover, youth are at a stage in their life in which migration decisions are being taken—another important issue for Jamaica. Labor market inclusion is also not favorable for persons with disabilities. The Jamaica Survey of Living Conditions (JSLC) 2019 shows a disability prevalence rate among population of 3.6 percent. Persons with physical disabilities face LFP and employment rates respectively 19 and 25 percentage points below the national 39 Over 90 percent of homicide victims and perpetrators are males below 35 years old (World Bank 2022b). 40 21 percent of young people aged 25-29 have post-secondary/tertiary education compared to 16 percent of the population aged 30-64 (LFS 2019). Although youth is defined as persons aged 15-24, the analysis by educational levels looks at youth aged 25-29 to account for the fact that some young people remain in education longer. 41 Teenage pregnancy has been discussed as an important issue to the educational and labor market success of young women. 42 For evidence of path dependency see Dlouhy and Biemann (2017). 43 For example, for the United Kingdom Steinberg (2013) presents evidence that one year of youth unemployment at age 22 in the United Kingdom resulted in wages that were 13 percent lower 20 years later. 31 level (Figure 12). However, once employed, these workers are close to on par with the average of underemployment and contracted work (a proxy for formality). Persons with mental disabilities, however, fare significantly worse across most metrics. Workers in rural areas, following the pattern of peer countries, tend to have similar employment and LFP rates, but suffer from lower job quality attributes in terms of job skill level, underemployment, vulnerable employment, and informality. Relevant to understanding the urban-rural gap is the level of urbanization in Jamaica, where the country has also fallen behind. In 2003, Jamaica and LAC UMICs were comparable with roughly 52 percent of the population residing in urban areas. In the following two decades, however, Jamaica experienced only a modest rise to 56 percent urbanization. Meanwhile, UMICs saw a transformative urbanization pattern that took them to an average of 68 percent urbanization. Figure 12. Employment Rate by Group 80 60 % 40 20 0 Jamaica Jamaica Jamaica Jamaica Jamaica Jamaica Jamaica Jamaica Other LAC UMICs Other LAC UMICs Other LAC UMICs Other LAC UMICs Other LAC UMICs Other LAC UMICs Other LAC UMICs Other LAC UMICs Physical Dom. Rep. Dom. Rep. Dom. Rep. Dom. Rep. Dom. Rep. Dom. Rep. Dom. Rep. Dom. Rep. All Mental Total Female Male Rural Urban Young Young Elders People (age 15-24) urban males (age 55-64) with disabilities Notes: (A) Based on LFS 2019. Data on people with disabilities is based on JSLC 2019. 2.8. COVID-19 and Russia’s Invasion of Ukraine Effects on Labor Market The COVID-19 pandemic had a strong impact on Jamaica’s economy, severely affecting exports. In 2020, real GDP contracted by 10 percent compared to 2019. Tourism, that accounted for one-third of GDP in 2014-2019, was among the hardest hit sectors (World Bank 2022a). International merchandise trade declined by 19 percent—largely due to the contraction of crude materials (30 percent) and mineral fuels (23 percent) exports—while food and beverages, and tobacco exports grew by 16 percent and 2 percent respectively. In this context, annual inflation stayed within the Bank of Jamaica’s (BoJ) target band (4 percent to 6 percent), amounting to 5.2 percent. In 2021, exports showed a strong recovery, with food and beverages, tobacco, mineral fuels, animal and vegetable oil, and fats and chemicals experiencing growth compared to 2019. Meanwhile, exports of crude materials, manufactured goods, machinery and transport equipment, and other manufactured articles declined (STATIN). The pandemic had a strong negative effect on employment, and despite the recovery, multiple labor market indicators in Q2 2022 have not yet recovered to pre-pandemic levels. Between Q1 and Q4 2020, the employed labor force declined by 114,000 jobs or 9 percent of total employment, and the unemployment rate increased from 7 percent to 11 percent. Data from Q2 2022 data show that the number of the employed labor force has almost reached the pre-pandemic level, while the unemployment rate has improved significantly, dropping to 6 percent. However, the economic recovery has been affected by Russia’s invasion of Ukraine, which has led to higher inflation and disruptions in the financial markets and global supply chains. In this 32 context, the population outside the labor force was still 4 percent larger in Q2 2022 than in Q1 2020. The quality of jobs in Jamaica deteriorated due to increasing informality. The share of the employed population with formal jobs in December 2021 was approximately 5 percent below the pre-pandemic level of February 2020, with about 20 percent of workers with formal jobs before the pandemic transitioning to the informal sector (WB, UNDP 2022). The pandemic hit workers in low- and middle-skilled occupations the hardest. The largest drop during the pandemic (Q2-Q4, 2020) was experienced by elementary occupations attributable to low-skill level (17 percent), followed by middle-skilled occupations: service and sales workers (8 percent) and craft workers (9 percent). While craft workers’ jobs fully recovered by Q2 2022, elementary occupations still lagged behind the pre-pandemic level. Meanwhile, professionals, senior officials, and technicians (middle-high and high-skill occupations) saw a 6 percent increase in jobs between Q2 2022 and Q1 2020. At a sectoral level, real estate, and business services (REBS) showed the greatest increase in jobs both during the pandemic and in the recovery period, while most job losses appeared in trade, entertainment, and hospitality. Sectors that accounted for the largest losses of jobs during the pandemic (Q1-Q4 of 2020) were trade (11 percent), arts and entertainment (21 percent), and accommodation and food services (14 percent). In contrast, sectors with the greatest jobs growth during the pandemic in absolute terms were REBS (11 percent), and telecommunications (34 percent). REBS showed further growth up to Q2 2022, becoming the fourth largest sector in Jamaica in terms of employment, up from seventh place in Q1 2020. Construction jobs also increased (18 percent), despite a 3 percent decline during the pandemic.44 Despite the positive pace of economic improvement, the tourism sector’s recovery has been modest. Consultations suggest that workers in tourism-related sectors who were laid off during the pandemic were absorbed by other sectors, including BPO, now causing labor shortages for tourism-related activities and retail in particular (Jamaica Loop News 2022). The pandemic disproportionately affected labor market outcomes for women, youth, and workers in urban areas outside of the Kingston Metropolitan Area (KMA). Despite the improvements in labor market outcomes for women before the pandemic, they were disproportionately affected by the crisis with almost 17,000 more jobs lost by women than by men between Q1 and Q4 2020. Though males and females have both almost reached the pre-pandemic rate of employment, the recovery is moving slightly faster for men. Young workers aged 20-34 accounted for 45 percent of total job losses, but the employment almost recovered by Q2 2022. Location-wise, workers in urban areas outside of KMA experienced the largest decline (16 percent) in employment between Q1 and Q4 2020, compared to 6 percent in KMA and 8 percent in rural areas (STATIN 2022). 44 Sectoral disaggregation includes employed and unemployed labor force. 33 3. Structured Demand Side Analysis: Constraints to Economic Growth from Firm Side Jamaica’s inadequate job outcomes are primarily driven by low labor demand, economic activity, and private investment. The symptoms that suggest that low labor demand is the underlying issue include stagnant long-term economic growth, lack of structural transformation, falling labor productivity, high rate of unproductive employment as measured by a higher share of own account workers compared to peer countries, and a relatively low number of large firms and small firms having low success rates in becoming large firms, among others. While low labor demand underscores job quality problems, issues on the supply side of the labor market can affect the behavior of firms and generate “symptoms”’ that appear to be on the demand side on the surface. Specifically, problems with low investment or limited capital per worker could be caused by a limited availability of the necessary complementary skilled labor. As further discussed below, the lack of skilled labor has the potential to impede the growth of higher quality jobs and aggregate labor demand for jobs of all skill levels because there are complementarities between different skills in production and spillovers from higher skilled to lower skilled workers.45 To uncover the causes of the underlying low labor demand, economic activity, and private investment limitations, we assess the potential constraints, including low returns to economic activity, low appropriability of the returns from economic activity, and access to and cost of finance.46 The analysis is primarily focused on factors that are broadly within Jamaica’s control, although we acknowledge that there are other factors affecting economic activity and labor demand that are outside Jamaica’s control (e.g., global aggregate demand). Low returns to economic activity seem to be the main underlying issue. Access to and cost of finance was also assessed in detail. While the supply of financing is an important factor, especially for SMEs, it seems there is also a demand side issue. For instance, financing was ranked as the fourth main obstacle in the 2018 Jamaica Establishment Survey (although second for SMEs). Different objective metrics for Jamaica, such as the private credit to GDP ratio and real interest rate, show performance in on par with peer countries. Other metrics, such as the interest rate spread and the earnings on assets, have also been improving over the last decade. The government has made significant reforms to improve access to finance over the last years. IDB 2022 and key stakeholders consulted for this work highlighted that while access to finance supply has improved (and can be further improved), there is also a demand side problem. Our analysis suggests that, beyond policy fundamentals, the main constraints to higher investment, economic activity, and labor demand are factors associated with low returns to private economic activity: (i) high cost of (non-labor) production inputs, especially energy and electricity, (ii) lack of entrepreneurship knowhow, and (iii) a deficiency in the skilled labor force. The high cost of inputs, especially for energy and electricity, directly increases the cost of operating businesses, reducing profitability, deterring investment, and decreasing competitiveness. Similarly, limited entrepreneurship knowhow is associated with inefficient business practices, inadequate resource allocation, and poor decision-making, discouraging private investment. While availability of financing for SMEs has improved in recent years, multiple stakeholders have confirmed that the loan applications for proposed projects are mostly low quality and unattractive for investment; meanwhile some of the most recent information, as discussed below, point to firm inability to secure financing as an obstacle. Lastly, the deficiency of a highly skilled workforce is associated with a low labor demand equilibrium in high productivity jobs in Jamaica, where firms, especially large firms, and human capital-intensive firms, cannot grow or simply will not invest in Jamaica due to the lack of required skills. Meanwhile skilled workers are emigrating to look for, inter alia, better economic opportunities abroad drawn by large wage differentials.47 While this issue is broadly recognized as a barrier for private investment, economic growth and labor demand, the underlying issue is a shortage of labor supply of skilled workers. For this reason, this is analyzed under the labor supply section. 45 There is a growing literature on the topic of social returns to education. For example, see Moretti (2004a, 2004b) and Hout (2012). 46 Trade and trade competitiveness are not analyzed in-depth in this report. This is an area that can be considered for future research in follow-up work. 47 Focus group discussions with university students in Jamaica highlighted another potential reason for migration is the limited number of opportunities in specific occupations that might be available in larger countries such as the US. Jamaica’s labor market is relatively small. 34 Other factors that are also essential to improve job outcomes in Jamaica are policy fundamentals, such as rule of law, particularly crime and violence, and macroeconomic stability. Policy fundaments are a prerequisite for economic growth and increased labor demand. Crime and violence and macroeconomic instability hinder appropriability of returns and disincentivized investment. Jamaica scores lower than peers on indicators that relate to the rule of law (World Bank 2022). Moreover, crime and violence in Jamaica are prevalent, hampering private sector development in various ways. For larger firms, the cost to protect business operations from crime constitutes an implicit tax on their profitability and reduces their competitiveness. For smaller firms, the effects of crime can be overwhelming as they have fewer resources to recover from economic losses; may struggle to afford security measures, making them more vulnerable to theft; and more likely to face extortion from local gangs. Overall crime also affects firm and consumer behavior, such as operating hours (foot traffic falling in the evening because of safety concerns) and generally deterring customers from small businesses in areas that are perceived to be less secure, which also limit profits and, correspondingly, investment. Jamaica is still one of the countries with the highest homicide rates in the World. While in 2010, firms in Jamaica reported crime, theft and disorder as a major constraint, firms did not report crime as major obstacle in the 2018 Jamaica Enterprise Survey and theft in Jamaica has been declining significantly since 2010 (UNODC 2022). Other metrics, such as cost for security and losses due to theft and vandalism, are in line with peer countries (WB ES 2010). Regarding macroeconomic stability, while it has been restored, it remains fragile. Debt levels continue to be high (over 90 percent of GDP), although the debt reduction trajectory has been exceptional. The GoJ has been successful in achieving sound macroeconomic policy and the latest crises have been caused by external shocks, such as the global COVID-19 pandemic. Given the importance of macroeconomic stability for private investment and economic growth, this remains as one of the foundational factors and one that continues to require close attention by policymakers. The following subsections present the analytical underpinning for the conclusions that we reached regarding the main constraints. In this assessment it is especially important to rely on the full breadth of evidence (quantitative and qualitative) available since data sources do not always coincide in how obstacles are ranked (see Box 3). Box 3. Consistency of Rankings for Firm Growth Obstacles across Sources One of the main sources of information regarding the significance of business and other environmental factors in constraining business growth is ranked lists of obstacles, such as crime, energy, taxes, and labor supply, to name a few. These stem from information drawn from enterprise surveys with large sample sizes (e.g., World Bank Enterprise Survey, Jamaican Establishment Survey), surveys of experts (e.g., the GEM National Expert Survey), specialized surveys (e.g., Productivity, Technology, and Innovation Survey), and assessments by organizations that take into account country-level and other data (e.g., WEF Competitiveness Index Sub-Indices). There is a wide variation with regards to the reference period and representativeness, among other aspects, across these sources. There is also a lack of harmonization on how obstacles are classified. For example, with regards to the effects of labor supply on firm growth, some sources refer to lack of labor supply as a problem, some as the lack of skilled labor, and some as the lack of suitable workers (leaving whether this is in reference to skills ambiguous). Given differences in the sources of information to rank business growth obstacles, there is no surprise to find differences in how certain issues rank across sources. Table A 1 in the Annex lists the rankings of obstacles from various sources to enable comparison. Of special note is that for the JES 2018, there was a sequence of questions, obstacle by obstacle, asking the respondent whether it would be considered significant. Next to these questions there was an open-ended question on what the respondents considered the top obstacle to growth. For this report the team reviewed the nearly 2,500 raw responses to the open-ended question and classified them, considering themes that clearly stood out (lack of physical space) and the obstacle classifications found elsewhere. Annex 3 includes an explanation of this classification. From the comparison for obstacle rankings in Table A 1 in the Annex one can see that interpreting the information can be difficult even when considering a single survey. 35 3.1. Low Profitability and Returns to Economic Activity Given the discussion on the firm size dynamics and low success rate, the business environment characteristics that affect firms’ operations must feature prominently among prospective key constraints to stronger labor demand. To generate investment needed to expand, a firm’s expected profits need to be sufficiently large to yield financial returns on investment that are equal or above the price of capital (i.e., interest rate). Although it is difficult to measure profitability due to limited suitable data on firm returns or profits, firm survey responses on the obstacles to grow, such as electricity costs and taxes have a direct link to profitability. Past studies for Jamaica have also suggested that high costs could be a critical constraint, including high transaction costs with regards to electricity, logistics, business procedures, and security (see World Bank 2011). In this section we review the data and evidence on factors affecting business performance, mainly through the channels of input costs, market conditions, and entrepreneurial knowhow. 3.1.1. High Costs Associated with Electricity, Infrastructure, and ICT The commonality of the issues covered in this section is that they operate as a public good in some way. In the case of transport infrastructure this is mainly provided by the government (roads) or through private-public partnerships (ports). Non-labor input costs are divided into those related to electricity, physical infrastructure (such as transport), and ICT48 infrastructure. Electricity is a concern because the country relies on imported fuel and Jamaican firms face a large electricity cost burden. Roads and transport infrastructure, including ports, are key since Jamaica has the potential to be a logistics hub. ICT infrastructure is important because Jamaica is a service-based economy with a growing BPO sector. Patterns in recent data indicate electricity costs stand out as a critical challenge in Jamaica. Electricity costs are the fourth highest in the world and 81 percent of firms experience electricity outages (World Bank 2022a) compared to 59 percent for the Latin America and Caribbean region. Data on the cost of electricity for 2019 Q4 show that businesses spend US$ 0.22 per KWh, compared to 0.20 for the regional peers, and 0.12 on average for other LAC UMICs.49 The 2018 Jamaica Establishment Survey ranked the cost of electricity as the major obstacle for businesses. This pattern goes back to 2010, when the WB enterprise survey data also show that firms in Jamaica identify energy costs as a severe constraint (Figure 13.B). A few indicators from the 2010 WB enterprise survey provide a less dramatic picture of electricity costs, such as number of days to obtain collection or ratio of electricity costs to revenue (Figure 13.A and C). The reasons for high energy prices vary, with energy import dependence being a primary cause. Jamaica strongly relies on energy imports that accounted for 82 percent of net energy use in 2014 (WDI). Green energy transition may reduce these costs in the near future. Some large firms have reported to already be investing in solar power with the expectation of lowering the electricity charges over time (World Bank 2022a). The government has also announced its commitment to support the shift from fossil-based fuels towards renewable energy. Currently, solar, wind, and hydropower energy generate about 10 percent of energy usage and the target is to raise it to 30 percent by 2030 (IMF 2022a). In addition, technical and commercial electricity losses in Jamaica are significant and amounted to 28.4 percent in 2021, compared to the LAC average of 13 percent in 2019 (JPS 2022; IADB 2021). The share is growing, with reported losses going up from 26.5 percent in 2017 despite the government’s efforts to promote energy efficiency, including through infrastructure upgrade (JPS 2022). As the costs are passed to the final consumers, a substantive share of losses also contributes to the high electricity prices in Jamaica. Road infrastructure in Jamaica is underdeveloped, even if it is seldom cited as one of the key constraints (as of 2010). The quality of roads in rural areas is low despite good coverage. The condition of about 48 percent of roads in the national network was classified as “bad” (World Bank 2022b). This has a negative impact on logistics and transportation of goods within the country, especially for local agricultural Information and communication technology. 48 Data from Global Petrol Prices in nominal prices. Other LAC UMICs included are Argentina, Paraguay, Ecuador, Colombia, Costa Rica, Peru, Brazil, 49 Mexico, Guatemala, and Panama. 36 producers. In contrast, airport and port infrastructure is relatively well developed. While infrastructure is critical for development, JSE 2018 data further reinforce the notion that infrastructure in Jamaica, as a whole, is not among the top barriers for businesses (see Table A 2 in the Annex). The IMF (2022a) has pointed out that logistics and energy have suffered from under investment and insufficient maintenance. Transaction costs are high due to infrastructure issues that can drive unit costs up, including inadequate transport and logistics infrastructure. A meta-analysis of the empirical evidence on the output elasticity of transport infrastructure showed that it is higher for roads compared to other modes of transport and is higher for agriculture and manufacturing sectors than construction and services (Melo et al. 2013). A recent study that conducted cross-country comparisons of the relationship between paved road networks found evidence that there is an inverted U curve of economic returns relative to quality of a country’s paved road network, whereby the positive effects of better roads reach a maximum and then begin to decline upon further network improvements (Laborda and Sotelsek 2019). While access and usage of ICT in Jamaica is similar to peers, internet prices are higher. ICT is an important driver of firms’ development and performance in services-prevalent economies like that of Jamaica. The country has achieved almost universal 4G mobile network coverage (ITU 2021). The share of people using the internet in Jamaica is 71 percent, similar to the regional peers (69 percent), and other LAC UMICs (72 percent) (ITU 2017). However, internet prices are high, with a fixed broadband basket (5GB) in Jamaica equal to 7.9 percent of GNI per capita. This is higher than in any peer country apart from Belize (Figure 13.D).50 High prices may be caused by limited competition as the market is dominated by two companies—Digicel and Flow—but new providers started entering Jamaica in recent years (Jamaica Gleaner 2022a). High internet prices raise costs for businesses; however, this does not appear to be a significant constraint. 50 Significantly above the 2percent of GNI affordability target set by the UN Broadband Commission for Sustainable Development. 37 Figure 13. Electricity and Infrastructure’s Effects on Business Performance A. Effect of Infrastructure on Firm Performance B. Percent of Firms that Indicate Energy as Compared to Peers (2010) Costs are Largest Obstacles (2010) 22 17.61 18.18 18.38 14.94 12.7 11.94 7.42 4.45 4.54 4.75 4.06 Medium (21-49) Medium (21-49) Medium (21-49) Large (51+) Large (51+) Large (51+) Total Total Total Micro/small (1-20) Micro/small (1-20) Micro/small (1-20) Jamaica Regional peers Other LAC UMICs C. Electricity Costs to Total Sales Ratio (2010) D. Price of Fixed Broadband Basket (2021) 8.1% 6.3% 4.0% 3.3% 3.5% 2.5% 1.9% 2.0% 2.1% 2.1% 1.8% 1.8% 1.3% 1.6% 1.1% Jamaica Jamaica Jamaica Jamaica Jamaica LAC UMICs LAC UMICs LAC UMICs LAC UMICs LAC UMICs Regional Peers Regional Peers Regional Peers Regional Peers Regional Peers Total Micro (<5) Small (6 to 20) Medium (21 to Large (51 to 250) 50) Notes: (A) Data from WB ES; data on energy intensity and quality of trade and transport infrastructure is drawn from the WDI; Regional peers exclude Belize and Barbados for categories marked with *; (B) and (C) Data from WB ES; (D) Data from ITU. 3.1.2. Labor Costs Overall, labor costs do not seem to be a significant obstacle in Jamaica.51 First, earlier reports (e.g., World Bank 2011) have shown that the regulatory framework for labor is similar to peer countries or may even be a comparative advantage for Jamaica. More recent international metrics (WEF indicators in this chapter’s intro section) also show labor regulations as an area of lesser concern for Jamaica. Second, a comparison of wages with regional peers shows Jamaican salaries as lowest across most occupations (Figure 14.A). While labor costs in absolute terms seem low on their own, there is a possibility that low productivity of Jamaican workers renders labor costly relative to its output. However, the data do not provide compelling evidence that this is the case either, since unit labor costs (ratio compensation to output) are at comparable levels to peer groups (Figure 14.B). 51 However, some aspects of labor costs detrimental to growth can be linked to jobs outcomes, including assertions that in combination with closing to trade agreements they caused a decline in the apparel industry (relocating to other Caribbean countries) (World Bank 2011). 38 Figure 14. Labor Costs A. Annual Earnings by Occupation (US$ 2017 PPP) B. Unit Labor Costs: Labor Cost to sales Ratio (2010) Notes: (A): ILO data from ILO Stat. Data for 30% Jamaica, Dominican Rep., and Belize for 2014, for 24% 24% Barbados for 2016; (B) Based on World Bank 22% 22% 21% 21% 21% 19% 19% 19% 18% 21% Enterprise Surveys. 