Productivity critical to success of IMF programme
The success of Jamaica's economic reform programme under the tutelage of the International Monetary Fund (IMF) is hinged on, among other things, the country's ability to enhance its competitiveness, according to the Bank of Jamaica (BOJ).
At the same time, the World Bank, in its economic update for Fall 2015, noted that the need to maintain an extremely high primary fiscal surplus precludes investment above a certain threshold, limiting the Government's ability to implement vital infrastructure projects that could increase the country's competitiveness and attract further private investment.
However, the BOJ noted that for a small, open, developing economy, such as Jamaica, a crucial factor for improving competitiveness is closely connected to the country's ability to improve overall productivity.
In general, this involves creating greater output through enhanced allocation of production inputs including labour, technology, energy and raw materials, the central bank said in its September 2015 quarterly monetary policy report.
In practice, productivity increases when a higher - or the same - level of output is produced with the same - or fewer - resources, it added.
According to the report, higher levels of productivity are particularly important as it is the most fundamental determinant of the standard of living.
"More specifically, increased productivity expands supply leading to higher incomes," it said. "In turn, higher incomes reduce poverty. Further, an increase in the overall productivity is highly correlated with improvements in the business environment which augurs well for economic growth."
The BOJ says this approach of increasing labour productivity towards improving external competitiveness is desirable as it improves living standards at the same time.
It noted that there are several ways of measuring labour productivity, among them output per hour worked, output per worker and unit labour cost. Notably, productivity can be influenced by non-price factors such as adequate business infrastructure and social welfare, low levels of crime and bureaucracy, the BOJ said.
In addition, strong labour relations, which involves harmonious relations between management and employees, is known to improve productivity.
The degree of external competitiveness is illustrated by the comparison of the level of productivity in one country relative to another. The indices of labour productivity, as measured by the output per hour worked, shows that Jamaica's labour productivity has lagged behind that of the United States, the United Kingdom, Canada and Europe.
"It should be noted that Jamaica displayed a downward trend in labour productivity, which was negatively impacted by the global financial crisis in 2008 and has remained relatively constant in the aftermath of the crisis," the central bank said.
"The widening gap is indicative of losses in Jamaica's competitiveness vis-a-vis the US, a trend which has slowed after the crisis. Between the June 2010 and June 2015 quarters, average quarterly productivity per hour worked increased by 0.3 per cent in Jamaica," the report said.
This compares to increases of 0.7 per cent, 0.5 per cent, 1.1 per cent and 0.9 per cent in the United States, United Kingdom, Canada and Europe respectively, it added.
With respect to the output per worker measure of labour productivity, Jamaica's productivity has also lagged behind a set of selected countries from Latin America and the Caribbean.
During the period between 2010 and 2013, the average increase in output per worker in Jamaica was 0.3 per cent. In contrast, the average increase in productivity per worker over