17% 15% Jamaica Jamaica Jamaica Jamaica Jamaica LAC UMICs LAC UMICs LAC UMICs LAC UMICs LAC UMICs Regional Peers Regional Peers Regional Peers Regional Peers Regional Peers Total Micro (<5) Small (6 to 20) Medium (21 to Large (51 to 250) 50) 3.1.3. Entrepreneurship Knowhow A country’s entrepreneurship quality refers to the capabilities of the average entrepreneur and business manager. When strong, a country has a cadre of capable business administrators and executives who capture arbitrage opportunities, push the economy closer to the frontier, and spearhead rapid growth of successful firms, among other contributions. Even with the right market conditions and business environment, having available business managers to pull everything together is a necessary condition. There is a gap in data for Jamaica regarding entrepreneurship abilities and aptitudes—especially in data that would enable direct benchmarking against peer countries. However, the information collected for this study consistently points to entrepreneurial abilities being a critical constraint to growth. Consultations with the real sector, financial sector, and public institutions engaging the private sector have coincided in flagging this as the most frequent bottleneck to firm growth. To make an assessment, we consider what a scenario would be like if entrepreneurial ability were not critical. First, measures related to the technical business skills of entrepreneurs would be favorable relative to peer countries if entrepreneurial abilities were not a constraint, but this is not the case. The educational attainment of employers in Jamaica falls short of peer countries, following the general pattern. The share of 39 employers with some post-secondary degree is lowest for Jamaica (Figure 15.A). According to MICAF (2017), Jamaican entrepreneurs face a lack of essential “hard” skills, including business management, financial management, communication, and marketing (World Bank 2020c). While financial management is fundamental for business operations, only 33 percent of the population in Jamaica has basic knowledge of financial principles (GFLEC 2015). During consultations, stakeholders noted that although the government developed financing products for entrepreneurs, there was a low approval rate due to the poor quality of business and financial plans. Digital skills are essential for entrepreneurs to take advantage of emerging opportunities, new markets, and digital payments. However, the Jamaican population lacks basic digital literacy skills. For example, a person aged 15 or older scores 21.8 out of 100 points in a digital skills index (World Bank forthcoming). Second, one would see the economic activity shifting to take advantage of rising business opportunities. Most information in this regard points in the opposite direction. Investment has been concentrated in just a few mature sectors, mostly mining and tourism, even as credit has become increasing available with the diminished adverse effects of the public sector’s crowding out of the domestic credit market. Firsthand consultations with own account workers carried out for this report confirmed what was also heard from other institutions working with entrepreneurs—owners are not pivoting to new activities as the sectors evolve and change. Consistent with this finding is that firm exports in Jamaica are relatively infrequent.52 The country’s location, language, and diaspora give it a strategic advantage for international trade (see Annex). Jamaica performs weakly in terms of export diversification and complexity; exports are largely driven by services, mainly in BPO and tourism, while exports of other product categories are limited.53 Although trade regulation can be improved, consultations with the private sectors and others suggest that it is unlikely holding them back.54 Recent data on innovation also show that Jamaican entrepreneurs are the least innovative among a sample comprised of over a dozen Caribbean countries55 with innovations defined as introducing new product or approaches to business operations (Figure 15.B). Anecdotal evidence from the well-regarded animation project that was approved in 201456 is another case in point: consultations with project beneficiaries held two to three years after graduating indicate that most were employed in animation as instructors because of a lack of business leadership in the sector to create studios to hire them as employees. Third, although multiple factors combine to determine business performance, the lack of capable entrepreneurs is consistent with the poor performance of SMEs. Nearly half of all Jamaican businesses close within the first year (JDIC 2020). The country ranks lowest on the Global Entrepreneurship Monitor (GEM) measure of SMEs ability to grow jobs within the region, and the results from the 2010 WBES show that among its peers, Jamaican SMEs are the least successful at growing into large enterprises. 52 The latest internationally comparable data for Jamaica is from the 2010 WB ES which indicated 9 percent of firms were exporting as compared to an average of 16 percent for regional peers and 12 percent for other LAC UMICS. 53 In 2019, Jamaica was ranked as the 74th most complex country out of 133 studied based in Harvard Lab’s Economic Complexity In dex (ECI). This ranking assesses the level of diversification and complexity of countries’ export basket. Compared to a decade prior, Jamaica's economy has been ranked less complex despite the increasing diversification of its product exports, as the country has diversified into lower complexity products (Atlas of Economic Complexity). 54 The IMF (2022) report noted that it is necessary to reduce business costs and lower barriers to international trade by streamlining customs procedures including through higher reliance on risk-based inspection and gradually reduce import tariffs and charges. 55 Countries included are Antigua – Barbuda, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Saint Lucia, St-Kitts, and Nevis. Saint Vincent and the Grenadines, Suriname, The Bahamas, and Trinidad & Tobago. 56 The Youth Employment in Digital and Animation Industries (YEDAI) Project, funded through World Bank. 40 Figure 15. Employers Education and Firms Innovation in Jamaica A. Percent of Percent Employers of maemployers with with post-secondary Some Post- B. Percentage of Firms that Introduced Innovation education Secondary Education (2018) in the Past Three Years (2014) 61.37 45.8 46.6 35.2 32.8 30.1 31.2 29.2 25.0 22.4 18.1 14.3 GTM JAM DOM MEX ECU CRI PAN PER COL PRY ARG BRA Notes: (A) Data source is LFS and I2D2 database. (B) Data source is 2014 Productivity, Technology, and Innovation (PROTEqIN). Fourth, the lack of response to the recent progress in Jamaican SMEs access to finance makes a compelling case for entrepreneurial abilities as being a critical constraint. In answer to the 2018 JSE query about the top obstacles in business, the need for credit was most frequently in second place, with no close third place response. However, early observations from the recent efforts by the public sector to make credit accessible to SMEs (such as through the national credit guarantee scheme, junior stock market, etc.) have seen large numbers of applications but a low acceptance rate. Thus, capital is there but the capacity to create viable business plans observed in the demand side of financial services is deficient. The initiatives to expand the supply of financing available for SMEs are described in more detail in the subsection 3.3.2 Access to Finance Assessment below. This subsection also highlights the demand side challenges to access the financing available. These patterns and a recent World Bank (2019a) assessment of ALMP systems highlighting the poor coordination and low scale of entrepreneurship programs in Jamaica make the case that entrepreneurial abilities are indeed among the most critical constraints affecting the growth of the higher value-added activities that correspond to relatively higher quality jobs. Jamaica has a range of initiatives aimed at promoting entrepreneurship, including business training, grants, mentorship programs and incubators accelerators, but their scale is limited, and they mostly target disadvantaged population in self- employment and own account work (World Bank 2019a). A recent study on business training for MSMEs (including informal firms) in Jamaica by Maffioli et al. (2020) shows that there is demand for business skills acquisition. 3.2. Potentially Profitable Opportunities but Low Ability to Appropriate Returns from Investment 3.2.1. Macroeconomic Stability and Risks Historically, macroeconomic stability has been a challenge for Jamaica. Jamaica is a small open economy, exposed to shocks, with natural endowments that further make diversification challenging. Given that the economy is largely driven by tourism and undiversified (World Bank 2022a) and that international tourism demand is pro-cyclical, international market shocks can cause swings in GDP (Figure 16). Weak economic management in the past resulted in missed opportunities. Significant progress has been made in recent times in economic management and it must be sustained for continued progress. Figure 16. GDP Growth the Last 50 Years 41 Source: Authors based on WDI, meteorological service of Jamaica and National Library of Jamaica (History of Hurricanes and Floods in Jamaica). Some general macroeconomic indicators and recent reports show that macroeconomic stability has improved. Jamaica has led substantial reforms, including measures such as debt restructuring and reduction, fiscal consolidation, the establishment of an independent fiscal commission, enhancements to central bank independence, and the bolstering of contingency funds, among others. The country’s debt-to-GDP ratio has seen a descending trajectory since 2013; the risk lending premium—a proxy for the riskiness of lending to the private sector—has remained at around 10 percent since 2012;57 and inflation has decreased to levels of peer countries since 2015 (Figure 17). Recent patterns in some improved jobs outcomes, such as lowering unemployment, coincided with the improvements in macroeconomic management. While more in-depth analysis is needed to assess the contributions of improved macroeconomic conditions to improved job outcomes, this pattern highlights its critical importance. Despite these achievements in macroeconomic management, there are still significant concerns regarding macroeconomic stability. The high level of debt (above 90 percent of GDP) continues to pose a risk to investment, economic growth, and labor demand. Also, while the risk premium has remained stable in recent years, the higher risk premium compared to regional peer countries indicates that private sector investment is still considered riskier. The Risk Assessment Matrix from a recent IMF publication (IMF 2022a) includes risks relevant to the business environment, such as above-target inflation (medium risk, medium impact), rising oil prices (medium risk, medium impact), higher frequency and severity of natural disasters (medium risk, high impact), and cyber-attacks (medium risk, low impact). These risks were exacerbated by the COVID-19 pandemic. In addition, Jamaica is currently on the grey list of the Financial Action Task Force (FATF) due to strategic deficiencies in its Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) regime (FATF 2023). IMF (2021) finds that gray-listing results in a large and statistically significant reduction in capital inflows. Another concern is with regards to effects of the volume of foreign currency entering the country due to high remittances and reliance on tourism, which can affect Jamaica’s competitiveness (Box 4). Managing macroeconomic stability remains critical. While the government’s sound macroeconomic management has helped counter Jamaica’s vulnerabilities, macroeconomic stability remains fragile. Jamaica continues to implement responsible fiscal and monetary policies to safeguard its hard-won economic stability (IMF 2022b). Jamaica has also continued making progress on critical reforms to strengthen macroeconomic stability and improve risk management, such as the abovementioned (e.g., establishment of an independent fiscal commission). While macroeconomic stability alone is not necessarily enough to facilitate job creation and 57 The risk lending premium started to stabilize in 2012, after two decades of large swings. It rose during the 1990s —due to a hasty financial sector liberalization, which lacked an appropriate regulatory framework—and then fell significantly, before stabilizing in the 2010s (Tennant and Kirton 2006). A negative value of the risk premium indicates that the market considers its best corporate clients to be lower risk than the government. 42 address the abovementioned job problems, it is one of the policy fundamentals and a needed condition for private sector investment, economic growth, and increased labor demand. Figure 17. Macroeconomic and Financial Risks for Operating in Jamaica A. Risk Premium on Lending (lending rates B. Exchange Rate (official exchange LCU per minus treasury bill, percent) US$ (1990=100) C. Inflation Rate 2002-2020 (%) D. Central Government Debt as a Share of GDP, 1990-2021 Notes: (A) Regional peers exclude the Dominican Republic; based on data from WDI; (B) based on data from WDI; (C) Regional peers exclude Belize; data for Barbados is available before 2019; based on LFS; (D) Based on data from IMF Global Debt Database. Box 4. Remittances, Dutch Disease, and Trade Competitiveness Jamaica is also vulnerable to exchange rate risks, including potential Dutch disease and its effects on export competitiveness and limited diversification (World Bank 2022b). Jamaica’s tourism-dependent and remittance- receiving economy puts pressure in the currency appreciation direction. This potential currency appreciation leads to loss of competitiveness in other sectors, such as agriculture and manufacturing, which results in lower international demand for the goods and services produced in these other sectors. This can also bring lower investment and employment in these other sectors. A study by McFarlane et al. (2022) analyzing the impact of remittances on real exchange rate concluded that there are Dutch disease effects in Jamaica. Another characteristic of Dutch disease is that it hinders economic diversification, attracting resources to the dominant sector. Although Jamaica has a floating exchange rate regime—the 2022 IMF assessment indicates that exchange rate is broadly in line with fundamentals — ,this risk needs to be considered given its important policy implications (IMF 2022a). The drivers behind Jamaica’s decline in merchandise exports, which has been partly attributed to the decline in textiles and manufacturing, do not provide a clear indication of whether the exchange rate is responsible for the decrease in export growth or the shift in export composition. IMF (2022c) mentions the possibility of Dutch disease being a factor, but focuses the discussion on low human capital, poor infrastructure, high crime, and competition from nearby countries with free trade agreements with the United States and other large economies, being the major barriers to trade growth. 3.2.2. Microeconomic Risk: Tax burden 43 Taxation legal framework, administration, and incentives regime are important factors influencing investment decisions. Taxes have been considered one of the most critical business challenges in the past.58 The World Bank (2011) listed taxes as one of three likely binding constraints to job creation due to relatively high tax rates, including on profits, as well as onerous and complex tax regulations and administration systems which required Jamaican firms to spend more time and efforts on tax-related procedures compared to peers. Data from the World Bank 2010 enterprise survey also reflects the severity of this when compared to peer countries (Figure 18.A), where firms of all sizes reported taxes as the top obstacle more frequently—40 percent of all firms in Jamaica in 2010 indicated this compared to 12 percent and 11 percent in regional peers and other LAC UMICs respectively. To address the challenges from a distortionary tax system, the Government of Jamaica undertook critical tax reforms. These reforms included the repeal of incentives and exemptions for particular entities, tax and customs administration improvements—including through automatization and digitalization, and a shift in the composition of tax revenue towards indirect taxes (IMF 2022a). This is consistent with the pattern seen on business direct tax rates data, which shows they have fallen to levels seen in peer countries (Figure 18.B).59 Though the standard VAT rate in Jamaica (16.5 percent) is slightly higher than the regional peers average (16 percent) and above other LAC UMICs (14.6 percent), it has been stable in the past years, while those in comparator countries increased (Figure 18.C).60 Stakeholders from public entities working closely with the private sector also acknowledged significant improvements in the tax burden during consultations. Some of the identified potential areas to further improve taxation include reforming the general consumption tax to broaden the base, reduce compliance gaps, and update the excise regime, including legislative and administrative aspects. 58 For example, from The Global Competitiveness Report 2010/2011: “Jamaica’s taxation on profits is particularly high when compared to its neighbors. Reports also point out the relative high rates and onerous and cumbersome tax regulations, including a myriad of tax incentives for various sectors that add distortion and possibly discretion in the allocation of resources. Jamaica performs particularly poorly in terms of the tax administration system, with a process that requires making an average of 72 payments a year and spending 414 hours a year on paying taxes which is significantly above other countries in the region” (World Bank 2011, p. 230). 59 Data excludes taxes withheld (e.g., personal income tax) or collected and remitted to tax authorities (e.g., VAT, sales taxes or goods and service taxes). 60 A reduced rate of 10 percent is applicable for certain tourism services. A 25 percent rate applies to the supply of certain telecommunication services and instruments. Commercial importers pay an extra 5 percent on certain imported goods. 0 percent rate applies to basic food items, energy-saving equipment, construction, financial and other services, and exports. Special tax applies on the manufacture and import of petroleum products, tobacco, and liquor (KPMG 2023). 44 Figure 18. Tax Rates and Import Trends A. Percent of Firms Responding Taxes Are B. Business Tax Burden, 2005-2019 Largest Obstacle (2010) 50.65 43.8 40.34 32.47 11.79 14.33 10.75 10.57 9.81 11.62 10.76 8.89 Total Total Total Medium (21-49) Medium (21-49) Medium (21-49) Micro/small (1-20) Micro/small (1-20) Micro/small (1-20) Large (51+) Large (51+) Large (51+) Jamaica Regional peers Other LAC UMICs C. Value Added Tax Rate, 2005-2020 Notes: (A) Data excludes taxes withheld (such as personal income tax) or collected and remitted to tax authorities (such as value added taxes, sales taxes or goods and service taxes); data from WDI; (B) Data from WB ES; (C) Data is standard VAT rate; data from IMF. 3.2.3. Impacts of Crime on Profits The effects of crime on the ability for firms to operate and generate profits and to appropriate such profits are especially important in Jamaica.61 As previously discussed, the homicide rate in Jamaica is one of the highest globally. Also, according to the World Economic Forum’s (WEF) Executive Opinion Survey, respondents mentioned crime and theft as the most problematic factor for doing business in Jamaica. The effects of crime vary by sector and firm size (Figure 19.B). The tourism sector focus group participants, interviewed for the World Bank (2011) report, named security as one of Jamaica’s biggest disadvantages compared to Costa Rica and Cuba, among other countries. During recent consultations, anecdotal evidence by multiple participants highlighted that extortion by local gangs continues to be a significant challenge in the country. Moreover, recent studies estimate that crime and violence in Jamaica costs the country approximately 4 percent of GDP (Jaitman 2017; OSAC 2020). Crime increases the costs of operating business due to the loss (theft) or damage of assets, including products, extortion, and expenses on crime prevention. It may also affect the demand for products and services, as in the case of tourism. While there are some indications of potential improvements in crime and violence reduction, this continues to be a critical challenge. Jamaica has achieved reduction in theft, which in 2006 was 50 (per one- hundred thousand people), by 2010 had climbed to almost 145, but since then steadily declined to less than 10 in 2019 (UNODC, 2022). Also, according to the JSE 2018, firms tend to report other issues, such as electricity costs, as more significant challenges than crime. Even if slight reductions in crime have been achieved over the last years, this has been a historical challenge for Jamaica and remains a critical issue for the country. Rule of law, particularly crime reduction, is a necessary condition for improving jobs outcomes. Crime has several entry points to affect jobs outcomes including through labor force participation and the engagement of youth in school and work. 61 These are discussed in Chapter 4. 45 Rampant crime and violence can be devastating for development and job creation, discouraging investment, and affecting the broader business environment. Addressing crime remains a critical challenge and is considered a policy fundamental and a prerequisite for improving job outcomes. Figure 19. Crime Effects on Business Performance A. Effects of Crime on Firm Performance as B. Percent of Businesses Reporting Crime and Compared to Peers (2010) Corruption and Biggest Obstacles (2010) 10.39 9.09 8.26 8 7.47 7.02 5.56 5.97 5.64 5.33 4.24 3.83 Total Total Total Medium (21-49) Medium (21-49) Medium (21-49) Micro/small (1-20) Micro/small (1-20) Micro/small (1-20) Large (51+) Large (51+) Large (51+) Jamaica Regional peers Other LAC UMICs Notes: (A) and (B) Data from WB ES. 3.3. Low Access or High Costs of Finance 3.3.1. Crowding Out of Domestic Credit by Government The consolidation of debt and other measures taken by the government that are described in the previous section have also rolled back the crowding out of domestic private sector investment, whose effects were most evident starting in 2015. This can be seen in the private domestic credit increasing while public credit decreased. Domestic credit was absorbed previously by government relative to other sectors (Figure 20.C). In the early 2000s, the government absorbed more than 70 percent of total private credit. Considering government debt was such a substantial portion of the commercial bank loans balances, it had adverse effects on the entire domestic financial sector. Jamaican peers on average saw almost the opposite trend (Figure 20.A). Domestic credit for the private sector remains below peer countries, although Jamaica is catching up (Figure 20.B). As commercial bank assets began to recover from the GFC (around 2015), and with the lower loan balances taken by the government, commercial credit began to rise. At that turn around, commercial bank loans and advances balances began to grow for tourism, construction and land development (although they have stalled), utilities (electricity, power, and gas), and professional services (Figure 20.C). Despite the ups and downs since 2004, commercial loans for retail and wholesale have grown steadily. 46 Figure 20. Commercial Loans and Advances by Sector A. Domestic Credit to Public Sector (% of B. Domestic Credit to Private Sector (% of GDP) GDP) 25.0 70.0 60.0 20.0 50.0 15.0 40.0 30.0 10.0 20.0 Jamaica 5.0 Jamaica 10.0 Regional peers Regional 0.0 peers 0.0 C. Commercial Loans and Advances by Sector Notes: (A) and (B) based on data from WDI; (C) Based on data from the BoJ, commercial lending with loans and advances to individuals omitted. Given the investment pattern of the last decade, the evidence that government crowding out private investment is a critical constraint at this time is not compelling, mainly due to the significant reduction in domestic government borrowing in the last two decades. Studies have previously found that private credit growth stands out as the primary determinant of growth in employment over time (Kandil et al. 2014). While domestic private sector investment remains smaller than in regional peers, it is on a trajectory to catch up. The data also show that crowding out was a problem in the past and could reoccur. Therefore, the government should be careful if relaxing fiscal spending constraints is under consideration.62 Currently, the government is benefiting from a larger tax-base, associated with the demographic dividend, which can help to avoid over-borrowing. 62 This is also the finding of the earlier growth diagnostic (World Bank 2011). 47 3.3.2. Access To and Cost of Finance Assessment Country-level indicators associated with access to finance have been improving in recent years and are relatively favorable for Jamaica. Private sector financial deepening as measured by the ratio of private credit to GDP increased from about 26 percent in 2010 to over 56 percent in 2021 (WDI 2021).The interest rate spread, the difference between the interest rates charged by banks on loans to the private sector and the interest rates paid to depositors is a key measure of financial sector intermediation efficiency and has been falling for a decade (Figure 21.B) although it remains above the spread found in the broader region. The real interest rate, hovering at around 10 percent during the last decade, is also comparable to those found in the peer groups (Figure 21.A). However, country averages for key variables at the individual level from the 2021 Findex data paint a mixed story: Jamaicans have bank accounts on par with LAC averages, but the indicators related to access to credit are significantly below the LAC average63 (see Figure A 14 in the Annex). Jamaica’s stock market has developed rapidly in the past decade, with Jamaica’s capitalization currently on par with peer countries (IDB 2022). While access to finance has significantly improved over the past decade, challenges remain, especially for smaller firms. Access to finance, which is critical for MSME growth,64 is the second most cited challenge for smaller firms in the 2018 JSE, with other challenges being less frequently reported by a significant margin.65 Credit is concentrated in loans to households and larger corporate entities while lending to MSMEs was about 18 percent of the total loan portfolio of deposit-taking institutions (DTIs) in 2016 (World Bank 2017). Factors that have constrained access to finance for MSMEs include: (a) a high level of informality, which create high credit risk for lenders; (b) reliance on traditional collateral, and limited asset based lending; (c) limited bank strategies, processes, lending methodologies, and financial instruments that are tailored to the MSME; (d) lack of reliable financial statements from MSMEs, which makes it difficult for banks to assess risks; and (e) a nascent ecosystem for private equity and venture capital (PEVC) (World Bank 2017). The government has undertaken significant efforts to improve access to finance for firms in recent years.66 However, the risk aversion of financial institutions, credit access requirements on collateral, business plans, and reporting continue to pose challenges for smaller firms. In addition, supply chain financing remains relatively undeveloped. For instance, factoring67 and leasing are also scarcely used. Innovation in the financial sector is limited, restricting opportunities for MSMEs to take advantage of digital financial services to cut costs and facilitate access to credit and digital payments (World Bank 2022a; World Bank 2022b). In addition to accessing finance, SMEs face larger costs of finance than larger firms, as it is the case in most countries. As of December 2022, banks’ lending interest rate in local currency for large corporates was 9.1 percent, compared to about 28.8 percent for microenterprises, 10.3 percent for small enterprises, and 9.2 percent for medium enterprises (BoJ 2022).68 An earlier report from 2017 noted that credit unions and MFIs charge microenterprises rates of above 50 percent (BoJ 2017). While the supply of finance can be further improved, the demand for this financing seems to be a pressing challenge. Some of the potential reforms to continue improving access to finance include (i) expanding financial instruments for SMEs, addressing information asymmetries and de-risking; (ii) developing 63 While 2021 Findex data shows that LAC saw a 21.4 percentage point increase in account ownership since 2014, increasing to 72.9 percent in 2021, Jamaica experienced a slight decrease in the same period of about 5.2 percentage points, resulting in 73.3 percent of adults having an account. 64 For instance, a recent study conducted by Novignon in 2022 examined the impact of access to finance programs on MSMEs' profits. The study revealed a significant positive relationship between the use of credit and MSMEs' profitability. Specifically, it found that for every one percent increase in credit utilization, there was a corresponding 0.2 percent increase in profits. 65 Specifically, for small firms while 21 percent report access to finance as the top challenge, the next most frequently reported challenges by 11 percent of small firms are infrastructure, amenities, and physical space-related obstacles (JSE 2018). 66 Reforms include establishing the credit bureau to improve credit risk assessment, the collateral registry that allowed borrowers to use movable assets as collateral, modernizing bankruptcy and insolvency laws, providing partial loan guarantees through the Credit Enhancement Facility, developing equity financing through the Junior Stock Exchange, establishing a framework for microfinance institutions development, and developing loan programs targeted at SMEs. 67 Factoring is a financial transaction in which business sells its accounts receivable (invoices) at a discount in exchange for cash. 68 Based on annual turnover, the BOJ’s Credit Conditions Survey adopts the following definition for MSMEs: less than US$ 100,000 (micro), US$100,000 to US$ 5 million (small), and US$ 5–25 million (medium). Based on loan size, the thresholds used are less than US$ 10,000 (micro), US$ 10,000–100,000 (small), and US$ 100,000 to US$ 1 million (medium). 48 and promoting the use of digital financial services; and (iii) increase financial literacy in general and among entrepreneurs. However, significant issues on the demand side remain. For instance, IDB 2022 points to considerable room for improvement in terms of firms’ ability to secure and access market funding locally. Multiple consultations on the current status of access to finance with stakeholders involved in the managing and implementation of recent access to finance programs (including those targeted as SMEs) have highlighted demand side constraints. Institutions involved in providing finance have had difficulty disbursing credit they have made available. While there are sufficient numbers of applicants, a large portion is being rejected — including due to the lack of reliable business and financial information and plans—indicating that external factors to the financing supply limit the ability of enterprises to secure financing, especially for SMEs. Further and more rigorous analysis is needed to confirm with higher certainty if the access and/or costs of finance for SMEs restrain their growth, and whether the underlying causes are on the demand side of the financial system. Based on the information currently available, this seems plausible, and is closely linked with the critical constraint identified as limited entrepreneurial knowhow. Figure 21. Indicators of Financial Sector Performance A. Real Interest Rate B. Interest Rate Spread (lending rate minus deposit rate) Notes: (A) Based on WDI data; (B) Interest rate spread is the difference between the interest rate charged by banks on loans and the interest rate paid by for deposits; the interest rate spread is capped at 25 percent for other LAC UMICs between 1989 and 1991; regional peers exclude the Dominican Republic before 1991; data from WDI. 49 4. Structured Supply Side Analysis: Constraints to Better Jobs Outcomes from Worker Side From the labor supply side, the two potential constraints investigated are: (i) whether the level of human capital contained within the working age population critically hampers economic growth and the creation of better jobs, 69 and/or (ii) whether there is an under-utilization of available labor due to a high implicit reservation wage, which discourages individuals from entering the labor force. The analysis below finds that labor market signals from the supply and demand side are consistent with human capital being capital constraint to improving jobs outcomes. Multiple signs—such as low unemployment for tertiary educated workers—coincide with patterns that have been verified empirically to indicate that human capital is a bottle neck to development (Santo and Hai 2022). 70 Regarding reservation wages, the analysis covered the effects of crime, remittances, and public sector employment, among other issues. While certain factors appeared to be correlated with LFP—for examples married women without children—the magnitude of their influence does not provide compelling evidence that this a binding constraint. This does not mean that a concerted effort to form strategic policy towards LFP should be overlooked; for example, policies for keeping medical professional and associate professionals from. Nevertheless, we cannot completely rule out low LFP being critical since problems with the available data lead to some level of uncertainty.71 4.1. Human capital as a constraint to better jobs outcomes 4.1.1. Limited human capital Although human capital is an important potential constraint to better jobs outcomes, it is not always binding, even when skills and educational levels are relatively low. Insufficient skills can prohibit economic activities, draw away investment, and decrease productivity of firms. However, international experience has shown that developing countries—even those with low educational attainment in the population as a starting point—that invested and increased human capital have not always seen it translate into a significant boost in its economic development (Santo and Hani 2021). Therefore, in the first part of this section, we assess whether human capital is a critical constraint for Jamaica. Then we delve into the root causes of human capital outcomes that include educational quality, availability, and access to tertiary and secondary education, factors linked to student motivation, and the role of skilled Jamaicans workers emigration. An indication that human capital could be critical, at least for large firms, is that firms are stating it explicitly in enterprise surveys and attempting to compensate with inward migration of skilled workers. In 2018 consultations, most employers indicated that recruiting appropriately skilled persons— including occupation-specific skills and soft skills—was a major challenge (World Bank 2022a). JSE 2018 survey data72 are consistent: a lack of adequate labor supply was cited as a constraint by 16.4 percent of firms in administration and support services; 15.8 percent in REBS; 13 percent in public administration and defense; and 12.3 percent in information and communication sectors. An IOM (2018) report shows that between 2007 and 2016, there were over 62,000 labor migrants and nearly three-quarters of them were professionals, senior officials, or technicians. The study also shows that the growth of labor migrants is outpacing that of the labor force and that from 2011 to 2016 the category of “aliens,” which is largely comprised of labor migrants, grew by far the fastest.73 However, inward migration policies and procedures limit opportunities for firms to fill the deficit of skilled workers with foreign nationals. During the consultations, stakeholders mentioned that the process of obtaining a work permit is long and burdensome, and while large firms can afford the fees, they are 69 Given the policy focus of this report, analytically we classify skills as a supply-side constraint. An argument can be made that it is a demand-side constraint that inhibits job creation. The reason is that skilled labor can serve as constraints to economic activity that, once started, would also increase demand for complementary lower or unskilled labor. These spillovers are discussed is Moretti (2004a, 2004b). 70 In the context of growth diagnostics, Santos and Hani (2022) show analysis in cases where countries improved human capital and saw little change and others in which the improvement of human capital made a significant impact. Multiple patterns found in Jamaica match the latter type of country results. 71 The analysis is largely based on correlations between LFP and various factors. The findings may be spurious, in particular for the effects of crime. 72 See table “Constraints by Firm Sector” in the Annex. 73 Other categories of immigrants include returning residents, involuntary returned migrants, and commonwealth citizens. 50 prohibitive for medium and small firms. Another indication is that the employment rate and LFP are both positively correlated with educational attainment. LFS data show patterns regarding the LFP, employment status, and employment type that are also consistent with a deficiency of high-skilled workers in the labor market. Tertiary degree holders have an 81 percent employment rate and only 14 percent are out of the labor force (OLF), while lower values are observed for those with completed secondary education (second cycle) for employment and OLF rates ( Figure 22.A). Tertiary-educated workers are also most likely to be in wage employment, with 87 percent of the workforce in this category, compared to 68 percent, 44 percent, and 33 percent for workers with completed secondary (second cycle), secondary (first cycle), and lower education levels, respectively. And unemployment rates for tertiary graduates (5 percent) are lower than for individuals who completed secondary (second cycle) (12 percent) and secondary (first cycle) (8 percent). 51 Figure 22. Patterns Relevant to Assessment of Human Capital as Critical Constraint A. Labor Market Outcomes by Educational B. Determinants of Individual Labor Attainment Earnings (2012-2016) 100% 80% 60% 40% 20% 0% Attained tetiary Finished up to Finished up to Did not finish degree second cycle first cycle (9th first cycle (9th (11th grade) grade) grade) OLF Unemployment rate Wage employment C. Dispersion of Earnings per Occupation According to Educational Attainment Notes: (A) Estimates using Jamaica 2016 LFS; (B) Outcome is natural log of labor earnings. Estimations based on Jamaica LFS; all quarters pooled. Base category for education is finished less than the first cycle. ***, **, and * indicates statistical significance at the 1 percent, 5 percent, and 10 percent confidence level. Regression covariates not listed in the table are years of experience, sex, sectors (agriculture, manufacturing, trade and hospitality, construction, business surveys), urban work location. Full table for 2012-2016 is in the Annex. (C) Annual wages for the same occupation for workers but varying levels of educational attainment (2015-2016; in thousands of const. 2019 J$); data from LFS. High returns to tertiary education are a key indication that there is a shortage of such workers available for employers. Even though the premia for tertiary educated workers fluctuated from at least 2012, it has remained high, 114 percent in 2016 compared to workers that did not finish the first cycle of secondary. As a reference, while returns to education for tertiary degrees are over twice that for finishing secondary cycle and up to six times that of finishing lower secondary ( 52 Figure 22.B), globally returns to tertiary education on average are slightly more than twice that for secondary education.74 The analysis of outcomes for different occupation groups also shows that education level is an important determinant of workers’ earnings ( Figure 22.C). The most notable gaps are for the occupations of life science and health professionals, and associate professionals and general managers (high-skill, S4). Additionally, large firms, which require high-skilled jobs, are fewer in Jamaica. The demand-side analysis showed that large firms account for a greater portion of high-skill jobs, absorb a disproportionate share of tertiary educated workers, and offer higher wages. Middle-high (S3) and high-skill (S4) jobs have experienced the highest growth rates between 2007 and 2016 (Figure 8.A in section 0). In summary, we find multiple patterns consistent with the lack of skilled labor being a critical obstacle to growth. Given the difference in obstacles to growth by firm size, discussed in previous chapters, we interpret these findings as mainly applicable to large firms (see Table A 2 in the Annex which shows the percent of firms reporting problems with finding skilled labor increases with firm size). Having identified skills as a likely a critical constraint, we explore its root causes below. The approach breaks down potential causes, starting from general causes with multiple potential underlying drivers, and ending with a whittled down list of specific underlying issues that have well-defined policy implications. Each root cause test below pits plausible explanations against each other and weights the empirical support for each. Upon having singled out one cause as likelier, a subsequent root cause test considers its underlying factors, and so on. Figure 23. Summary of Logic and Findings from Root Cause Analysis for Human Capital Constraint 4.1.2. Root Cause Test 1 (Insufficient Skills in WAP): Low Number of Tertiary Educated Workers vs. Under-Skilled Tertiary Educated Workers The first root cause test considers two potential causes for insufficient human capital in the Jamaican WAP: (i) that there is a large enough stock of tertiary educated workers in Jamaica but with inadequate 74See Montenegro and Patrinos (2014) which, although not strictly comparable to this study due to base category and measurement of schooling returns, shows that globally the return for secondary is 7.2 and for tertiary 15.2. 53 skills as a result of the quality of higher education institutions, and (2) that tertiary educated workers are for the most part adequately skilled but insufficient in numbers. The data suggest that the insufficient number of tertiary WAP individuals is driving the lack of skills in the WAP. The share of the WAP with a tertiary degree increased from slightly above 6 percent in Q1 2007 to about 10 percent in Q1 2020 (Figure 24.A). However, the portion of WAP individuals with post-secondary/tertiary level educational achievement (11.8 percent) places Jamaica among 13 peers third from the bottom after Guatemala and Belize (Figure 24.B). Regarding the number of tertiary educated WAP, gender disparities are a critical issue (see Box 5). Another pattern consistent with the need for tertiary educated workers is that employers report that secondary education does not provide sufficient skills for employment (FHI 360 2017). Box 5. The Effects of Lagging Male Educational Outcomes By closing the education gender gap to the LAC UMIC level, Jamaica can generate almost 32,000 high-skilled workers, which is equivalent to a 24 percent increase in high-skilled workforce. Males perform weaker in educational attainment compared to females at all levels (Figure A 21 in the Annex). Among 25-64 years-olds, slightly more than 30 percent males and 24 percent females had not completed upper-secondary education in 2017. Males also lag behind females in school performance, with HLO scores of 372 versus 404 respectively. The difference of 32 points is larger than in any other country in the LAC region and is eighth largest of 158 observed countries (WB HLO). The gender gap in education access widens at higher levels; about 14 percent of males attained post-secondary or tertiary education compared to 22 percent females. The analysis of gross tertiary enrollment over time showed an upward trend in 2000- 2015, reaching about 27 percent in 2015, below the regional peers (37 percent) and other LAC UMIC (49 percent). For females, gross tertiary enrollment has almost caught up with peers and the level is significantly higher than for males. For males, the indicator has not significantly improved and is still behind peers, especially against other LAC UMICs, as their performance is increasing over time, leaving Jamaica further behind. The causes of gender disparities are largely explained by the lack of motivation and higher perceived opportunity costs for males. The gender gap in education transfers to the labor markets, as the high-skilled employment of males in Jamaica is 8 percent versus 16 percent for females, with a gender gap of 8 percentage points. Though this gender gap is smaller than in the Dominican Republic (10 percentage points), it is significantly higher than for other LAC UMIC (3 percentage points). By closing the gender gap to the LAC UMIC level by bringing males back into the education system, Jamaica will increase its skilled workforce by almost 32,000 high-skilled male workers, increasing the number of people in high-skilled jobs by 24 percent. In addition to the lower share of the tertiary WAP than its peers, we could not find convincing evidence of the higher education institutions in Jamaica producing inadequately skilled graduates. First, there is clearly a strong labor market demand for college graduates, as indicated by jobs outcomes of tertiary educated workers in the analysis above. If tertiary educated workers did not have skills adequate for private sector needs, one would expect employment outcomes to be more similar to those of non-tertiary educated workers. Second, higher learning institutions in Jamaica do not stand out as being sub-par. In fact, the University of the West Indies (UWI), Jamaica’s largest university, ranks high among universities in the region. In the 2018–2019 academic year, slightly less than 87,000 students were enrolled in tertiary-level studies, concentrated in a few selected universities. UWI plays a substantial role in providing higher education in Jamaica, accounting for 34 percent of all student enrollments in 2018/2019 (see Table A 4 in the Annex). The Times Higher Education World University Rankings (2022) ranked UWI as the best university in the Caribbean and 21st in the LAC region, up from 32nd in 2019, signaling a comparatively strong and increasing quality of tertiary education at UWI. 54 Figure 24. Post-Secondary and Tertiary Education Trends in Jamaica A. Tertiary Degree Completion in Jamaica B. Post-Secondary/Tertiary Education Attainment (excluding TVET) Notes: (A) Data: Jamaica Labor Force Survey, 2007-2020; (B) The data for Jamaica reflects the share of the population with at least some post-secondary (sixth form, 12th and 13th grades) or tertiary education; data: I2D2 database. 4.1.3. Root Cause Test 2 (Low Number of Tertiary Workers): Low Demand for Tertiary Education vs. Lack of Access to Tertiary Education vs. Outward Migration Depleting Skilled Labor Availability The results from the first root cause test suggest skills deficiency in Jamaica is related to an undersupply of college graduates in the work force. The second root test pits three potential explanations against each other. The first explanation is that there are insufficient tertiary-ready HS graduates. The second is that there are sufficient college-ready (and interested) HS graduates, but they are unable to access higher education. The third explanation is that although there are enough college graduates, many seek better opportunities elsewhere, resulting in a shortage of college educated WAP in Jamaica necessary for economic growth. Of the three potential causes of skills deficiency in tertiary educated workers, the data indicates insufficient college-ready students. The majority of students do not advance their studies along a college track. After completing secondary school, students could continue education in the sixth form (12th and 13th grades),75 in preparation for the Caribbean Advanced Proficiency Exam (CAPE)—passing CAPE examinations is a prerequisite for admission to tertiary-level institutions. Only 35 percent of the average 40,000 students completing the 11th grade transition to a sixth form (MoEYI 2021a). Therefore, part of the reason insufficient college-ready students is more likely binding than education supply is that even if enough scholarships were available, the number of additional students academically prepared to accept them would likely lead to less than a modest increase in the percent of high school graduates that are college ready. The argument that access to tertiary education (supply of tertiary education) is a root cause has its merits. Limited access to tertiary education needs to be considered as a possibility because of the costs of tertiary education. At UWI, students enrolled in undergraduate programs supported by the government are charged between approximately J$ 300,000 (US$ 1,900) and J$ 700,000 (US$ 4,600) per year in tuition fees (UWI Mona 2022a) ( Figure 25.A). The costs for undergraduate studies without government support are significantly higher and range from US$ 5,000 to US$ 28,000 per year. These costs are high in comparison with the other countries.76 Moreover, university fees are increasing over time, further limiting the affordability of enrolling in, or 75Categorized as post-secondary education. 76In comparison, two out of three regional peer countries, the Dominican Republic and Barbados, cover the full portion of the tuition fees, providing students an opportunity to pursue tertiary education in public institutions free of charge (ILO 2014). 55 continuing tertiary education.77 Data from the UWI Tracer Study (UWI Mona 2022b) on financing shows that the most frequent source of financing undergraduate studies was support from relatives (50 percent), with other common responses being formal loans (38 percent), earnings from employment (28 percent) and tuition waivers, grants and scholarships (27 percent) ( Figure 25.B). However, financing education is expensive relative to peer countries.78 The criteria for being awarded these loans could be difficult to fulfill,79 and the loans do not cover the full costs of education.80 In addition, the recent review of education expenditure in Jamaica found that the share of funding allocated to scholarships and other forms of financial assistant is relatively low (World Bank 2021). Figure 25. Post-Secondary and Tertiary Education Trends in Jamaica A. Total Average Tuition Fees for B. Methods of Financing Tertiary Education, Undergraduate Studies, UWI, 2022 (J$) UWI Class of 2020 (%) Notes: (A) Total fees are calculated by multiplying the annual fees on the average number of years of study for 2021 graduates; tuition fees are for sponsored students from contributing countries for 2022/2023; data: UWI Mona 2022a, UWI Mona 2022c; ( B) Question allowed to select multiple options; data: UWI Mona 2022b. The migration of skilled workers, especially those with tertiary education, is a critical issue in Jamaica and potentially significantly reduces the availability of skilled workers for the Jamaican labor market. Most of the data available on Jamaican migrants come from statistics in destination countries, suggesting that improvements are needed for migration data collection and reporting in Jamaica.81 Given that the US is the main destination for Jamaicans and data is available, we focus on Jamaica-US migration in this section. Between 2009 and 2018, on average, about 20,000 Jamaicans migrated annually82 to the US and obtained permanent residency status. On average, about 15,000 Jamaicans are naturalized in the US annually (US DHS 2018). Moreover, college educated individuals have a higher propensity to migrate. According to the UNESCO UIS 2015 data, over 4,000 individuals, or 5.7 percent of all tertiary students in Jamaica, were pursuing degree studies abroad, compared to 9.2 percent in Belize, 0.9 percent in the Dominican Republic, and 1.1 percent in other LAC UMICs.83 Between 2008 and 2017, of the 12,000 Jamaica-born individuals arrived in the US annually, 19 percent had a completed bachelor’s or higher degree. In absolute numbers, our estimates indicate Jamaica loses at least 2,000 tertiary-educated individuals 77 Reasons cited by the universities for the increase in tuition fees include the depreciation of the Jamaican dollar,77 high levels of inflation, and increases in operating costs, including the development of infrastructure for online learning. 78 The Students’ Loan Bureau (SLB) offers tuition financing loans, with interest rates between 6 percent and 9.5 percent. It funded around 30 percent of students in 2014. In comparison, in Barbados the interest rate for similar loans is 5.55 percent (SRLF, 2022). 79 SLB loans require a guarantor. 80 Loans only cover the portion of the expenses attributable to tuition fees, i.e., only about 27 percent of the total costs of attending (CPRI 2017). 81 Migration data availability can be improved, including on immigration, emigration, intraregional migration, and migration outcomes after university graduation, among others. 82 As mentioned earlier in the report, Jamaica has a large and growing diaspora living abroad, with the main destination being the US—which accounts for 71 percent of the diaspora. The two other main destinations are the United Kingdom and Canada. The three countries account for 96 percent of the global Jamaican diaspora (UN DESA 2020). 83 Other LAC UMICs are Argentina, Brazil, Colombia, Costa Rica, Ecuador, Guatemala, Mexico, Panama. 56 annually due to migration into the US.84 A survey of the Jamaican diaspora held in 2017 indicated that a significant portion (58 percent) had tertiary education, including 29 percent with a completed undergraduate degree, 23 percent with a master’s degree, and 6 percent with a doctoral degree (Jamaica Observer 2022). To provide a more accurate estimate, we rely on data from the US American Community Survey (US-ACS) ( 84 US-ACS collects the data on the number of persons arriving in the US disaggregated by the country of birth and the year of entry, including the education status of the respondents. It collects information from people aged 18 and older who were present in the US for at least two months, thus likely to have the status of an immigrant. As the number of respondents is limited, the data is then weighted to provide an estimate of the total population. To design more reliable estimates, the present analysis takes the data averages from the two years after the individual’s arrival to the country. The number of arriving persons that possess at least a bachelor’s degree at the time of interview collected through US-ACS is then compared to the net changes in the number of tertiary-educated individuals collected through the LFS. LFS annual data is derived as an average of quarterly data for each calendar year. 57 Figure 26). Because of our estimation method, in theory, it is possible that some individuals obtained a degree in the US. However, it is unlikely because the analysis uses the data within two years of the individuals’ arrival to the country, while obtaining a bachelor’s degree requires at least three years of study. Therefore, these 2,000 individuals either started or completed a tertiary degree in Jamaica. Since the US is not the only destination for Jamaica’s migrants, the total loss of tertiary-educated individuals is expected to be greater. An earlier assessment by the Planning Institute of Jamaica found that the brain drain is a continuous issue and concluded that over 82 percent of Jamaicans with tertiary level education that lived and worked in the US in the 1990s were trained in Jamaica (Jamaica Gleaner 2007). A paradox of skills shortages and emigration of skilled workers may be explained by a higher demand and returns for skills in neighboring countries and flight from crime/insecurity. A considerable number of tertiary-educated Jamaicans migrating to other countries hint at a paradox—given the demand for skilled workers in the country. One possible explanation is that neighboring economies have stronger demand for skills than the home market. This hypothesis is aligned with Jamaica being a small island state located in proximity to the US that offers a wider range of employment opportunities85 and higher wages (See Annex). Thus, even though the returns to skills are high in Jamaica’s labor market, they are even higher in economies that Jamaican’s migrate to. Other explanations for the paradox are flight from crime/insecurity, with human capital being the most mobile asset, as well as relative ease of emigration given the presence of established Jamaican diaspora, historical ties, and English language commonality, among others. Addressing the outward migration of Jamaica’s workers is not likely to be sufficient to fix the labor market challenges that the country is experiencing. Pull factors such as the attractiveness of professional opportunities and higher earnings abroad and push factors, such as crime level, determine Jamaica’s brain drain. Some of these factors are undoubtedly out of GoJ’s control. If the country is able to limit the migration of educated professionals, this will have a positive impact on the labor market and may minimize the shortages in selected occupations such as nurses and teachers. However, given that the estimated number of tertiary- educated migrants is about 2,000 people annually, addressing the brain drain problem alone is not likely to be sufficient to meet the firms’ demand for skilled workers. Consider that Jamaica moving to an educational attainment of 20 percent—the level of many countries in the region—from 12 percent in 2019, implies roughly 168,000 additional Jamaicans with tertiary degrees.86 85 For example, during the consultations for the World Bank (2022b) report, Jamaican students highlighted that finding a job in the US is easier because its labor market offers employment opportunities for a wide range of skills-experiences combination, while opportunities on the Jamaican labor market are limited to a much narrower range of skills-experiences combinations. 86 An eight percent increase of a WAP of 2.1 million (for Jan 2021, STATIN). 58 Figure 26. Brain Drain in Jamaica Tertiary-Educated Individuals in Jamaica and Migrating to the US Notes: Tertiary degree holders arriving in the US are Jamaica-born persons present in the US for at least two months prior to the interview that have a completer tertiary degree at time of arrival or one or two years later; data source: US-ACS. Net increase of tertiary degree holders in Jamaica reflects the net increase in the WAP; data source: LFS. LFS 2011 data was not available so we assumed equal annual increases for 2011 and 2012. Percentages reflect the share of tertiary degree holders arriving in the US to the combined number of degree holders in the WAP in Jamaica and those arriving in the US. 4.1.4. Root Cause Test 3 (Low Demand for Tertiary Education): Small Number of College-Ready Students vs. Little Interest by College-Ready Students The logical next step is the diagnostic process is to consider whether the low demand for tertiary education is due to (i) lack of interest by students who are otherwise prepared for college or (ii) insufficient college-ready high school graduates. The analysis indicates that again there are insufficient secondary students prepared for college-level studies. It is unlikely that college-prepared students are choosing not to attend college. If lack of interest was indeed the key cause of limited college attendance, as opposed to insufficient college-ready secondary graduates, then policies aimed at increasing the interest of those students would resolve the problem of low demand for tertiary education and thereby increase the number of educated workers significantly. Based on the observations made above, the low stock of college-ready students is likely what is causing low demand for tertiary education. The next step is to consider whether this is because there are (i) not enough secondary school graduates87 or (ii) that there are enough high school graduates, but they are not college ready. The evidence supports the latter as being more critical, since Jamaica stands out against peers as having a higher proportion of their workers with secondary educational achievement. Jamaica is ranked first by secondary education attainment against peers, a number which has steadily grown (Figure 27.B and 25.A in section 4.1.5). Moreover, as mentioned above, the bulk of the Jamaican labor force is in jobs that only require a secondary education. The net enrollment rate for secondary school was 74 percent in 2018, slightly higher than in Belize and the Dominican Republic (71 percent). A part of the household commitment under the PATH 87Secondary education in Jamaica consists of a lower-secondary (7th-9th grades) and an upper-secondary (10th and 11th grades). Figure A 22 in the Annex presents an overview of the education system structure in the country. At the end of upper-secondary education, students take the Caribbean Secondary Education Certificate (CSEC) examination. 59 program requires attending school. Nevertheless, there are also problems with access to secondary education that could be addressed, and enrollment rates are lower than in many other LAC UMICs.88 4.1.5. Root Cause Test 4 (Small Number of College-Ready Students): Too Few HS Graduates vs. Too Few College-Ready HS Graduates. Our analysis indicates the most likely cause of too few tertiary-educated workers is insufficient high school graduates with sufficient aptitude in the areas necessary to pursue college education. Tertiary education in Jamaica is offered by universities, community, and teacher colleges. While universities normally offer bachelor’s degree programs that require students to have high CSEC and CAPE scores, colleges mainly offer associate degree programs, asking for CSEC passes for admission. Thus, the poor secondary education performance and limited attainment of sixth form studies discussed above restrict student access to tertiary education. In addition, secondary school graduates are not employment-ready either. Various sources indicate that graduates are inadequately prepared in the most important skills required to be successful on the job.89 Further support for this being binding is that internationally we see lower learning outcomes even though there is greater secondary graduates, as captured by the HLO. Poor secondary education performance was an important constraint for accessing post-secondary education as sixth form studies required students to demonstrate high CSECs scores.90 While passing CSEC in mathematics and English was required, only 37 percent and 70 percent of students succeeded in these exams (MoEY, 2022). The Harmonized Learning Outcomes (HLO) data show that Jamaica scores 374, above the Dominican Republic (358), but below all other LAC UMICs (Figure 27.C). The expected years of school (EYS) for Jamaican youth continuously declined from 11.7 in 2017 to 11.4 in 2020. The learning-adjusted years of school (LAYS) were 7.1 in 2020, indicating that Jamaica loses 4.3 years of schooling because of weak educational performance (Figure 27.D). The loss is lower than in the Dominican Republic (5.3 years), but higher than in other LAC UMICs (4.1 years). It is important to exercise caution when interpreting these findings since the HLO in Jamaica is currently based on a non-representative 2014 Early-Grade Reading Assessment. This metric, current HLO, is used as an imperfect proxy of educational quality and preparedness of high school graduates. A more reliable assessment would be feasible once data from the Programme for International Student Assessment (PISA) results become available and are used as the basis of educational quality metrics. 88 Expenses of attending school may also limit school attendance among Jamaican youth. The second most frequent cause for dropping out of school is “money problems,” cited by 20 percent of respondents in 2017—compared to 16 percent in 2010—disproportionally impacting students in the lowest socioeconomic quintile (World Bank 2021). However, there is a no-fee education policy that attempts to address this by covering things like lunch, transportation subsidies, and textbooks. 89 For example, FHI360 (2017), JETC (2022), Jamaica Gleaner (2018d). 90 Post-secondary studies generally require students to demonstrate high CSEC scores in at least five subjects, including English and mathematics. 60 Figure 27. Secondary Education Trends in Jamaica A. Secondary Education (second cycle) Completion in B. Secondary Education Attainment Jamaica, 2007-2020 C. HLO Scores Based on the Reading Assessments D. Expected and Learning-Adjusted Years of School, 2020 Notes: (A) Data: Jamaica Labor Force Survey, 2007-2020; (B) The data for Jamaica reflects the share of the population completing at least the upper-secondary cycle of school education (11th grade); data: I2D2 database; (C) Data: WB HLO; (D) EYS is expected years of schooling; LAYS is learning-adjusted years of schooling based on HLO; data: WB HLO. 4.1.6. Root Cause Test 5 (Too Few College-Ready HS Graduates): Low Quality Supply of Education vs. Low Demand for Tertiary Track HS Education The last stage in our diagnostic and the more difficult assessment is whether the low learning outcomes are due (i) to problems with the supply of secondary education (educational system) or (ii) whether there is not enough demand (e.g., lack of interest) from school-aged youth. The reason this is a difficult assessment is that there are challenges that support both of these possibilities. Issues with the secondary education supply, including ineffective teaching methods, not only affect the quality of learning, but also decrease student engagement. Some educational supply factors are on par with peers; for example, the pupil-teacher ratio at the secondary level that was similar to regional peers and other LAC UMICs in 2018. (WDI) According to the World Bank (2021), most teachers in Jamaica are certified. However, this does not translate into learning, as only 62 percent of the class time is spent on instruction.91 In a 2015 nation-wide evaluation, almost half of secondary schools were rated unsatisfactory for teaching effectiveness due to poor teaching methods and inability to engage students (NEI 2015). The quality of teacher training is low and needs to be improved (World Bank 2021). Other problematic factors include corporal punishment that remains legal and is frequently practiced (UNICEF 2018b; US DOS 2021) and physical infrastructure concerns associated with overcrowding.92 These issues affect education quality and are also known to decrease student engagement (WDR 2018). In addition, Jamaica’s Education Management 91Best practices indicate it should be at least 85 percent (World Bank 2021). 92In 2018-2019, 18percent of secondary students in Jamaica attended schools that operated double shifts and had 9 percent and 7 percent less probability of attaining basic levels in mathematics and English respectively, compared to students in one-shift schools (World Bank 2021). 61 Information System does not provide real-time and quality data to stakeholders, making it challenging to monitor the impact of interventions and identify and design corrective measures for students at risk (World Bank 2021). Factors external to the school system limit the interest of Jamaicans in building skills (educational demand in secondary). The absence of interest to continue education was the most frequent reason cited by 32 percent of out-of-school youth in 2017, up from 19 percent in 2010 (Figure 28.A). Jamaica also stands out on the share of students “cutting class,” with 30 percent of boys aged 13-15 reporting missing classes without permission, compared to 21 percent in regional peers and 27percent in other LAC UMICs (Figure 28.B) (GSHS, 2017). Factors outside the secondary education supply—such as income-generating activities, gender norms, teenage pregnancy, myopia, and lack of information about the economic value of education, pushed up by illicit activities and remittances—limit students’ interest in learning. Student motivation to excel in school suffers from students’ interest or need to generate income, including through illicit activities. Income-generating activities raise the opportunity costs of education, especially for males. Supporting the argument that the importance of generating income is affecting learning outcomes is that “money problems” was the second most frequent reason for school dropouts (20 percent) in 2017 (Figure 28.A). According to ILO (2018), 13 percent of adolescents aged 15-17 were in employment in 2016,93 with boys having higher employment and lower school attendance rates (Figure 28.D). As illicit activities are widespread and offer opportunities to make “easy money,” school youth, especially from low socioeconomic backgrounds, is tempted to engage in such activities, e.g., lottery scamming, marijuana farming, and sex work (UNICEF 2018a; Youth4Peace 2017). Gangs in Jamaica mostly consist of young men (Jamaica Loop News 2020a), with the entering age of 16-17, but in some cases, boys aged 14 may be involved in support activities (COAV, 2004). The differences in behavioral patterns for males and females may be partly explained by gender norms. A study by IDB (2021b) suggested that socially reinforced rules about masculinity prevail in Jamaica, placing pressure on young males to behave like “real men,” including engaging in violence. Teenage pregnancy reduces the ability for girls to complete secondary education and is an issue where Jamaica stands out against peers. Although rapidly declining, the rates of teenage pregnancies in Jamaica are high for the country’s level of income (World Bank 2023). With the Education Regulation (1980) requiring girls to leave school during pregnancy, it was the most cited reason for dropping out of school among females (49 percent) in 2017 (Figure 28.A, C). The absence of a framework to reintegrate teenage mothers into the education system and lack of access to free childcare services94 limit their opportunities to continue education. Finally, there is some evidence that students are not interested in performing well due to their doubts about the economic benefits from education. Data showing that most dropouts are due to lack of interest rather than other reasons is consistent with the perception being the problem (Figure 28.A). Barker (2012) also indicates that boys in low-income urban settings do not see the payoff from a better education and therefore drop out of school. In addition, because the tertiary tuition are relatively high and financing options are limited,95 youth may be discouraged from putting effort into learning since they believe they will not be able to afford it. In summary, both school factors and student engagement at the secondary level restrict the human capital accumulation. The government is implementing initiatives to address education challenges, including by upgrading infrastructure, implementing the “no-fee” education policy, and extending the mandatory schooling to up to 13th grade. However, the analysis shows that school factors in combination with limited student engagement, cause poor learning outcomes for youth. This is aligned with the findings of another study showing that the reasons for disengagement or dropping out include ineffective teaching, outdated curriculum, 93 Does not include illicit activities. 94 Coverage of childcare for 0-2 years old is 11 percent, and only 1 percent of infants are enrolled in public institutions (World Bank, 2013). Daycare may be prohibitively expensive for poor households as facilities charge between J$ 3,000 and J$ 7,000 per week (US$ 20-46 ) (Jamaica Observer, 2018). Public infant schools have no tuition fees, but parents cover uniforms and transportation costs. 95 See section 4.1.3. 62 lack of teacher-student collaboration, financial constraints, little appreciation of education value, and peer pressure (UNICEF 2021). These factors lead to insufficient demand for tertiary education and in turn inadequate skilled workers in the working age population. Figure 23 above summarizes this logic. Figure 28. Motivation and Opportunity Costs for Education Attainment A. Reasons for Dropping Out of School B. Percentage of Male Students Aged 13-15 before Grade 11, 2010 and 2017 Missing Class without Permission C. Reasons for Dropping Out of School D. Percentage of Youth Aged 15-17 in School, in before Grade 11, 2017 Employment and NEET, Jamaica, 2016 Notes: (A) Responses collected from 17–21-year-olds not attending school; data: WB PER (2021) based on JSLC 2010 and 2017; (B) Regional peers include Barbados, Belize, Dominican Republic; other LAC UMICs include Argentina, Costa Rica, Ecuador (Quito), Panama, Paraguay, Peru, Suriname; data: GSHS, 2017; (C) Responses collected from 17–21-year- olds not attending school; data: WB PER (2021) based on JSLC 2017; (D) Data: ILO (2018) calculations based on the Jamaica Youth Activity Survey 2016. The data does not include information on illicit activities. 4.2. High Reservation Wages 4.2.1. Potentially Low Level of Labor Force Participation Labor force participation (LFP) plays a key role in the supply of employment for firms. In Jamaica, after LFP fell from 1990 to 2014, it has been slowly recovering. Firm growth can be constrained if not enough workers, or workers of a particular profile, are available. Jamaica used to have a significantly larger LFP rate than its peers due to high levels of female participation. However, LFP saw a dip starting in the mid-1990s (Figure 29). Previous studies have pointed out that the decline in the LFP rate, from 76 percent in 1990 to 68 percent in 2014 was explained by: (i) the expansion of the education system and higher educational attainment (World Bank 2011); (ii) changes in non-labor income, such as remittances, that tend to increase reservation wages (Kim, 2007); and (iii) lack of motivation. The motivation of Jamaican workers and specific obstacles faced by women are issues affecting LFP 63 in Jamaica. Researchers in the past96 highlighted the potential tendency of aversion for work among Jamaicans, indicating that it97 is a key constraint for LFP. The differences between the LFP of males and females indicate that LFP needs to be viewed through a gender lens. In Jamaica, the decline in labor force participation from 1990 to 2004 was almost entirely due to a sharp increase in inactivity among women—although Jamaica remained above average in female labor force participation among LAC countries in 2008 (World Bank 2011). At the same time, male labor force participation has remained below peer averages. Figure 29. Labor Force Participation Trends A. Labor Force Participation Rates, 1990- 2019 B. LFP Female, 1990-2019 C. LFP Males, 1990-2019 Note: (A, B, C) Based on World Development Indicators data, ILO modelled for population ages 15-64. Simultaneously considering multiple factors associated with LFP through regression analysis suggests, among other things, that educational attainment, remittances, and being a single mother are among the most critical factors for labor force participation (Table 1). The estimation confirms the distinction between males and females, with education and household income effects playing a larger role for females, especially for tertiary education. Single mothers, presumably with less other household income, are more likely to participate in the labor force (LF), while married women with no children have lower participation. Gender also plays a role in the effects of remittances: women that receive remittances are significantly less likely to participate in the LF than those who do not receive them. The effect for men, on the other hand, while also negative, is not significant. The effects of work experience, proxied by age, and living in the capital city show typical patterns for developing countries, while living in high crime constituencies does not yield significant results. More work experience is associated with higher LFP for both men and women, while living in the capital leads to 96 See Cowell 2004. 97 Ibid. 64 higher LFP, but this result is significant only for women.98 The effect of residing in a high crime constituency, on the other hand, is difficult to interpret due to the potential spurious correlation with other factors that determine LFP, such as household income. The effects of remittances and crime are further analyzed in the following sections. Table 1. Determinants of Labor Force Participation Female Male Age 0.05 *** 0.03 *** Age sq. 0.00 *** 0.00 *** Secondary, first cycle 0.11 *** 0.01 Secondary, second cycle 0.16 *** 0.05 Post-secondary 0.21 *** 0.07 Bachelor and above 0.19 *** 0.14 * Urban, not KMA -0.09 *** -0.06 Rural -0.05 -0.01 High Crime Constituency 0.04 0.05 Household received remittances -0.05 *** -0.03 Married -0.06 ** 0.02 Mother 0.07 *** Mother X Married -0.01 Obs. 1,995 1,862 Notes: Marginal effects from logistic regression of labor force participation. Only individuals 18 and above were included. Based on 2019 JSLC and 2012 JNCVS for the high crime constituency. ***,**, and * indicate 0.1, 1, and 5 percent levels of confidence. High crime constituencies are defined as constituencies where over one-third of respondents reported that they felt visitors were unsafe in their neighborhood, criminal gangs exist in their neighborhood, or they hear gunshots multiple times per month. Thresholds besides, one-third were tested and indicate the same findings. Male and female LFP rates for 2019 were 71 percent and 58 percent, respectively (modeled ILO estimate). Our assessment of the patterns, which were considered to indicate whether low LFP is a critical constraint to better jobs outcomes, suggest that low LFP is not binding.99 For example, if low LFP were a binding constraint, we would expect high and rising market wages for worker categories not participating in the labor market, which is not the case in Jamaica. Workers with high educational attainment, lower unemployment, and higher LFP rates as educational attainment increases do not support this argument, as discussed above. Another pattern is economic growth responding to labor supply. The data do not support this possibility either, since the labor supply and LFP have increased recently, while GDP per capita growth has been low. 4.2.2. Remittances and High Reservation Wages Remittances from the Jamaican diaspora are a highly visible and large inflow of foreign exchange for the country, bringing benefits in the form of higher disposable income. Nonetheless, remittances also have adverse effects on labor market outcomes. In 2020, remittance inflows to Jamaica equaled 22.2 percent of GDP, up from 16.2 percent in 2019, confirming the counter-cyclical nature of remittances (WB). A study on Jamaica (Bussolo, Medvedev 2007) finds that an increase in remittance inflows raises the reservation wages and reduces labor force participation. More recent data are consistent with these findings. LFP rates for individuals in households that receive remittances are 57 percent, compared to 65 percent for non-remittance households. Remittances are also associated with lower employment rates (JSLC 2019). 98 High crime constituencies are defined as constituencies where over one-third of respondents reported that they felt visitors were unsafe in their neighborhood, criminal gangs exist in their neighborhood, or they hear gunshots multiple times per month. Thresholds besides one-third were tested and indicate the same findings (JNCVS 2012). 99 Osborne 2023. 65 The correlation between remittances and youth being NEETs varies by sex. Male youth in remittance households are more likely to be NEETs; meanwhile, female youth in remittance-receiving households are less likely to be NEETs. Although remittances have a marked impact on LFP, more extensive research is needed to understand the profiles of remittance-receiving households and appropriately assess whether it is feasible to formulate targeted policies to mitigate remittance’s effects.100 4.2.3. Public Sector Wage-Setting Effects on Reservation Wages for Private Sector Jobs While the large public employment share can be a constraint for private sector growth, the data for Jamaica make it unclear whether this is the case. A large employment share by the public sector would lead to shortages of skilled labor supply in the private sector if, along with better job security, the public sector paid better and caused skilled workers to wait until better paying opportunities in the public sector open up. Globally, one tends to find public sector wage premia in developing countries (Finan et al. 2015), and it seems that Jamaica follows this pattern. Median labor earnings for wage employees in the public sector are about twice those in the private sector. However, the government stands out as the highest earning sector by a wide margin for high-skilled labor).101 Median labor earnings for wage employees in the public sector are consistently about twice that in the private sector (Figure 30.B). Jamaica also does not stand out as having a larger share of public employment than its peers. For example, Jamaica’s share of public employment is 13 percent while Barbados and the Dominican Republic have shares of 15 percent and 23 percent respectively (Figure 30.D). The key concern is whether, for specific occupations, the government is a wage setter or draws the limited supply of high-skilled workers for other reasons. The data do not show a consistent picture. Recent evidence from one of the peer countries, Colombia (Albrecht et al. 2018), finds that the public sector wage premium is due to the sector attracting higher skill workers, and that those workers would make similar wages in the private sector. Some of the occupations where the public sector has the greatest shares are in health and associate professionals, teachers, chief executives, and protective service workers (Figure 30.A). From the latest data available in 2016, we observe that in the case of senior officials, the government pays lower wages than other sectors (Figure 30.C). For health professionals and associate professionals, the government is not the greatest earning sector. This raises the possibility that the public sector drives the wages down to serve as factor in the outward migration in this field (see section 4.1.3 above on migration determinants). On the other hand, the government does stand out as the highest earning sector by a wide margin for high-skilled general managers (S3 and S4), protective service workers, and associate professionals. The concern is that, as discussed in the demand side section 3.1.3, employer skills, which are critical for firm growth, are relatively low for Jamaica. While collectively, these patterns do not point to public sector employment being a binding constraint, they suggest government policy needs to be carefully crafted at the occupation level. Furthermore, when considering the size of public sector employment, it is also important to consider its potential benefits, including an employer multiplier in some cases (See Jofre-Monseny et al. 2020; Fallah 2021). 100 There is a range of policy options that may help address the negative impact of remittances on LFP. The government could work with the financial sector institutions to diversify the supply of financial services available to migrants and their families. To channel remittances to more productive uses, the government could also create investment opportunities for the diaspora, such as diaspora bonds and local investment projects, among others. 101 Mean earnings for public sector wage employees is 47 percent of private earnings, which has led to concerns about reducing the wage gap (IMF 2022). 2016 LFS data of labor earnings for wage employees shows a mean of J$ 3.3 million for private and J$ 1.5 million for public workers. However, the 25th, 50th, 75th, and 90th, and 95th percentiles of the earnings distribution for wage workers in the public sector is greater than for those percentiles of the distribution for the private sector. 66 Figure 30. Public Sector Employment Occupation Wage Dispersion across Industries A. Occupation with Over 30% Public Employment B. Median Wage Employee Earnings Share C. Occupational Wage Dispersion across Sectors D. Public Sector Public Employment employment Share share COL GTM ECU PAR PER BLZ MEX BRA JAM CRI PAN DOM ARG BRB 0% 5% 10% 15% 20% 25% Notes: (A) Author estimates using LFS 2016 Q4; (B) Data from LFS; (C) Data from LFS 2016; (D) Data from ILOSTAT, latest year available. 4.2.4. Impediments for LFP: Crime and Household Duties A potential root cause of household duties affecting LFP is the lack of substitutes for this kind of work, which includes child and family care. If this was the case, LFP and employment rates would increase in 67 response to relaxation of home care constraints (e.g., services for home production, childcare, etc.). The information available suggests this is a key issue. First, the share of households with single mothers in Jamaica (12 percent) is similar to the regional peer average, but above 10 percent for other LAC UMICs (UN DESAa).102 This issue is seen in education acquisition, as shown earlier in the report. The high rate of teenage pregnancies drives girls out of school. Ideally, one would have impact evaluation data for Jamaica on childcare services. However, studies in other countries show childcare availability have an impact on LFP.103 Crime can enter the decision to participate in LF (through non-illicit activities e.g., safety concerns) in various ways depending on location and individual characteristics. Crime for male workers enters mainly through their participation in illicit activities. For female workers, safety to get to and from work can become an impediment to work (see Romero and Urquhart 2018). The data are unclear on the degree to which living in a high-crime constituency is a major deterrent to LFP. The positive correlation between being in a high-crime constituency and participating in the LF shown in Table 2 is likely due to spurious correlation—an argument supported by the negative correlation shown in the LFP regression (Table 1, above) after other factors are controlled for. Table 2. Factors in LFP, Employment, and NEET Rates A. Effects of Remittances (percentage B. Effects of Being in High-Crime points) Constituency (percentage points) LFP Employed NEET LFP Employed NEET All -8 -8 -2 5 4 7 Male -7 -7 5 4 2 13 Female -8 -8 -9 7 8 0 Youth -3 -1 -2 -7 -6 7 Youth male 0 -4 5 -5 -8 13 Notes: (A) Based on JSLC 2019 data; (B) based on JSLC 2019 and JVNS High crime constituencies are defined as constituencies where over one-third of respondents reported that they felt visitors were unsafe in their neighborhood, criminal gangs exist in their neighborhood, or they hear gunshots multiple times per month. NEET figures only include youth. 102 The data for Jamaica is from 2011. Regional peers are Barbados (2012), Belize (2015) and the Dominican Republic (2019). Other LAC UMICs are Argentina (2019), Brazil (2010), Colombia (2015), Costa Rica (2018), Ecuador (2010), Guatemala (2015), Mexico (2015), Panama (2013), Paraguay (2016), Perú (2012), and Suriname (2018). 103 For example, Morrissey 2017. 68 5. Labor Market Failures and Distortions 5.1. Skills Mismatch Mismatch between the skills demanded by employers and the skills available in the workforce can create labor market inefficiencies. Skills mismatch occurs when workers’ education and skills are not aligned with job requirements (Handel, Valero, and Sánchez Puerta 2016). Mismatches are “vertical” when worker skills are too high or too low, typically as measured by educational attainment, for the skill level of a given job, e.g., a university graduate works as a salesclerk or a worker with incomplete secondary education works as a mechanical engineer. Mismatches are “horizontal” when a worker’s skills are different than those required for their job, e.g., a medical doctor works as an engineer. These mismatches can reduce productivity if workers are used for jobs that they are under-, over-, or incorrectly qualified for and lead to unemployment if skills are so mismatched that workers are left unhired (Rathelot and Van Rens 2017). Skills mismatches in Jamaica are substantial but have been declining in recent years. As described above, the lack of appropriate skills appears to be a challenge in Jamaica. Many firms report problems recruiting appropriately skilled workers, particularly workers with occupation-specific and soft skills (World Bank Group 2022). However, earlier analysis of vacancies and unemployment rates found little evidence for a link between mismatches and low labor productivity in Jamaica, noting that mismatches declined as labor productivity declined (World Bank 2011; Downes 2010). Analysis based on more recent data finds a similar phenomenon of declining skills mismatches amid declining productivity. Fifty-six percent of workers had qualifications matching the level required by their jobs in 2019, up 5 percentage points from 51 percent in 2007 ( Figure 31.D).104 Still, this is lower than the average match rate of 66 percent in OECD countries (OECD 2022). Despite lower unemployment and labor force participation rates, once employed, women and young people are less likely to be in (vertically) mismatched jobs, likely reflecting their higher education levels. However, over qualification rates are high (20 percent) for young people. Most overqualified young people are secondary school graduates working in low-skilled jobs, suggesting that they have not learned the right skills or that there is insufficient demand for their skills. Moreover, the degree of vertical mismatch is less than peers. While 65 percent of tertiary educated workers land high-skilled occupations ( Figure 31.A), the corresponding average for regional peers and for other LAC UMICs is 34 percent ( Figure 31.B,C). Though matches between qualifications and jobs outnumber mismatches, underqualification is still substantial. In 2019, about a third of all workers were underqualified for their jobs with most of these in mid- skilled employment ( Figure 31.D). This means that employers had to settle for less-skilled workers with potential impacts on productivity. This also suggests a potential role for training policies to close the gap. Indeed, regressions of worker characteristics on the probability of vertical mismatch suggest that occupation-specific training decreases the probability of mismatch. There is also evidence of some horizontal mismatch in the labor market. While occupations that typically require highly specific degrees generally exhibit low rates of horizontal mismatch in Jamaica. For instance, less than 15 percent of health and teaching professionals report being trained for other professions, while other occupations have substantially higher rates. For example, around 80 percent of both production and specialized services managers and business and administration associate professionals report being trained for other occupations. This is consistent with evidence that tertiary education institutions are producing graduates concentrated in certain fields: 42 percent in business/management and accounting in 2018 versus 4 percent in computer science/programming and 2 percent in engineering that are not associated with increasing demand (World Bank These findings are similar to those based on the 2013 and 2015 School-to-Work Transition Surveys, which asked young people about whether their 104 qualifications were relevant to their current job (ILO 2014; FHI360 2017). Most reported this to be the case. 69 2022a). Regression analysis shows that horizontal mismatch is associated with worse labor market outcomes like underemployment, informality, and multiple jobs. Weak employment services likely contribute to mismatches. Weak employment services mean that jobseekers lack the support they need to seek out jobs that meet their skills and that educational and training institutions lack the information they need to design the demand-driven programs that have been shown to improve employment outcomes. Employment services are characterized by low vacancy postings, low capacity to serve workers and employers outside of the Kingston Metropolitan Area, and outdated labor market information. As a result, jobseekers are highly reliant on personal networks for job search, and few seek out public employment services for support. According to the 2019 LFS, around 30 percent of unemployed people reported asking friends about jobs while almost no respondents reported seeking out public employment services. Other factors also likely underlie the mismatches that are present in the labor market. The significant outmigration of highly skilled individuals from Jamaica could lead firms to seek out less-qualified workers. Indeed, a 2017 survey of the Jamaican diaspora found that 58 percent had a tertiary education (World Bank 2022a). Skills needs associated with technological advancements, such as the digital skills needed for higher- value outsourcing services, are also evolving rapidly, perhaps more quickly than the workforce is able to adapt. 70 Figure 31. Summary of Skills Mismatch Indicators A. Secondary Education (second cycle) B. Regional Peers Completion in Jamaica C. Other LAC UMICs D. Vertical Matches and Mismatches in the Jamaican Labor Market Notes: (A, B, C) Data source is from LFS for Jamaica and from the I2D2 microdata; (D) Data source is LFS. A match indicates that a worker with less than complete secondary education works in a low-skilled job (Elementary Occupation), a worker with complete secondary education works in a mid-skilled job (Services and Sales Workers; Skilled Agricultural, Forestry, and Fishery Workers; Craft and Related Trades Workers; and Plant and Machine Operators and Assemblers), and a worker with complete tertiary education works in a high-skilled job (Managers; Professionals; and Technicians and Associate Professionals). Overqualification occurs when a worker’s education is more advanced than the skill level that woul d indicate a match. Underqualification occurs when a worker’s education is less advanced than the skill level that would indicate a match. The International Standard Classification of Occupations used in the 2007 and 2016 Labor Force Surveys were mapped to the Jamaican Standard Occupational Classification at the 1-digit level. 5.2. Labor Market Inclusion 5.2.1. Overview of Labor Market Inclusion Approach Labor market inclusion is a complex issue that requires in-depth analysis to be understood. This level of detail is beyond the scope of this report. The discussion in this section investigates entry points to assess labor market obstacles for women, youth, persons with disabilities, and poor households (in the first wealth quintile). As in most developing countries, workers in rural areas also face an array of obstacles regarding labor market inclusion (see Box 6). But the dynamics at play that create the rural-urban gap in jobs outcomes (among other things) are of a different nature.105 As a result they are not covered at the same depth as other groups. 105For example, rural jobs outcomes are strongly tied with policies on the demand side. Another important consideration is that workers self-select into migrating into urban areas, in contrast workers in the rest of the groups considered, for which there are more limited choice regarding their membership. In the case of workers from poor households, this is done under the consideration that there may be poverty traps outside of their control. 71 The central principle behind the labor market inclusion analysis is that jobs outcomes for different types of workers, i.e., labor market segments, should not differ once those characteristics associated with the ability to perform the job are accounted for. We review three aspects of labor inclusivity highlighted by El-Ganainy et al. (2021): access, protection, and fairness. Access refers to whether workers face group-specific barriers to attaining available job opportunities. To assess the accessibility of available jobs we consider whether being part of a labor market segment plays a significant role in a worker’s unemployment or labor force participation after other relevant worker characteristics are controlled for. Although informative, unemployment and labor force participation are only partial measures of job access, because barriers may exist for specific occupations or industries. The other two labor market inclusivity dimensions being assessed, protection and fairness, capture attributes of a worker’s job. Protection refers to the labor market protecting individuals against negative shocks, such as in health or job displacement. As proxies for job protection, we use (i) whether someone is in vulnerable employment, i.e., in own account or unpaid family work, and (ii) whether, when they are a wage worker, they have a job that makes social security contributions. Other related groups-specific factors can be considered qualitatively, such as whether family planning or coverage of maternity leave is unfavorable in the case of women. Fairness refers to workers being compensated solely based on attributes related to the availability and ability to perform the job well. While earnings are the best suited measure of fairness, due to data limitations,106 we use having a high skilled (S4) job. Unfortunately, this proxy fails to capture whether, for a given occupation some groups are compensated unfairly. Similar to the case of access, the quantitative assessments of protection and fairness consider whether being part of a labor market segment plays a significant role in a worker’s job once other relevant characteristics are accounted for. Accordingly, for each of the three inclusivity dimensions, analysis is based on comparisons between groups after conditioning for worker characteristics. Simple comparisons of means are useful but inadequate to assess inclusivity because groups have different characteristics. For example, average educational attainment varies significantly. Therefore, differences between groups on jobs outcomes, such as whether work in a high-skilled occupation, need to control for an individual’s level of education or one would be capturing the fact that a group is more educated rather than a disadvantage to a group.107 This analysis is carried out in the form of regression analysis where a set of relevant covariates is included. Logit regression models were used given that the outcomes variables related to access, inclusivity, and fairness are binary. Hence, this section is centered around regression analysis and discussing potential drivers of the results. It does not conduct root cause analysis in rigorous fashion to understand the main constraints with various sources of data (although it quotes other studies at times). Consultations regarding the full effects for each of these groups were not possible, so results here are, again, illustrative and provide entry points on next steps on jobs issues for these groups. In the case of the analysis of poor households, it should be kept in mind that the regression approach can be skewed due to problems of unobservable factor driving both poverty status and other covariates included such as sector of employment. With outcome variables specified, the regressions are estimated for the entire WAP sample of the JLSC19 and contains binary variables (i.e., indicators) for being female, in a household in the bottom quintile of the wealth distribution, being in the youth category, educational levels, whether someone is married, whether the household receives remittances, and whether someone is in an urban area outside of Kingston, and similarly, residing in a rural area; also the person’s age to account for experience. The full results are presented in Table A 6 in the Annex. 106 We are only able to identify low-income households and persons with disabilities in the JSLC, which does not collect data on labor earnings directly. 107 Of course, low educational attainment can in itself be considered a disadvantage. 72 Box 6. Jobs in Rural Areas Workers in rural areas, following the pattern of peer countries, tend to have similar employment and LFP rates, but suffer from lower job quality attributes in terms of job skill level, underemployment, vulnerable employment, and informality (Figure A 24 in the Annex). Relevant to understanding the urban-rural gap is the level of urbanization in Jamaica, where the country has also fallen behind. Consider that in 2003, Jamaica and LAC UMICs were comparable with roughly 52 percent of the population residing in urban areas. In the following two decades, however, Jamaica experienced only a modest rise to 56 percent urbanization. Meanwhile, UMICs saw a transformative urbanization pattern that took them to an average of 68 percent urbanization. Spatial disparities in education are also significant. Among 25-64 years old, 21 percent residing in KMA, 30 percent in other urban areas, and 33 percent in rural areas did not complete upper-secondary education (Figure A 21 in the Annex). The attainment of post-secondary and tertiary level equals 24 percent, 15 percent, and 16 percent respectively. As discussed in Chapter 2, spatial disparities in access to jobs are less significant than in education as urban and rural population having similar employment and LFP rates (See Annex A1.4). However, the quality of jobs in the rural areas is lower characterized by job skill level, underemployment, vulnerable employment, and informality. However, the quality of jobs in the rural areas is lower characterized by job skill level, underemployment, vulnerable employment, and informality. The main overarching takeaways from the regression analysis are (i) that educational attainment— especially holding a university degree—has the largest impact on most jobs outcomes considered, and (ii) the notable exception is for LFP, which was driven by group participation. The impact of tertiary education is statistically significant and large in magnitude for being unemployed, being in vulnerable employment, having a job that makes social security contribution, and being in an occupation classified as high skilled. With the exception of labor force participation, the impact of tertiary education overshadows that of the effect of being in any of the groups considered. For example, for unemployment, the results imply that, after controlling for the characteristics, a bachelor’s degree decreases the likelihood by over 5 percent while the equivalent for females, being in the bottom quintile, and youth is an increase the likelihood by about 3 percent.108 Given that 2019 unemployment rate for Jamaica was about 8 percent, a 5 percent increase is considerable. In contrast, for LFP, group membership (for all groups) has the largest impact of all characteristics included. Estimates for all the groups were statistically significant, implied substantial effects from group membership. The estimates ranged from a decrease in LFP of 27 percent for persons with disabilities to 10 percent for the bottom quintile. 5.2.2. Labor Market Inclusion of Women A key consideration for the labor market inclusion of women is that they engage in different types of economic activity from men and (relatedly) have higher levels of attainment. Women tend to be in services and higher productivity sectors, with education standing out, where three of every four education workers are women (Figure A 25.A in the Annex).109 For most occupation groups at the 2-digit level of disaggregation, which discerns over 15 occupational categories, there is a conspicuous break down along gender lines (Figure A 25.B in the Annex). Women are over-represented among services and sales workers (63 percent of these workers), professionals (63 percent), and clerical workers (73 percent). In contrast, less than one in ten crafts and related trades workers and plant and machine operator are women. In fact, the only occupational categories where there is a roughly even breakdown are elementary jobs and technicians. Given the fact that educational attainment plays such a large role in jobs outcomes and the observed gender gap in attainment (women with significantly more education), it is no surprise that education is a central issue. Overall, this leads to large differences between the simple (unconditional) difference in averages between men and women and the covariate-adjusted differences captured in the regression results. 108 For persons with disabilities the standard error of the estimate was large making effect statistically zero (the point estimate shows a decrease of 1.1 percent). 109 Other large sectors with where women outnumber males by a significant margin include hospitality, finance, and arts —for each two of every three workers are women. Few women are found in construction, agriculture, manufacturing, and transport. For the trade sector and business services and real estate sector, key service sectors in the economy, the data suggests an even gender breakdown. 73 The set of regressions imply that access measures (unemployment and LFP) are where women face the largest obstacles. For women, results for jobs outcomes were least affected by the addition of covariates. The female employment rates (total employed divided by numbers of women the WAP)—which embodies the combined effects of LFP and unemployment—is 60 percent, significantly below that of male counterparts (76 percent) ( Figure 32.A). The regressions of LFP above (Table 1 in section 4.2.1) show, unsurprisingly, that stay- at-home mothers appear to drive a large part of this 15-percentage point difference. When women do participate in the labor force, they are less successful in finding jobs and educational achievement seems to be at the heart of the problem. The unemployment rates110 in 2019 for female and male workers were 9 percent and 5 percent respectively ( Figure 32.D). While unemployment rates for tertiary degree holders are about the same across gender, there are significant gender gaps at all other levels. The most dramatic difference is for individuals who finished second and first cycle of secondary education with an unconditional 5 percent difference in unemployment rate. On protection, what look like advantages when considering unconditional averages turn out to be mainly driven by the education gap. However, magnitudes are small. For example, the conditional difference of 3.8 percent for the likelihood of being in vulnerable employment is not huge when the average for the workforce is about 50 percent. When they are employed, they are significantly more likely to be in non- vulnerable employment have an employment contract and social security. This is aligned with the findings from the gender assessment in Jamaica that men are more likely than women to hold informal (54 percent vs. 43 percent) and vulnerable (40 percent vs. 31 percent)111 jobs. The report also finds that females work less hours on average, although the difference is not substantial (39 vs. 43 hours per week) (World Bank 2023). Other sources paint a different picture in this regard. Data from LFS 2019 indicate women are more likely to be underemployed112—9 percent for women against 6 percent for males.113 Regarding fairness, the results are mixed, but tilt towards showing women secure high-skilled occupations, even when controlling for relevant factors. The likelihood on having a high-skilled occupation does drop when covariates are included (from 6.5 percent to 2.2 percent). However, among employed Jamaicans, returns to education do not show a consistent difference between males and females ( Figure 32.C).114 Different wage premia for education between male and female would have indicated a potential demand side problem, with women of the same educational profile not being paid commensurate to their skills, experience, and similar factors. As with the aggregate estimation for educational wage premia (see Figure 22.B in section 4.1.1), which compares earnings relative to workers who did not finish the first cycle of secondary, returns to education are largest for tertiary education (114 percent), followed by finished secondary and first cycle (46 percent and 23 percent respectively). Returns to training in general are high (32 percent). These results should be interpreted with caution given selection concerns: individuals who foresee greater returns to their education are likely to enter the labor market. Figure 32. Differences in Jobs Outcomes by Gender 110 Unemployed comprises those persons “Looking for work” together with persons “Wanting work, available for work.” This latter category includes persons who were, during the Survey Week, actually engaged in home or other duties not classified as part of Economic Activity, but who were willing and able to accept work during the Survey Week. 111 Defined as the sum of contributing family workers and own account workers. 112 Workers that usually work less than 35 hours per week. 113 Therefore, for regression results for indicators conditional on having a job (such as having a contract), underemployment is folded could be occurring as well. However, outcomes such as being in vulnerable employment and being underemployed are not independent and may be caused by the same underlying factor; the causal relationship between the two is not clear— employers may want to avoid giving women contracts and hire them fewer hours to justify it. 114 This is based on Mincerian regressions. Full results are available from authors upon request. 74 A. Employment Rate B. Job Quality Indicators C. Returns to Education by Gender D. Unemployment Rate by Highest Educational Achievement by Gender (2019) Notes: (A) based on LFS; (B) based on regressions that include the labor market outcome as a left-hand variable and an indicator for females along with covariates that include age, remittances, marital status, education level, location, socioeconomic quantile, and disability. For full set of results see Table A 7 in Annex. (C) Outcome is natural log of labor earnings. Estimations based on Jamaica LFS; all quarters pooled. Base category for education is finished less than the first cycle. ***, **, and * indicates statistical significance at the 1 percent, 5 percent, and 10 percent confidence level. Covariates include the number of years of experience, sex, sector (agriculture, manufacturing, trade and hospitality, construction, business surveys), and urban work location; (D) based on LFS. There are other factors related to potential for gender discrimination, which could drive all jobs outcomes and that make interpreting the regression results less straight forward. First, there is an inconsistency between the rate at which women are managers and their leadership role within firms. Consider that despite women being 46 percent of the workforce in 2019 (STATIN) and accounting for over half of manager jobs (57 percent), only one-third (35 percent)115 of firms are led by women (JSE). A 2015 report by the ILO also noted that Jamaica has one of the highest shares of female business managers globally (59 percent);116 however, they filled junior and middle management positions (50 percent) rather than senior (40 percent) and top (30 percent) management positions (World Bank 2023). The ILO study117 highlighted that the 115 Although this seems contrary to the above finding that over half of managers are women, th e different is due to the definition of the business being female-led in the 2018, which is explained above. 116 For example, the share of female managers was 43 percent in Barbados (2004), 41 percent in Belize (2005), and 39 percent in the Dominican Republic (2012). The data for Jamaica is from 2008 (ILO 2017). 117 The assessment included a desk review, a survey (conducted through interviews with 238 women entrepreneurs using the standardized questionnaire), and three focus group discussions (attended by a total of 30 women entrepreneurs) with women entrepreneurs and interviews with relevant stakeholders (25 organizations) (ILO 2021). 75 main challenges faced by female entrepreneurs in Jamaica are a lack of an enabling environment to balance work and family responsibilities, lack of access to affordable financial and non-financial services, including business development services, markets and technology, and limited time to participate in business networks. Second, hiring trends shows there could be a bias for or against women depending on who is doing the hiring. And whether a business is led by females shapes hiring patterns: on average female workers comprise 72 percent of employees in female-led businesses versus 47 percent in men-led businesses.118 The bottom line is that (i) access is likely the most critical issue for women and especially for women with low educational attainment and (ii) they do move into leading businesses given that they account for a large portion of managers in the workforce. Given that many occupational categories and sectors that tend to have the lowest educational requirements are male dominated (e.g., craft and related trade workers), women’s access to these occupations pose particular challenges. 5.2.3. Labor Market Inclusion of Youth Understanding youth is challenging because some of their labor outcomes are not comparable with older cohorts. Though youth have lower LFP and higher unemployment rates compared to the total population, a portion of these differences are explained by the nature of the youth group. Estimates of the effects of being a youth using the JSLC 2019 data suggest a decrease in the labor participation rate of 13 percent. Controlling for the relevant indicators causes minimal change, with a conditional average LFP difference of 14 percent. The lower LFP rate is expected given that a portion of youth are students—about 47 percent of 15-24 years old youth are attending school full-time (LFS 2019). Among youth who are not students, the LFP is 72 percent, which is similar to the total labor force (LFS 2019). According to the World Bank (2022b), crime and violence are contributing to lower LFP rates among youth. The challenges of securing attractive employment lead some young people to resort to gangs and criminal activities as a means of earning a living. This finding is consistent with the analysis in the section 4.1.6 above, highlighting the important impact of crime on the labor market in Jamaica. After controlling for the relevant indicators, estimates suggest a 3 percent higher unemployment rate for youth than non-youth, in contrast with the estimated 16 percent when not controlling for sociodemographic and other factors. The higher unemployment rate for youth is likely explained by the lack of social and professional networks, job search skills, and the occupation-specific skills that make it more difficult to find a job. Meanwhile, once they land a job, differences in indicators are no longer as significant regarding protection and fairness. 118 A caveat is that the pattern of women more often hiring women is that they may be in female dominated sectors. 76 Figure 33. Effects of Being a Youth on Labor Market Outcomes Notes: Based on regressions that include the labor market outcome as a left-hand variable and an indicator for youth along with covariates that include age, remittances, marital status, education level, location, sex, socioeconomic quantile, and disability. For full set of results see Table A 7 in the Annex. Youth are defined as working age population aged 15 to 24. On the surface, benchmarking against peer countries does not set Jamaica as an outlier with regards to the jobs outcomes of youth. International comparison of labor market indicators of young people in Jamaica shows mixed results. Compared to youth in other countries, Jamaicans underperform on LFP (36 percent versus 48 percent for regional peers and 49 percent for other LAC UMICs), but they are doing better in terms of unemployment (15 percent versus 20 percent for regional peers and 17 percent for other LAC UMICs) (Figure 34Error! Reference source not found.). The share of youth not in employment, education or training (NEET) has followed a downward trend in recent years, reaching 23 percent in 2019—similar to regional peers (26 percent) and other LAC UMICs (20 percent), hinting that more Jamaicans are in education compared to peers. When Jamaican youth are employed, they are more likely to have social security and contract employment and less likely to be in underemployment and vulnerable employment than young people in peer countries. In terms of high skill jobs, youth in Jamaica are more likely to have high-skilled jobs than peer countries but lower likelihood compared to non-youth in Jamaica. Figure 34. Youth LM Indicators vs. Peers Notes: (A) Data for youth ages 15-24; high-skilled jobs are composed of professionals and managers, excluding hospitality, retail and other services managers; underemployment encompasses workers that usually work less than 35 hours per week; vulnerable employment 77 encompasses own account workers and unpaid family workers; LFP, unemployment and NEET rates are based on ILOSTAT 2019 data; employment, social security, contract, underemployment and vulnerable employment are based on LFS 2019; high skills are based on LFS 2016. A closer look at youth challenges through a gender lens reveals a more nuanced picture. Women have had lower LFP rates than men (32 percent vs. 40 percent), higher unemployment (20 percent vs. 13 percent), and higher NEET rate (25 percent vs. 21 percent) in 2019, as in most countries (Figure 35Error! Reference source not found..A). However, international comparison of NEET rates show that Jamaican men are under- performing against other LAC UMICs, while women are doing slightly better compared to both regional peers and other LAC UMICs (ILOSTAT 2019). The most recent data from July 2022 show that women’s youth unemployment rate became lower than for men for the first time in at least a decade (16 percent vs. 17 percent) (STATIN). The data on other indicators is not available yet, making it difficult to draw conclusions. Men and women face gender-specific barriers—as explained in chapter 4.1.6. The main reason for women dropping out of school before grade 11 (2017) was pregnancy, while the main reason for men was lack of interest in school. In addition, young men are more likely to engage in crime—over 90 percent of homicide victims and perpetrators are males below 35 years old (World Bank 2022b). Youth with lower educational attainment explains most of the under-performance in labor market outcomes. Young people aged 25-29119 have notable differences in labor market indicators by education levels (Figure 35Error! Reference source not found..B). Those with post-secondary/tertiary education have the lowest NEET rates (5 percent), highest LFP rates (91 percent), and lowest unemployment rates (3 percent). In turn, young people not completing upper-secondary education perform significantly weaker, with the NEET rate of 30 percent, LFP rate of 80 percent, and unemployment rate of 13 percent. In addition, the ILO School- to-Work Transition Survey 2015 found that students completing tertiary education take less time to find a stable or satisfactory employment (7.4 months) than secondary school graduates (15.7 months) and youth with primary education (29.5 months) (World Bank 2021a). The share of youth with some post-secondary/tertiary education in the labor force have increased over time (Figure 35Error! Reference source not found.C) but still account for a small portion (21 percent) of all young people, suggesting that those with lower education levels drive the labor market indicators down. Although youth is defined as persons aged 15-24, the analysis by educational levels looks at youth aged 25-29 to account for the fact that some young 119 people remain in education for longer. 78 Figure 35. Disparities in Youth LM Outcomes A. Youth LM Indicators by Gender, 2019 B. Youth LM Indicators by Education Level, 2019 C. Share of Youth with Post-Secondary/Tertiary Education in the Labor Force (%), 2007-2019 Notes: (A) Youth aged 15-24, data from ILOSTAT 2019; (B) Youth aged 25-29; data are quarterly means using LFS 2019; (C) Youth aged 25-29; data are quarterly means using LFS 2007-2019. 5.2.4. Labor Market Inclusion of Persons from poor households120 As covered in the contextual background discussion in Chapter 2, poverty levels in Jamaica compared to peers are favorable. Jamaica has made significant progress in poverty reduction, decreasing the rate from 28.4 percent in 1990 to 11 percent in 2019. Analysis of the sectors that grew revealed that focusing on overall growth would help the poor (Figure 36), although they are also more vulnerable to economic downturns (World Bank 2023b). Sectors that employ poor households have expanded the most (bottom 40 percent), including construction and hotels. A Datt-Ravallion Shapely decomposition for 2007 to 2019 shows that growth accounts for slightly less than two-thirds of the issue, the rest by redistribution over time (World Bank 2023b.). Importantly, the poor are well represented in sectors where wage employment is prevalent. Trade is about 40 percent own account work (second lowest to agriculture), while construction, hotel/restaurants are wage jobs. At the sectoral level, workers from the poorest households work primarily in agriculture (5 percent of total employment in the sector), government and other services (4 percent) and trade, repairs and installation (2.5 percent) and are least represented in transport, storage, and communication (0.5 percent) (World Bank 2023b). Regarding access, people from poorer households have higher unemployment rates and participate less often in the labor force (Figure 37). In 2018, the lowest and the second quintiles had the unemployment rate of 25.9 percent and 18.2 percent respectively, compared to 7 percent in the richest quintile (World Bank 2023b). Trends on LFP and unemployment are less disadvantaged when covariates are accounted for, but still significant (-15 to -10 percent in LFP; 6 percent to 3 percent unemployment). 120 Much of this section relies on findings and estimates from the upcoming World Bank Poverty Assessment (World Bank 2023b forthcoming). 79 The poorest households lack social protection and are more vulnerable by far on social security (associated with informality). Since they are likely in wage employment given the sectors they are entering, they are entering through informal firms. After controlling for characteristics, the increased likelihood of vulnerable employment decreases. A key finding is that significantly less likely to have social security, even after introducing control variables, 30 percent less likely which drops to 12 percent when covariates are introduced (Figure 37). They are also five times less likely than the non-poor to have health insurance (World Bank 2023b). As for fairness, people from poorer households are less likely to be in skilled jobs. Even after accounting for education, age, and worker industries, workers from poor households are less frequently in high skilled occupations, although statistical significance of the result is modest (Figure 37). The large disparity in education is central for inclusion of workers from the bottom two quintiles of the wealth distribution. In terms of post-secondary education, 7 percent of workers from households in the upper three quintiles have college degrees as compared to 1 percent (World Bank 2023b). At the same time, targeting for school is regressive (Ibid). There have been intergenerational improvements in educational attainment, but inequities persist with respect to completing secondary school and higher education. In 2018, 21.3 percent of children aged 20-29 in the first quintile did not complete secondary education (World Bank 2023b). There is evidence that the need to incorporate income disproportionately affects students in the poorest households who report “money problems” as the main reason for dropping out of school more frequently (11 percent), than those in the top quintile (below 1 percent). The differences in tertiary attainment are even more pronounced, with 4.1 percent of those in poorer households attaining university compared to 58.4 percent in richest (World Bank 2023b). Figure 36. Job Creation and Growth by Industry, 2012-2018 Note: Circle size represents the industry’s share of the bottom 40 employed labor force. Source: Poverty Assessment using JSLC, LFS and national accounts (STATIN). 80 Figure 37. Effects of Workers Being from Households in Lowest Quintile on Labor Market Outcomes Notes: Based on regressions that include the labor market outcome as a left-hand variable and an indicator for being in lowest socioeconomic quintile along with covariates that include age, remittances, marital status, education level, location, sex, and disability. For full set of results see Table A 7 in the Annex. 5.2.5. Labor Market Inclusion of Persons with Disabilities Persons with disabilities face labor market problems. They have lower LFP rates, but among those that are in the LF, unemployment is not significantly different. In fact, numerically, having a disability has a much stronger effect than education, experience, and other factors. Persons with disabilities that are working are not statistically different than others when it comes to whether they are in vulnerable employment. Persons with disabilities in wage jobs are in jobs with social security contributions and are as likely to be in high skilled occupations. Though Jamaica has made substantial progress with developing a legal and policy framework, there is still much progress to be made. To support the social and economic inclusion of persons with disabilities—including through the adoption of the 2014 Disabilities Act—challenges remain with its operationalization, thereby restricting the opportunities for integration of persons with disabilities into the labor market. Different studies point out the limited demand by firms to employ persons with disabilities, citing lack of capability to perform the job, low level of skills, and the absence of tailored physical and technological infrastructure (World Bank 2018). A World Bank labor market study indicated that many employers have negative perceptions about the workplace abilities of persons with disabilities, indicating the need to increase potential employers’ awareness of the skills and potential of persons with disabilities (World Bank 2018). On the supply side, a 2014 Training Needs Assessment of persons with disabilities noted the low educational achievement levels among persons with disabilities compounded by low skill levels (World Bank 2018). While HEART/NTA and other education agencies offer training programs targeted at persons with disabilities, policies are needed to ensure equality throughout the education process, adapting the institutional framework to address the needs of persons with disabilities broadly, as well as for specific groups. The likely reason persons with disabilities face significant barriers to job access is the employers’ negative perceptions about their abilities, the lack of appropriate infrastructure, and their low skill levels. 81 Figure 38. Effects of Being a Person with Disabilities on Labor Market Outcomes Notes: Based on regressions that include the labor market outcome as a left-hand variable and an indicator for being a person with a disability along with covariates that include age, remittances, marital status, education level, location, sex, and socioeconomic quantile. For full set of results see Table A 7 in the Annex. 5.3. Other Labor Market Frictions: Labor Market Regulations, Minimum Wages, and Monopsony Labor regulations in Jamaica either follow standards or are more flexible than in peer countries. Maratou-Kolias and Packard (2019) shows that Jamaica has non-stringent labor regulations, with most following standards or relatively flexible when compared against peer countries in terms of hiring, working hours, and redundancy rules, among others.121 In terms of job quality and worker protection, compared to peer countries in 2019, Jamaica had among the lowest minimum wages, number of vacation days, and paid parental leave days. Maternity leave in particular is 12 weeks, but only eight are paid (World Bank 2023). This is less than the 14 weeks recommended by the ILO. Also, fathers are not entitled to legal paternity leave, which is left entirely to the discretion of the employer (World Bank 2023). In addition, the country currently lacks an unemployment insurance benefit, although the government has mentioned that it has the intention to establish one in the near future, which would provide income protection against the risk of job loss and act as an automatic stabilizer of aggregate demand in times of crisis. The Global Competitiveness Index (WEF 2019) also shows labor regulations are not an area of particular concern in Jamaica. Labor regulations seem unlikely to be overburdening firms and affecting investment and job creation. Kuddo, Robalino and Weber (2015) argue that labor policies need to protect workers while avoiding distortionary interventions. This efficiency range increases employment and productivity without compromising employment protection. While the minimum wage in Jamaica was relatively low in 2019 (Maratou-Kolias and Packard), the recent increases can have potential implications in labor market outcomes and beyond. Current data limitations hinder the ability to empirically analyze these implications. Since 2017 the labor force survey does not include wage data. The National Insurance Scheme’s (NIS) administrative data contains the social insurance contributions associated to each wage worker. Using 2020 NIS administrative data, weekly salaries for registered wage workers were estimated considering a 3 percent NIS contribution paid by workers. Based on the 2020 NIS administrative information, approximately 17 percent of the NIS registered wage workers reported contributions associated with wages lower than the 2020 minimum wage (J$ 7,000 per 40-hour work week). In 2022, the minimum wage was increased to J$ 9,000 per 40-hour work week and in March 2023, a minimum 121Jamaica has standard or relatively flexible labor regulations: number of workdays (6), number of working hours (8), no premium for night work or overtime, no restrictions on weekly holiday or overtime work, dismissal due to redundancy is allowed by law (with severance payment), fixed term contracts are not prohibited for permanent tasks, among others. One of the few areas where Jamaica is above regional Caribbean peers is premium for working on weekly rest day, which is currently set at 100 percent. All labor regulations indicators are based on Maratou-Kolias and Packard (2019) assumptions based on a case study to facilitate benchmarking across countries. 82 wage increase was announced to J$ 13,000 per 40-hour work week, which became effective on June 1, 2023. Using the 2020 NIS administrative data, over 25 percent of the NIS registered wage workers (approximately 28 percent) would have recorded contributions associated with wages below the minimum wage applicable to the 40-hour work week that became effective in June 2023 (J$ 13,000 per week), ceteris paribus. Although this number should be interpreted with caution considering that the number of hours worked are not observed in the NIS administrative information and the minimum wage is for a 40-hour work week, it is unlikely that over 25 percent of NIS registered workers are part-time workers. In this context, it is important to review the Ministry of Labour and Social Security’s minimum wage enforcement design and implementation mechanisms, as well as to monitor closely any potential effects on labor market outcomes and beyond,122 based on high-quality labor market information, including wage data in the labor force survey. Data limitations constrain analysis of monopsony and potential competition failures within Jamaican labor markets. The World Bank (2022) finds that the economy’s structural transformation is being held back by uncompetitive practices in product markets and the presence of the state in critical sectors. Moreover, World Bank (2022) highlights that uncompetitive practices in product markets persists because of weak regulatory oversight, institutional shortcomings (including at the Fair-Trading Commission, FTC), and ineffective implementation of competition policies. Evidence on competition failures and market power in Jamaican labor markets is (mostly) absent. The data limitations explain the scarce evidence generated on monopsony power for Jamaica, despite a rapidly growing literature in other countries. For instance, OECD (2022) highlights that there is evidence that monopsony power is pervasive and substantial in OECD economies and empirically confirms that more concentrated labor markets result in lower wages. Our preliminary analysis for Jamaica shows that workers in most occupations in Jamaica earn less than workers in the same occupations in peer countries. However, labor compensation as a share of GDP seems above expected levels for Jamaica’s level of development (see Annex). More in-depth analysis is needed to better understand potential failures of competition in Jamaica’s labor markets, which in turn requires more and better data. The data that is most commonly used to study monopsony power is included in firm-level surveys, job vacancy surveys (or online vacancy data), census of industries, and other complementary data sources such as union membership records.123 122 Minimum wage increases aim to improve the lives of low-wage workers. Some have argued that increasing the price of labor, with minimum wage increases, can depress demand for the same low-wage workers this policy is trying to help. While recent evidence shows that minimum wages have not caused the significant negative impacts on employment that were feared (IPC-IG, 2018), except where the minimum wage has been set at very high levels (Belman and Wolfson 2014; Doucouliagos and Stanley 2009), it is still critical to monitor and assess with empirical data the potential effects on labor markets (employment, earnings, labor supply, for different population groups) and beyond, including inflation. 123 Some of the most common monopsony power measures in recent empirical labor economics research include the number of competitors for labor services, usually measured with the Herfindahl-Hirschman Index (HHI) to estimate market concentration and the elasticity of firm-specific supply to measure the responsiveness of workers to changes in wages offered by a firm. 83 6. Conclusion and Policy Options This review of the core job outcomes for Jamaica calls for emphasizing job quality and equitable access to employment opportunities. Although the high structural unemployment rate signaled a problem with respect to the sheer number of jobs in the past, Jamaica is experiencing its lowest recorded unemployment rate and one of its highest employment rates in over a decade. This finding was supported and complemented during consultations with multiple stakeholders, including indications of labor shortages and difficulties in finding adequate workers in the tourism-related sectors. The Jamaican labor market seems to be healthy in terms of the quantity of jobs, despite underperformance in economic growth. This has translated into low quality jobs, concentrated in low- and mid-skill sectors and occupations, in small firms, and with low productivity and wages. In addition, labor market exclusion has also been identified as a job problem, leading to an inefficient utilization of specific segments of the labor force. The main Jamaican job problems, low quality of jobs and inequitable access to employment opportunities, are closely related to the longstanding issues of Jamaica’s economy: poor economic performance, lack of structural change, falling labor productivity, and a dual labor market structure, with a large low-productivity segment. Jamaica’s GDP per capita growth from 1975 to 2019 was 0.2 percent, lagging regional peers who grew at an average rate of 1.9 percent in the same period. The country’s productive structure has remained largely unchanged over the past three decades, with a tourism-dependent economy that is focused mainly on low-value-added services. Labor productivity has been falling for two decades and Jamaica’s dual labor market structure is characterized by fewer wage workers and a smaller number of large firms with skilled jobs than peer countries, leaving a significant share of Jamaica’s workers in low-skill, low- productivity, and low-wage jobs. Beyond the policy fundamentals, the most critical bottlenecks to better job outcomes are the high cost of production inputs, especially energy and electricity costs; limited entrepreneurship knowhow; and deficiencies in skilled labor supply. Policy fundamentals, such as macroeconomic stability and rule of law, are a necessary condition for development and continue to be critical for Jamaica’s improvement of job outcomes. Beyond these, high input costs impede business expansion, improved job outcomes, and reduces competitiveness. Limited entrepreneurship knowhow stifles the establishment of new business, the growth of existing businesses, and the innovation required to identify what the Jamaican economy might be good at producing in addition to the things that it already produces (e.g., self-discovery a-la Hausmann). Deficiencies in skilled labor supply deter potential investment, limiting the expansion of firms and the creation of new ones. High production costs hinder profitability, investment, economic growth, and labor demand since they increase the cost of operations for businesses. Elevated costs for essential inputs negatively affect profits, reduce competitiveness, and discourage new investment. While the Government of Jamaica has made efforts to improve electricity costs, Jamaica still has the fourth highest electricity cost in the world (World Bank 2022a). Electricity costs have been highlighted as a top barrier in establishment and enterprise surveys for years (JES 2018; WB-ES 2010), and was confirmed as a critical obstacle during stakeholder consultations. Other input costs, such as internet cost, is also considered to be significantly higher than in peer countries. Limited entrepreneurial knowhow constrains better job outcomes in Jamaica, as evidenced by the lack of business dynamism, low innovation levels, and poor performance of SMEs. The qualitative information gathered during the stakeholder consultations and the limited quantitative data available suggests that lack of entrepreneurial knowhow is a key challenge. Although business performance is determined by a myriad of factors and hard to attribute to a particular challenge, measures of business outcomes, such as low SMEs survival rates, among the lowest success rates of SMEs in transitioning to being large enterprises among peer countries, and entrepreneurs ranking among the lowest in the region as having the potential to be job creators (GEM 2016) are consistently showing poor results in Jamaica. Moreover, despite recent progress in making financing available for SMEs,124 a high number of applicants are rejected due to inadequate business 124 Access to finance was one of the top reasons stated in the 2018 Jamaican Establishments Survey as an obstacle for SMEs. 84 plans. Stakeholders in the financial sector assert that the issue lies on the demand side for financial products, with insufficient viable projects to be financed. While more can be done on the supply side of access to finance, the issue seems to be more critical on the demand side. Human capital deficits, especially of high skilled individuals, seem to be constraining economic growth and labor demand in Jamaica. Some of the signals that education is a central issue to economic growth and labor demand are that returns to education for high-skilled individuals are high, (especially tertiary- educated workers) and higher than in peer countries, and skilled tertiary-educated workers have higher labor participation and employment rates and are significantly more likely to hold high-skilled jobs. Moreover, firms that rely on skilled workers are less prevalent and they tend to have smaller average size than in peer countries. This has led to a sub-optimal and low equilibrium of high-skill jobs and high-skilled workers. Firms in skill- intensive activities face specific challenges to grow and are not achieving economies of scale, while skilled workers are migrating out of Jamaica, looking for, inter alia, better economic opportunities. A Jamaican specific root cause analysis found that quality of secondary education (including ineffective teaching practices, outdated curriculum, and school infrastructure, among others) and student engagement are the most critical challenges to address the limited supply of high-skill workers. These two are closely linked. Also, teenage pregnancy continues to be a high priority issue and was cited in 2017 as the top reason among women for dropping out of school. While there are multiple additional sensible policy challenges that can be addressed to improve job outcomes, this jobs diagnostic has focused on identifying the underlying key causes and suggests policy options with potential to enhance job outcomes. This diagnostic includes an analysis of a broad set of factors that are related to the jobs problems, differentiating among the most critical ones to improve job outcomes (abovementioned) and others. The factors that can be improved but are less likely to be bottlenecks with regards to job outcomes include labor regulations, labor costs, and crowding out of investment by government, among others. In this section, policy options are put forward to facilitate policy discussion about how to foster the generation of more, better, and more inclusive jobs in Jamaica, focusing on addressing the key underlying causes of the main job problems in Jamaica, apart from the policy fundamentals. P1: Policies to Reduce Energy and Electricity Costs It is crucial to implement policies to alleviate the constraint to better job outcomes and higher economic growth that high electricity cost currently represents, such as further accelerating investments in renewable energy sources and improving energy efficiency by reducing technical and commercial electricity losses. While Jamaica has already approved reforms in this direction and is currently implementing them,125 the pace and quality of reform implementation can be enhanced, and additional reforms can be supported to achieve the ambitious outcome. P1.1: Increase renewable energy sources and reduce dependency on fossil fuels. The shift to renewable energy can be accelerated. Jamaica remains highly dependent on fossil fuel imports. Existing efforts to support the expansion of renewable energy generation can be improved by scaling up private investment in renewable projects through updating renewable energy resource assessments, streamlining feasibility studies (World Bank 2022b), simplifying permitting procedures for independent power producers (IPPs), facilitating competitive procurement by IPPs, standardizing tender documents, and bundling smaller transactions to lower transaction costs (World Bank 2022a). One example of successful reforms to attract private investment is in the Maldives, where a robust risk mitigation package that comprised World Bank Group guarantees, a payment security mechanism, and a currency convertibility clause provided investors with confidence and helped the country raise their interest and reduce bidding prices (World Bank 2023c; World Bank 2022c). 125Jamaica adopted policies aimed at achieving its renewable energy targets, such as tax incentives and net metering, and new cleaner power plants were created. The Jamaica Public Service Company (JPS), the country’s main electricity utility, has implemented the replacement of outdated infrastructure and improved its metering and billing systems to reduce electricity losses. Jamaica has also introduced policies aimed at promoting competition in the energy sector, including through the 2015 Electricity Act that ensured a competitive bidding process for new power generation projects. 85 P1.2: Improve energy efficiency. Despite recent reforms, technical and commercial electricity losses in Jamaica are still significant and growing,126 signaling the need to further scale up efforts to reduce them. Upgrading the electricity grid infrastructure and investing in storage technologies will enable high rates of renewable penetration and improve resilience, reducing electricity outages and costs associated with climate risks (World Bank 2021b). Additional measures to improve energy efficiency on the demand side include developing energy efficiency standards, retrofitting buildings, and providing end-user incentives for energy savings. Jamaica has already adopted a ban on incandescent bulbs with an effective date of April 1, 2023 (Jamaica Gleaner 2022c), but further policies can be developed to promote energy efficiency. For example, in India, the government mandated all new residential and commercial buildings to meet energy efficiency standards and initiated retrofitting of existing public and commercial buildings (FICCI 2017; GoI 2021). P1.3: Accelerate workforce readiness to support the energy transition and meet labor market demand. Consulted stakeholders confirmed there is a gap in the skills currently available in the workforce. This policy option is complementary to the increase in renewable energy sources and the energy efficiency standards. Ensuring skills needed for the energy transition are in place is essential. This includes not only tertiary educated workers, such as engineers, but also energy analysts, trainers, technicians, and construction workers, among others, with sector and technology-specific knowledge. Some of the skills gaps for a green transition can potentially be closed through the Technical and Vocational Educational and Training (TVET) system. For instance, technicians that can install, maintain, and repair solar panels, specialize in energy storage systems (including batteries), conduct energy audits, identify areas for improvement and implement energy- saving measures, among others. P2: Policies to Accelerate the Development of High-Growth Potential Entrepreneurship While Jamaica already has a set of interventions targeted at supporting entrepreneurs, the support provided is small, the scale is limited, and the focus is on supporting disadvantaged population to improve economic inclusion (most beneficiaries are own account workers). These policies currently in place can be complemented with others to support firms with high-growth potential at scale. P2.1: Expand the support to firms with high-growth potential. Accelerate growth and job creation by identifying and providing targeted interventions to early-stage entrepreneurs with strong potential. Interventions can target gap areas identified through our analysis, including innovation, managerial abilities, and access to markets and finance (including through digital technologies).127 Possible mechanisms include financial incentives to encourage innovation, soft- and hard-skills training and mentorship, as well as scale- up of accelerators and incubators (World Bank 2019b). Though Jamaica already has such support mechanisms (small grants for survival of micro-entrepreneurs), few are targeted at high-growth firms, pointing at space to increase the scale of such support.128 Recent evidence shows that it is better to support fewer entrepreneurs but provide much larger loans and comprehensive services (McKenzie 2017). Jamaica can also consider developing multilayer interventions that allow combining “filtering” mechanisms with comprehensive support. One example is the Financial Inclusion and Entrepreneurship Scaling project in Malawi, supported by the World Bank (World Bank 2020e). It is implemented through a three-stage “funneling” approach, where firms are required to show strong performance to proceed to the next stage. At first, firms participate in soft skills training, followed by the second stage to build their technical capacity to access financial and product markets, and then transitioning to the final stage to build linkages with potential customers and get financial assistance (World Bank 2020d). P2.2: Facilitate the establishment of business linkages locally and access to international markets, potentially through business development services. Connections between firms increase the likelihood 126 In 2021, JPS reported system losses of 28.4 percent of net generation, up from 26.5 percent in 2017 (JPS 2022). The average of the total electricity losses in LAC in 2019 was 13 percent (IDB 2021a). 127 Empirical studies in different settings showed that the fastest-growing firms are innovative. At the same time, evidence suggests that entrepreneurs with strong managerial capabilities are more likely to experience high growth, as they employ high-quality inputs and use them more effectively to produce high-quality outputs (World Bank 2019b). 128 Most notable are HEART General MSME Support, Export Max III, Innovation Grant from New Ideas to Entrepreneurship (IGNITE). 86 of experiencing higher growth (World Bank 2019b). Alongside the efforts to build capacities of firms, the government can promote the integration of SMEs into domestic and global supply chains. For instance, Jamaica can help SMEs compete and grow by facilitating their participation in e-commerce and other digital platforms. This should be done alongside increasing financial and digital literacy and developing and promoting the use of digital payments. Also, Jamaica should enhance linkages between SMEs and large firms, for example through supplier development programs, policies and regulations to incentivize sourcing of large firms from SMEs, and others such as mentorship and partnership programs. These measures can be complemented by expanding supply chain financial mechanisms, such as factoring. P2.3: A systematic and targeted approach to entrepreneurship interventions. Entrepreneurship interventions currently offered in Jamaica face several limitations, including a fragmented approach, lack of data and rigorous results measurement (such as impact evaluations), and a more targeted approach. This has been likely leading to inefficiencies, duplication of efforts, and limited effectiveness. To address these challenges, Jamaica can include a comprehensive approach to improve the entrepreneurship ecosystem, including improvements to coordination and collaboration with institutions providing entrepreneurship support (and consider integration); development of a targeted approach based on strategic objectives and evidence, identifying specific sectors and regions to be developed, based on the greatest potential for growth and job creation; and strengthening of data collection, monitoring and evaluation efforts to measure the results and impacts, and adopt a continuous evidence-based improvement approach. P3: Policies to address the skills deficiency As highlighted above, a shortage of sufficiently skilled workers can be a barrier for firms’ growth and deter investment. Ensuring the availability of a skilled workforce is a critical factor to unleash investment, economic growth and improved job outcomes. P3.1: Improve availability of high-skilled workers. The analysis shows that a human capital deficiency is driven by a limited increase in the number of tertiary-educated individuals combined with insufficient skills levels for individuals with lower levels of education. The government is implementing initiatives to address these challenges.129 However, additional reforms are needed to facilitate the progress. This will require a multi-pronged strategy encompassing the ability of the secondary education system to ensure sufficient learning outcomes for further studies or employment, improving skills of current labor force while addressing “push” factors for migration, such as crime and public sector salaries for nurses and other medical professionals, and facilitating strategic immigration of skilled workers (including from the Jamaican diaspora). These policies need to be tailored to skills and occupations in high demand, with potential to grow, and that are currently scarce in Jamaica and might be limiting firm growth. Some countries, such as Australia and Malaysia, have developed Critical Occupations Lists (COL), to identify skills and occupation gaps, and feed the immigration and work permit policy. The development of a COL is being considered under the World Bank Social Protection for Increased Resilience and Opportunity Project (P178582), along with other significant improvements to the labor market information system. A possible approach to limit the sponsorship of tertiary education for students who intend to migrate is to condition public financing on domestic service periods or convert scholarships to loans for those who emigrate. P3.2: Improve the likelihood that secondary students will be ready for further studies or employment through an integrated approach to increase quality of secondary education and student engagement. Policy options include enhancing in-service and pre-service teacher training to integrate strategies to promote engagement and academic persistence, upgrading school infrastructure, and improving the Education Management Information System (EMIS). EMIS can also help the government to identify students at higher risk of dropping out and tailor measures to support their retention and engagement. Student engagement can be enhanced through a positive educational environment and additional policies 129The government has undertaken policies targeted at upgrading school infrastructure, training teachers, ensuring equitable access to education, among others. 87 targeted at ensuring those learners’ skills are rewarded,130 raising awareness of the economic benefits of education (World Bank 2018b). In the Dominican Republic and Madagascar, providing information to students on the returns to education improved their enrollment and learning (World Bank 2018b). Policies may also target assisting youth in their career aspirations, neutralizing gender roles, for example, by exposing them to occupations in different industries and providing basic knowledge about the employment requirements (World Bank 2023a). For example, the Education Career Guidance program in Singapore is integrated into the secondary school curriculum to help students explore different career pathways through lessons and counselling sessions and career fairs (Ministry of Education Singapore, 2022). At the same time, PATH benefits can be expanded and adjusted to secondary students needs to better reflect the opportunity cost of working instead of studying. P3.3: Improve skills of current labor force (stock of workers) through active labor market programs (ALMPs), strategically prioritizing training in demanded skills and occupations. Learning outcomes of students at secondary school level largely do not meet the demand of the labor market. Jamaica needs to design an ALMP strategy to set clear objectives and provide a guidance framework for the service providers and ensure effective coordination mechanisms. It should also improve the capacity of the Labor Market Information System (LMIS) to collect, analyze, and disseminate data and insights to multiple labor market stakeholders. The LMIS should incorporate the analysis of sectors and occupations with high domestic and international demand and anticipate future labor market needs to feed into ALMPs. Correspondingly, ALMPs should be revised with a careful attention to the labor market’s needs and an active engagement of the private sector to ensure the employability of trained workers. It is also recommended that Jamaica develops an inventory of ALMPs and complementary social protection interventions to facilitate referrals. At the same time, policies are needed to increase the training volume of workers, expanding the supply and quality of such programs, and addressing potential constraints on the side of workers’ demand for training. Lastly, a thorough M&E system is necessary to generate evidence on ALMPs and ensure investments are made in programs that work. P3.4 Facilitate immigration131 and manage emigration of skilled workers. Mechanisms for attracting talent from abroad are relatively undeveloped in Jamaica.132 The CARICOM Single Market and Economy (CSME) was created in 2001 and allows individuals who have been granted a Skills Certificate to travel and work freely in all CSME Member States. While the CSME is operational and workers have moved within the region using the Skills Certificate regime, its performance has been affected by implementation difficulties, such as lack of legislation harmonization, duplication of processes, and insufficient awareness about rights and obligations (IOM 2019). Skilled immigrants not only can help to eliminate the labor supply deficiencies, but also generate spillovers in the form of workers’ productivity increases, promotion of innovation , and entrepreneurship (World Bank 2022d). Jamaica can take advantage of such opportunities by developing a national migration strategy aligned with the national labor market, education, and skill priorities (informed by the critical occupations list). Immigration schemes can be differentiated according to skills and productivity and be focused on individuals with demanded skills and occupations while reducing mobility costs and offering incentives for such individuals (World Bank 2017b). For example, a Global Skill Partnership is becoming increasingly popular in migration policy circles and has shown promising results (CGD 2022).133 The broader strategy can also incorporate specific considerations for the high-skilled Jamaica diaspora. Managing emigration of skilled labor can also improve skill availability. Most outward migration is based on economic motivations which make it challenging to enact policies to draw them back (Jaupart 2023).134 Globally, successful countries, such as the Philippines and Bangladesh, have established devoted 130 Learners can be rewarded by a labor market that offers high returns or by a higher education system that admits students based on merit. 131 Facilitate immigration in general and for those with demanded skills and occupations. 132 To obtain work permits for overseas workers, prospective employers should attempt and provide evidence that they did not find a Jamaican national to fill the position of interest. There is an exception for CARICOM nationals intending to work in Jamaica in 10 selected categories. They can be hired without the need to obtain a work permit (CARICOM 2017). 133 A Global Skill Partnership is a bilateral public-private agreement in which a migrant destination country joins efforts with a migrant origin country to share the costs and benefits of skilled migration. Under such partnerships, destination-country employers and governments provide technology and finance for vocational training of potential migrants before they depart, in exchange for emigration placement at the destination and the training of extra workers for the origin-country market (CGD 2022). 134 As pointed out in Jaupart (2023), most policies in the Caribbean to dissuade outward migration have seen limited success. 88 ministries to this issue and used multi-pronged approaches. They include tax incentives for returning migrants, facilitating spouse migration into the country of origin, skills and employment support to integrate them in domestic labor market, and psychological services for their children, among several others (World Bank 2023d). While Jamaica has policies targeted at attracting skilled migrants,135 their impact has not been formally assessed. The government could ensure that these policies are rigorously evaluated to draw on lessons of what works and reform them for higher impact. P4. Policies to Improve Labor Market Inclusion Addressing social exclusion is crucial for improving labor market outcomes, as distortions in labor utilization can negatively affect the efficiency of the labor force. Groups such as women, youth, and persons with disabilities often face barriers to labor force participation, leading to underutilization of their skills and productive capacity. By addressing social exclusion and promoting equitable opportunities these groups can fully participate in the labor force and contribute to economic growth. The diagnostic highlighted that certain groups of individuals—women, youth, and persons with disabilities—have weaker labor market results, including lower labor force participation and higher unemployment rates. Although legal and institutional arrangements are in place for many areas in Jamaica, their implementation is hindered by prevalent social norms, weak institutional coordination, and limited financial and human resources (World Bank 2023a). Existing government efforts to promote inclusion may be reinforced by additional measures to ensure equitable opportunities in education, labor markets, and entrepreneurship, including through affirmative action. These policy actions are closely related to some of the policy options mentioned above. Regarding youth, interventions and policies need to account for two dimensions: (i) balancing short and long-term goals and (ii) taking an individualized approach. As discussed, youth is a formative period in a person’s life. Addressing long-term goals requires an integrated strategy that adopts a life-cycle approach and combines interventions throughout the education cycle, school-to-work transitions, and once they are in the labor market. Some interventions may generate substantial long-term impacts but not immediate changes for labor market measures such as unemployment or sector of employment. In other cases, youth will opt for short-run benefits over greater medium- to long-run benefits. For example, in Mexico, Abel et al. (2022) found that youth entered informal employment in the labor market motivated by the higher entry-level wages than those in the formal sector. Two years later, youth who started in the informal sector remained there and earned less than the comparable peers who opted for formal sector wage employment. The implication is that interventions with the goal of improving jobs outcomes over the longer run may need to focus on intermediate indicators such as college graduation rates or sector of placement rather than less nuanced indicators such as job placement or earnings at entry. Policy instruments, such as informational interventions and short-term wage subsidies, can equip youth to take informed decisions and correct for present bias. These have also proved to be highly cost-effective. Moreover, this reports’ findings align with existing evidence suggesting that youth interventions in Jamaica will reap the most efficient outcomes when they are tailored to individual needs. Launching a successful youth employment program can be challenging. Globally, youth employment programs have had limited success on average.136 Multiple studies (e.g., Kluve et al. 2016, Datta et al. 2018, Romero and Kuddo 2019) have discussed how individualizing support by bundling services based on beneficiary profiling and including mechanisms to reduce program dropout significantly increase the chances of success. Approaches to design individualized interventions include, among others, strong mentorship components and (in the case of government-led programs) so called one-stop shops.137 The analysis in this report on youth labor market 135 For example, policies to attract migrants include a tertiary education bonding policy and a return migration policy for skilled individuals living abroad. 136 A recent systematic review of all impact evaluation evidence available (Kluve 2016) revealed that only 1 in 3 youth employment programs showed positive results regarding jobs outcomes. 137 Several examples of how these components can be found in Romero and Barbarasa (2017). For e-mentorship see Nair (2022). 89 inclusion, which covered males, females, and low-education achievement individuals, showed that, while on the surface, aggregate labor statistics for youth do not stand out, there are key groups that face different jobs challenges and require different types of support.138 Meanwhile, the recent World Bank report on Jamaican ALMPs (World Bank 2019a) highlighted that targeted outreach facilitating hard-to-serve communities to access programs— including for women specifically— was a problem. Programs supporting hard-to-serve populations, such as Jamaica’s HOPE programme, have brought this sort of support to hard -to-serve populations and merit robust monitoring and evaluation to enable “course-correction” and otherwise ensure impactful results. P4.1: Promote equitable educational outcomes, reduce school dropouts (and NEETs), and facilitate labor market transitions. In addition to the student engagement policies discussed earlier, Jamaica can develop targeted interventions for boys and girls. Girls will benefit from policies to prevent adolescent pregnancy and reintegrate adolescent mothers into the schooling system through comprehensive support programs, including counseling, financial assistance, mentorship, and peer support interventions, among others. Also, modernize school re-entry policies and regulations. At the same time, develop initiatives to raise awareness about the economic benefits of schooling, which might be particularly relevant for boys. Young people of both sexes require a greater level of policy support to ease the transition from school to work. Recent evidence (Carranza et al. 2022) finds that carefully designed temporary wage incentives for youth can increase their formal employment. Other informational interventions targeted at youth have also shown promising results and can be put into practice considering their cost-effectiveness (World Bank 2023a). P4.2: Facilitate labor market participation and enhance social protection among vulnerable groups, especially for those with lower education levels. Policies targeted at women need to limit the burden of caregiving, for example by developing accessible and free or affordable childcare and eldercare services. In addition, initiatives may be focused on neutralizing gender segregation in sectors and occupations, targeting women through ALMPs, and strengthening their access to social protection (World Bank 2023a). To address the needs of persons with disabilities, Jamaica can strengthen its efforts to increase awareness and reinforce compliance with the Disabilities Act that came into effect in 2022, while additional policies may encourage firms to employ persons with disabilities. P4.3: Targeted interventions to support women-owned businesses. With the analysis showing that women-led businesses are less prevalent and generally smaller, the government may design interventions tailored to the needs of women entrepreneurs. Jamaica can reinforce access to finance for women-owned enterprises by prohibiting gender-based discrimination in access to credit and creating targeted instruments in the form of loans and grants. These policies can be supplemented with measures to promote access to training, mentorship, and networks for women entrepreneurs. For example, in Ethiopia, microfinance institutions introduced individual-liability loan products tailored to women entrepreneurs that were complemented through provision of innovative, mindset-oriented business training (World Bank 2019c). 138 Other groups with jobs challenges that face individual level constraints are persons with disabilities and workers from poor households. 90 Table 3. Policy Options Summary Policy Term Costs Benefits P1. Reduce Energy and Electricity Costs P1.1: Increase renewable energy sources and reduce dependency on fossil fuels Medium High High P1.2: Improve energy efficiency Short / Medium High High P1.3: Accelerate workforce readiness to support the energy transition and meet labor Medium High High market demand P2. Accelerate the Development of High-Growth Potential Entrepreneurship P2.1: Expand the support to firms with high-growth potential Short Medium Medium P2.2: Facilitate the establishment of business linkages locally and internationally Short Low Medium P2.3: Implement a systematic and targeted approach to entrepreneurship Medium Low High interventions P3. Address the Skills Deficiency P3.1: Improve availability of high-skilled workers Medium High High P3.2: Improve likelihood that secondary students will be ready for further studies or employment through an integrated approach to increase quality of secondary Short / Medium Medium High education and student engagement P3.3: Improve skills of current labor force (stock of workers) through active labor market programs (ALMPs), strategically prioritizing training in demanded skills and Short Medium Medium occupations P3.4: Facilitate immigration of skilled workers in general, and those with demanded Short Low/Medium Medium skills and occupations P4. Improve Labor Market Inclusion P4.1: Promote equitable educational outcomes, reduce school dropouts (and Medium Medium High NEETs), and facilitate labor market transitions P4.2: Facilitate labor market participation and enhance social protection among Short / Medium Medium High vulnerable groups, especially for those with lower education levels P4.3: Target interventions to support women-owned businesses Short Medium High 91 References Abel, Martin, Eliana Carranza, Kimberly Geronimo, and Maria Elena Ortega. 2022. “Can Temporary Wage Incentives Increase Formal Employment? Experimental Evidence from Mexico.” Policy Research Working Paper 10234. World Bank, Washington, DC. https://documents1.worldbank.org/curated/en/099638511172227750/pdf/IDU0f413d1c0085320451a0b09205fa6e11c 0977.pdf. 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Section Detailed Analyses A1.1. Context Figure A 1. Trend in Poverty Reduction and Inequality Labor Productivity Figure A 2. Sector Tertiary Education Attainment vs. Productivity Notes: Jamaican Labor Force Survey and Statin data on VA Contribution by Sector Figure A 3. Sector Labor Productivity Sectoral VA Contributions to GDP and Employment Figure A 4. VA Contributions in Jamaica (1 digit sectors) 100 100% 6% 6% 7% 7% 90% Producers of Government Producers of Government Producers of Government Producers of Government Services, 14% Services, 13% Services, 13% Services, 12% 80% Real Estate Renting & Business Real Estate Renting & Business Real Estate Renting & Business Real Estate Renting & Business Activities, 10% Activities, 10% Activities, 10% Activities, 10% 70% Finance & Insurance Services, Finance & Insurance Services, Finance & Insurance Services, Finance & Insurance Services, 9% 9% 11% 11% 60% Transport Storage & Transport Storage & Communication, 7% Transport Storage & Transport Storage & Hotels & Restaurants, 3% Communication, 10% Communication, 11% Communication, 11% 50% Hotels & Restaurants, 4% Hotels & Restaurants, 5% Hotels & Restaurants, 6% 18% 40% 18% 17% 17% 30% 8% 2% 7% 7% 7% 20% 3% Manufacture, 13% 3% 3% Manufacture, 10% Manufacture, 8% Manufacture, 8% 10% Mining & Quarrying, 4% Mining & Quarrying, 4% Mining & Quarrying, 2% Mining & Quarrying, 2% 7% 6% 6% 7% 0% 1993 2001 2010 2019 Notes: Shares of VA at basic prices without including financial intermediation services indirectly measured; data from STATIN. Figure A 5. Sectoral Composition Changes, all 1 digit sectors 101 Figure A 6. Tree Plot of Sector Composition Notes: Jamaica workers in thousands per sector (based on 2016 Q4 LFS, total workers are 1.176 million. Occupation Prevalence and Skills Figure A 7. Prevalence of Occupations in Workforce Grouped by Skill Level (2016 Q1) Figure A 8. Change of the Shares of Workers by Occupation between 2000 and 2015 (percentage points) 102 Notes: The figure has a different occupational classification due to the information source used. Source: IDB (2019). The future of work in Latin America and the Caribbean. What are the most in-demand occupations and emerging skills in the region? Figure A 9. Share of Jobs by Sector and Skill Level (%) Notes: Values correspond to the quarterly average shares in 2016. Employed workers, excluding those who do not report their occupation and armed forces occupations. Wage Employment Shares and Prevalence Figure A 10. Wage Employment by Sector 103 Wage Employment in the Manufacturing Subsectors Source: Staff elaboration based on 2016 Jamaican Labor Force Survey. Firm size graphs Figure A 11. WB Ent Survey Average Firm Age and Size, 2010 Figure A 12. Firm Size Trend in the Business Services and Real Estate Sector 104 A1.2 Demand Side Structured Analysis Firm Constraints Table A 1. Comparison of Results between Sources WEF – JSE – JSE – WEF – GEM – PROTENqI WB – Enter. Compe- “struc- “unstru- Executive National N Survey tiveness tured” ctured” Opinion Experts 2010 Index 2018 2018 Survey 2017 Survey* 2014 2019 2016 Question/ Aggregate By % firms By % firms By weighted By % of By % of firms By % of firms Ranking index: reporting reporting the ranking of the experts that reporting the reporting world the main main need five most agree that a most serious biggest ranking is obstacle is... problematic certain obstacle is obstacle is … lowest in... is... factors for problem is …** doing business present...* 1st Market size Cost of None Crime and Financial Tax rates Tax rates electricity theft support 2nd Macro- Other Market for Tax rates Research and Electricity Electricity economic factors final product development stability 3rd Product Cost of Access to Corruption Cost of taxes Crime, theft, Finance market + taxes finance, or and disorder ICT monetary adoption expansion 4th Institutions Finance Physical Access to Availability Tax admin. Informal + cost of space related financing and cost of sector finance consultant and suppliers. 5th Infrastruct Competitor Marketing/ Inefficient Anti-trust Practices of Crime and ure s practices manag. government and competitors disorder abilities bureaucracy competitors’ practices 105 6th Innovation Crime + Adequate Poor work Bureaucracy Access to Tax capacity extortion labor supply ethic in the finance** administration national force 7th Health Economic Specific Inflation Corruption Trade uncertainty equipment regulations *The ranking for the GEM – National Experts Survey is only an approximate ordering of the main factors. ** Access to finance is misleadingly low in the PROTENqIN survey. It ranks 5th in terms of being the most serious obstacle, but it is the most widely considered both the 2nd and 3rd most serious obstacle. Table A 2. Constraints by Firm Sector (JSE 2018) Crime control rtise/manage space related market/adve final product Infrastructur supplies/inp labor supply e/amenities Numb firms demand for registration equipment Policy: tax, Favorable Adequate Access to Access to Ability to business Physical Specific Market finance ease of factors macro Other uts Sector Mining 0.0 36.0 17.4 46.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 12 Manufacturing 27.3 29.0 5.8 9.9 1.9 3.0 5.6 3.9 8.0 1.3 3.5 0.9 722 Energy 9.6 28.9 0.0 0.0 9.6 11.2 8.3 0.0 0.0 8.2 9.6 14.4 23 Water/ manage. 9.5 19.0 0.0 26.3 9.5 16.8 9.5 0.0 0.0 0.0 0.0 9.5 22 Construction 39.8 20.0 2.0 3.6 2.0 7.9 4.4 6.5 4.1 1.3 2.0 6.4 106 Trade 39.3 21.0 7.8 3.4 3.9 3.5 5.3 4.5 4.6 2.8 2.7 1.3 3,537 Transp./ storage 42.5 12.8 5.2 11.7 2.7 2.5 8.4 1.5 10.2 0.0 1.3 1.3 168 Tourism 46.9 17.9 6.6 2.7 4.4 1.8 7.8 1.7 5.3 1.5 1.7 1.6 1,210 Info. And comm. 28.4 27.5 2.0 2.0 8.4 6.3 3.8 0.0 12.3 0.0 4.0 5.3 107 Finance 45.6 20.4 1.1 1.3 1.8 1.8 12.6 0.0 9.6 0.8 4.2 0.7 308 Bus. Serv./R.Est. 27.0 22.1 12.2 0.0 0.0 3.7 9.5 3.6 15.8 3.2 0.0 3.2 67 Prof./Scientific activities 47.1 14.2 3.3 3.2 4.0 5.3 6.5 0.3 8.0 1.2 2.8 4.0 510 Admin./support services 34.0 20.6 4.4 1.3 3.9 4.7 8.7 0.0 16.4 1.5 2.9 1.6 276 Pub. Adm./ def. 39.6 0.0 6.1 0.0 5.0 7.9 13.6 0.0 13.0 0.0 0.0 14.7 26 Education 20.2 21.7 26.8 8.0 6.9 2.2 4.0 0.4 3.8 1.0 1.1 4.0 600 Health/S.Work 45.1 12.6 7.2 5.4 4.0 4.1 6.7 2.1 4.6 1.4 4.3 2.6 653 Arts, enter./rec. 44.9 18.6 3.0 2.6 10.1 5.6 3.2 1.1 0.0 2.3 3.0 5.7 149 Other serv. 38.7 18.8 5.9 4.0 3.5 5.8 9.0 2.9 4.5 1.9 0.5 4.5 455 Total 38.6 20.0 7.7 4.4 4.0 3.6 6.3 2.8 5.8 1.9 2.5 2.2 8,951 106 Labor Earnings Figure A 13. Occupational Wage Dispersion across Sectors Notes: Variation in annual wages for the same occupation across different industries (2015-2016; in thousands of const. 2019 $J); datapoints with less than 10 observations: education; electricity, gas and water supply; hotels and restaurants; public administration and defense; real estate, renting and business activities; data from LFS. 107 Access to Credit Figure A 14. Indicators of Financial Sector Performance A. Access to Finance Enterprise B. Findex Indicators Survey 73 Jamaica Regional peers LAC UMICs 63 51 51 45 44 37 39 32 25 17 15 12 11 12 7 9 7 Account (% age Owns a credit card Borrowed any of which from a Borrowed to start, Saved to start, 15+) (% age 15+) money (% age formal financial operate, or operate, or 15+) institution (% age expand a farm or expand a farm or 15+) business (% age business (% age 15+)* 15+)* Notes: (A) Based on WB ES data; (B) Based on 2021 Findex data, except when marked with (*). (*) 2014 Findex data. Entrepreneurial skills Figure A 15. Percentage of Firms Reporting Obstacles to Innovation as Major or Severe Notes: The figure includes top-10 most frequent obstacles reported by Jamaican firms. Other obstacles include: technical uncertainties (43 percent), org./ manag. culture (43 percent), compliance to int. standards (41 percent), self-confidence (37 percent), info on available technologies (36 percent), technical capacities of public institutions (31percent), client openness (28 percent), internal remuneration/incentives (26 percent). Data source is 2014 Productivity, Technology, and Innovation (PROTEqIN) Figure A 16. Adequacy of Educational and Training System for Entrepreneurship Skills (GEM) Notes: Data source is the Global Entrepreneurship Monitor. The indicator is defined as “the extent to which training in creating or managing SMEs is incorporated within the education and training system in higher education such as vocational, college, business schools, etc.” Import Trends 108 A1.3 Supply side Structured analysis Education Table A 3. Determinants of Individual Labor Earnings (2012-2016) 2012 2013 2014 2015 2016 Attained tertiary degree 1.22*** 1.31*** 1.38*** 1.16*** 1.14*** Finished up to second cycle (11th grade) 0.27*** 0.30*** 0.45*** 0.31*** 0.46*** Finished up to first cycle (9th grade) 0.02 0.07* 0.19*** 0.13*** 0.23*** Received training 0.55*** 0.43*** 0.61*** 0.70*** 0.32*** tertiary degree X training -0.21 -0.14 -0.19 -0.31** 0.17 Finished second cycle X training -0.09 0.07 -0.1 -0.28** 0.11 Finished first cycle X training -0.18 -0.01 -0.17 -0.28** 0.06 Experience (age minus 18) 0.02*** 0.02*** 0.02*** 0.02*** 0.02*** Experience squared -0.00*** -0.00*** -0.00*** -0.00*** -0.00*** Is female -0.22*** -0.25*** -0.23*** -0.23*** -0.19*** Sector: agriculture -0.48*** -0.54*** -0.51*** -0.49*** -0.48*** Sector: manufacturing 0.00 0.00 -0.03 -0.03 0.03 Sector: trade and hospitality -0.09*** -0.10*** -0.10*** -0.08*** -0.12*** Sector: construction 0.04 -0.06 0.07* 0.01 0.12*** Sector: business surveys 0.06 0.04 0.07* 0.09** 0.14*** Works in urban area 0.04** 0.13*** 0.20*** 0.18*** 0.12*** Constant 11.77*** 11.73*** 11.49*** 11.75*** 11.70*** Observations 8,451 8,299 8,308 7,673 9,128 R-squared 0.355 0.340 0.382 0.365 0.328 Notes: Outcome is natural log of labor earnings. Estimations based on Jamaica LFS, all quarters pooled. Base category for education is finished less than the first cycle. ***, **, and * indicates statistical significance at the 1 percent, 5 percent, and 10 percent confidence level. Figure A 17. Products Categories of Products with More Than 5 Million in Imported Value 2019 (million US$) 109 Notes: Data source is WITS database. Figures shows category totals for products defined at the SITC 5 digit level with over US$ 5 million in annual imports. Number in parentheses indicate number of products under given category. There were 117 products at the 5 digit level that had imports valued over US$ 5 million. Figure A 18. NSTA Training Output by Program and Level, 2020/2021 Figure A 19. Percentage of Students aged 13-15 Who Reported Their Parents or Guardians Always Really Knew Most of the Time What They Were Doing with Their Free Time Source: GSHS, 2017. Figure A 20. Lower Secondary Completion Rate 110 Source: WDI. Figure A 21. Educational Attainment of Population Aged 25-64 Years Old, 2017 Notes: Data from XXX based on JSLC (2017). Figure A 22. Education System in Jamaica 111 Notes: CAPE is Caribbean Advanced Proficiency Exam; TVET is Technical and Vocational Education and training; CSEC is Caribbean Secondary Education Certificate; NVQ-J is National Vocational Qualification of Jamaica; CVQ is Caribbean Vocational Qualification; UWI is University of West Indies; UTech is University of Technology in Jamaica. Table A 4. Number of Students by Tertiary Institution, 2018/2019 Number of Cumulative Students Share Share, % University of The West 1 Indies 17,382 34% 34% University of 2 Technology* 12,000 23% 57% 3 Community Colleges 10,218 20% 77% 4 Teachers’ Colleges 3,603 7% 84% Caribbean Maritime 5 University 3,356 6% 90% 6 Moneague College 2,023 4% 94% College of Agriculture, 7 Science & Education 1,413 3% 97% G.C. Foster College of Physical Education & 8 Sports 641 1% 98% Edna Manley College of The Visual & 9 Performing Arts 607 1% 99% 10 Bethlehem 441 1% 100% Total 51,684 100% Source: PER 2021 112 Migration and Remittances Table A 5. Migration and Brain Drain A. Recent Migrants in US compared to Jamaican Labor Force by Age Group US census-based estimate of migrants between 2016 and 2018 Perc. With Perc. Perc. with Perc. With Perc. Perc. Tot. some No. w/ Age group migrants in HS not HS Bachelor's enrolled migrants college, no bachelor's age group finished completed or above in school bachelor's 19 to 24 8,756 12% 23% 24% 42% 10% 898 61% 25 to 45 31,635 44% 11% 35% 30% 24% 7,586 13% 46 and above 13,589 19% 26% 42% 19% 13% 1,801 1% Total* 71,691 100% 35% 28% 22% 14% 10,285 35% B. Workforce Statistics for Same Groups 2018 Jamaica Labour Force Survey Comparison Bachelor's Perc. in Tot. Perc. of No. w/ degree ratio Age group group w/ individuals tot. pop. bachelor's (No. US / No. bachelor's Jamaica) 19 to 24 300,761 11% 15,187 5% 6% 25 to 45 816,283 30% 118,721 15% 6% 46 and above 683,279 25% 62,836 9% 3% Total* 2,728,113 100% 196,744 7% 5% A1.4 Labor Market Failures and Distortions Monopsony and Competition Related Figure A 23. Labor Compensation Share Relative to Other Countries 113 Note: Data source in WDI. VA per worker in 2010 US$. Jamaica is the black dot. Inclusion 114 Figure A 24. Labor Market Inclusion Indicators A. Labor Force Participation B. Employment Rate by Group 80 80 60 60 % % 40 40 20 20 0 0 Mental Jamaica Dom. Rep. Other LAC UMICs Jamaica Dom. Rep. Other LAC UMICs Physical Jamaica Dom. Rep. Other LAC UMICs Jamaica Dom. Rep. Other LAC UMICs Jamaica Dom. Rep. Other LAC UMICs Jamaica Dom. Rep. Other LAC UMICs Jamaica Dom. Rep. Other LAC UMICs Jamaica Dom. Rep. Other LAC UMICs All Jamaica Other LAC UMICs Jamaica Other LAC UMICs Jamaica Jamaica Jamaica Other LAC UMICs Other LAC UMICs Other LAC UMICs Jamaica Other LAC UMICs Jamaica Other LAC UMICs Jamaica Other LAC UMICs Dom. Rep. Dom. Rep. Dom. Rep. Dom. Rep. Dom. Rep. Dom. Rep. Dom. Rep. Dom. Rep. All Physical Mental Total Female Male Rural Urban Young Young Elders People (age 15-24) urban males (age 55-64) with Total Female Male Rural Urban Young Young Elders People disabilities (age 15-24) urban males (age 55-64) with disabilities C. Vulnerable Employment D. Workers in High-Skilled Jobs 25 60 20 45 % % 15 30 10 15 5 0 0 Physical Jamaica Other LAC UMICs Dom. Rep. Jamaica Dom. Rep. Other LAC UMICs Jamaica Other LAC UMICs Other LAC UMICs Other LAC UMICs Dom. Rep. Jamaica Dom. Rep. Jamaica Dom. Rep. Jamaica Other LAC UMICs Dom. Rep. Jamaica Other LAC UMICs Dom. Rep. Jamaica Other LAC UMICs Dom. Rep. All Mental All Physical Jamaica Dom. Rep. Other LAC UMICs Jamaica Dom. Rep. Other LAC UMICs Jamaica Dom. Rep. Other LAC UMICs Jamaica Dom. Rep. Other LAC UMICs Jamaica Dom. Rep. Other LAC UMICs Jamaica Dom. Rep. Other LAC UMICs Jamaica Dom. Rep. Other LAC UMICs Jamaica Dom. Rep. Other LAC UMICs Mental Total Female Male Rural Urban Young Young Elders People Total Female Male Rural Urban Young Young Elders People (age 15-24) urban males (age 55-64) with (age 15-24) urban males (age 55-64) with disabilities disabilities F. Share of Workers with Written Contract E. Youth NEETs 80 60 % 40 20 0 Jamaica Other LAC UMICs Jamaica Other LAC UMICs Jamaica Other LAC UMICs Dom. Rep. Dom. Rep. Dom. Rep. Jamaica Other LAC UMICs Other LAC UMICs Other LAC UMICs Other LAC UMICs Other LAC UMICs Dom. Rep. Jamaica Dom. Rep. Jamaica Dom. Rep. Jamaica Dom. Rep. Jamaica Dom. Rep. Total Female Male Rural Urban Young Young Elders (age 15-24) urban males (age 55-64) G. Underemployment (vs. Peers): Share of Workers with Less Than 35 Hours Per Week H. Share of Wage Workers Covered by a Pension Scheme Notes: (A) Based on LFS 2019. Data on people with disabilities is based on JSLC 2019. (B) Based on LFS 2019. Data on people with disabilities is based on JSLC 2019. (C) Vulnerable employment encompasses own account workers and unpaid family workers. Based on LFS 2019. Data on people with disabilities is based on JSLC 2019. (D) Based on LFS 2016 (Jamaica) and 2019 (Peers). Data on people with disabilities is based on JSLC 2019. (E) Regional peers data for urban/rural population exclude Barbados. Based on ILOSTAT 2019 data. Data on people with disabilities calculated from the JSLC 2019. (F) Based on LFS 2019. Data on people with disabilities is based on JSLC 2019. (G, H) Notes: Other LAC UMICs peers are Argentina, Brazil, Colombia, Costa Rica, Ecuador, Guatemala, Mexico, Panama, Paraguay, and Peru. Data on people with disabilities calculated from the Jamaica Survey of Living Conditions 2019. Data Source: Staff calculations based on the Labour Force Survey 2019 and JSLC 2019. Table A 6. Regression Covariate Distribution 115 HH had remittan Marri Educat Locati ces ed ion on HS HS firs Seco Oth t nd Post- Bachel er Below cyc Cylcl second ors or urb Rur HS le e ary above KMA an al 15 52 Male 52% 25% 74% % 4% 2% 4% 15% 33% % 19 48 Female 55% 22% 61% % 7% 5% 8% 18% 34% % 18 48 Other Quintiles 57% 25% 64% % 6% 4% 7% 18% 34% % 12 57 Quintile 1 38% 19% 82% % 5% 0% 1% 10% 33% % Persons without 18 49 disabilities 53% 24% 66% % 6% 4% 6% 17% 34% % Persons with 57 disabilities 64% 21% 88% 6% 1% 0% 5% 16% 27% % 13 50 Non-youth 54% 28% 72% % 5% 3% 7% 16% 34% % 41 47 Youth 53% 1% 41% % 11% 4% 3% 18% 35% % 19 Non-rural 51% 22% 64% % 6% 4% 7% 33% 67% 0% 14 100 Rural 54% 25% 73% % 6% 2% 4% 0% 0% % 17 50 Total 54% 24% 67% % 6% 3% 6% 17% 34% % Table A 7. Regression Results: Access, Protection, Fairness ACCESS Unemployment Labor Force Participation Marg. T-stat. Marg. Effect T-stat. Effect age -0.8% -3.69 2.7% 9.67 0.0% 3.03 0.0% -13.01 age2 HH_hadremit 1.1% 1.29 -5.1% -3.99 married -0.4% -0.28 -3.4% -2.21 Ed_HSfirst -0.3% -0.25 4.8% 2.53 Ed_HSsecond -2.5% -1.57 10.3% 3.56 Ed_PostSec -1.5% -0.65 10.2% 2.67 Ed_BachPlus -5.4% -1.95 12.1% 3.89 116 Area_UrbNonKMA -64.1% -0.02 3.7% 0.74 Area rural -63.5% -0.02 7.2% 1.50 Female 3.1% 3.53 -19.1% -15.50 Bottom quintile 3.0% 3.05 -10.0% -6.23 Person with Disability -1.1% -0.34 -27.1% -9.17 Youth 3.0% 2.14 -14.2% -5.12 Industry dummies No No PROTECTION Vulnerable Employment Social Security Contributions Marg. T- Marg. Marg. Marg. T-stat. T-stat. T-stat. Effect stat. Effect Effect Effect age -0.2% -0.43 0.8% 2.17 3.0% 4.30 3.0% 4.86 0.0% 1.59 0.0% -1.15 0.0% -4.26 0.0% -4.62 age2 HH_hadremit 3.2% 1.76 4.6% 2.89 -1.9% -0.79 -3.7% -1.72 married -2.2% -1.00 -2.3% -1.14 5.5% 1.82 1.4% 0.50 Ed_HSfirst -13.4% -5.12 -6.0% -2.72 30.0% 10.65 18.9% 7.07 Ed_HSsecond -15.7% -4.14 -7.2% -2.22 25.5% 6.51 18.3% 5.15 Ed_PostSec -19.3% -3.80 -7.0% -1.58 37.8% 6.24 20.8% 3.79 Ed_BachPlus -48.4% -8.56 -21.6% -4.70 52.4% 11.41 33.7% 7.62 Area_UrbNonKM -4.5% -0.78 -5.0% -0.96 1.1% 0.14 5.6% 0.81 A Area_rural 9.4% 1.72 -0.3% -0.05 -4.8% -0.68 2.1% 0.33 female -0.4% -0.23 3.8% 2.12 6.4% 2.76 -0.4% -0.16 Bottom quintile 3.2% 1.22 1.8% 0.76 -17.7% -4.74 -12.3% -3.61 Person with 6.6% 1.06 3.1% 0.58 0.6% 0.06 0.4% 0.05 Disability youth -23.1% -4.62 -14.9% -3.70 8.5% 1.72 7.8% 1.83 Industry dummies No Yes No Yes FAIRNESS High skilled occupation Marg. T- Marg. T-stat. Effect stat. Effect age 0.3% 1.21 0.1% 0.23 0.0% -1.31 0.0% -0.32 age2 HH_hadremit 2.0% 2.22 1.3% 1.54 married 3.3% 3.38 2.3% 2.38 117 Ed_HSfirst 6.5% 4.80 5.3% 4.22 Ed_HSsecond 4.5% 2.40 3.2% 1.79 Ed_PostSec 13.2% 8.45 9.7% 6.35 Ed_BachPlus 20.6% 17.96 15.7% 13.63 Area_UrbNonKMA -6.0% -1.71 -6.4% -1.71 Area_rural -7.7% -2.29 -7.6% -2.10 female 2.2% 2.51 -0.4% -0.44 Bottom quintile -4.2% -1.84 -3.0% -1.41 Person with Disability 4.5% 1.57 5.6% 1.90 youth -2.0% -0.95 -3.2% -1.48 Industry dummies No Yes Figure A 25. Sector and Occupational Breakdown by Gender A. Sectoral Breakdown by Gender 118 B. Occupational Breakdown by Gender Figure A 26. Youth as a Share of WAP and LF A. Number and Share of People of Working B. Number and Share of Labor Force by Age Age by Age Group, 2007-2020 Group, 2007-2020 Notes: (A, B) Data are quarterly means; data in parentheses are thousands of people, data without parentheses are shares; data from LFS. Annex 2. Data Sources Microdata: Household/Labor Force Survey Country Source Source acronym Year Jamaica Labor Force Survey LFS 2007-2020 Jamaica Jamaica Survey of Living Conditions JSLC 2018-2019 Belize Labor Force Survey LFS 1999 Dominican Encuesta Nacional de Fuerza de Trabajo ENFT Republic 2015 Argentina Encuesta Permanente de Hogares Continua EPHC 2018 119 Brazil Pesquisa Nacional por Amostra de Domicílios PNAD 2019 Colombia Gran Encuesta Integrada de Hogares GEIH 2017 Costa Rica Encuesta Nacional de Hogares ENAHO 2017 Encuesta Nacional de Empleo, Desempleo y ENEMDU Ecuador Subempleo 2017 Guatemala Encuesta Nacional de Condiciones de Vida ENCOVI 2014 Guyana Survey of Living Conditions SLC 1999 Mexico Encuesta Nacional de Ocupación y Empleo ENOE 2019 Panama Encuesta de Mercado Laboral EML 2018 Paraguay Encuesta Permanente de Hogares EPH 2017 Peru Encuesta Nacional de Hogares ENAHO 2017 Note: Household/labor force surveys data was obtained through the Global Labor Database (GLD), previously the International Income Distribution Data Set (I2D2). GLD is a global database with harmonized variables that are comparable across countries. Source: https://worldbank.github.io/gld/. Microdata: Firms and Other Demand Side Surveys Country Source Source acronym Year Jamaica WB Enterprise Survey WBES 2010 Jamaica Jamaican Survey of Establishments JSE 2018 Barbados WB Enterprise Survey WBES 2010 Belize WB Enterprise Survey WBES 2010 Dominican Republic WB Enterprise Survey WBES 2010 Argentina WB Enterprise Survey WBES 2010 Brazil WB Enterprise Survey WBES 2009 Colombia WB Enterprise Survey WBES 2010 Costa Rica WB Enterprise Survey WBES 2010 Ecuador WB Enterprise Survey WBES 2010 Guatemala WB Enterprise Survey WBES 2010 Guyana WB Enterprise Survey WBES 2010 Mexico WB Enterprise Survey WBES 2010 Panama WB Enterprise Survey WBES 2010 Paraguay WB Enterprise Survey WBES 2010 Peru WB Enterprise Survey WBES 2010 Suriname WB Enterprise Survey WBES 2010 Country Level and Other Data Sources Source Source acronym (if applicable) Bank of Jamaica BoJ Fitch Credit Rating Fitch Global Entrepreneurships Monitor 2016 GEM Global Findex Database Findex Global Innovation Index 2021 GII 120 Source Source acronym (if applicable) Global Jobs Indicators Database JOIN Global Petrol Prices 2022 - Global School-based Student Health Survey 2007-2018 GSHS ILOSTAT ILOSTAT IMF Government Finance Statistics IMF GFS International Property Rights Index 2022 IPRI ITU Datahub ITU Jamaica National Crime Victimization Survey 2012 JNCVS Moody's Credit Rating Moody's OECD Stat OECD Penn World Tables PWT Productivity, Technology and Innovation Survey 2014 PROTEqIN Statistical Institute of Jamaica STATIN Times Higher Education World University Rankings 2022 - UN DESA Population Division Database on Households Size and Composition 2022 UN DESA 2022 UN DESA Population Division International Migrant Stock 2020 UN DESA 2020 UN DESA Population Division World Population Prospects 2019 UN DESA 2019 UNESCO Institute for Statistics UNESCO UIS University of West Indies UWI UNODC Corruption and Economic Crime Statistics 2022 UNODC US American Community Survey 2008-2017 US-ACS World Bank Harmonized Learning Outcomes WB HLO World Development Indicators WDI World Economic Forum Executive Opinion Survey 2018 - World Economic Forum Global Competitiveness Index 4.0 2019 WEF GCI World Integrated Trade Solution WITS Annex 3. Data References JSE Mapping classification for open-ended questions Jamaican Establishment Survey 2018 categorized unstructured question 121 Key Constraint Percentage Description A larger demand for their products and services or that inflow of clients and projects (or of Market demand for final product 38 revenue, cash or sales) was low. Financial capital or funding. Reponses indicate perceived problem is related to high interest 20 Access to finance (general) or monetary support to expand business rates and collateral requirements. A suitable and affordable physical space to conduct business. Specific needs included wanting a Physical space related 7.8 larger workspace, to change location, to undertaking repairs; to lower rent costs; and to have ownership over the space. To better manage internal business affairs, including creating more connections with potential Ability to market, advertise, or manage business 6.22 business partners and clients (advertisement). Finding reliable or skilled workers; or interested applicants. About half of these firms specified Adequate labor supply 6 labor supply problem was related technical skills. Other half was a combination of soft-skills (punctuality, professionalism) or lack of trustworthyness workers. To acquire and upgrade tools, machinery and equipment; from computers to fences and Specific equipment 4.5 vehicles. Improvements in the provision of public goods and services, ranging from roads and utilities Infrastructure and ammenities 4.0 (electricity, water supply and waste management) to the availability of parking spaces and internet access. Both the lessening and enforcement of regulatory and tax requirements; but also government Favorable policy: tax, ease of registration, etc. 3.4 assistance. High taxes, red tape, regulatory entry barriers and lack of oversight of certain industries are included. Access to supplies/inputs 3 A consistent and affordable supply of inputs, as well as basic amenities. A more stable economy; in particular, a stable currency. Trade protection was judged Favorable macro factors 2.8 inadequate. They also highlighted either the lack of cooperation or excessive competition; and the need for the business to become profitable. Other 2.1 Other included a diverse set of uncategorized needs, as well as vague or "don't know" answers. Crime control 2.1 Security for both customers and establishments. Total 100.0 122 Most Recent Jobs Working Papers: 79. Heading Towards 1.5ºC – Impacts on Labor Demand in Selected Countries (2024) Ulrike Lehr and Hector Pollitt. 78. Shaping Better Jobs Policies through Measurement: Findings from a Pilot Program to Estimate Indirect Jobs (2023) Theresa Osborne and Jose Manuel Romero 77. Occupational Choice and Energy Access – Electricity For More and Better Jobs (2023) Ulrike Lehr 76. 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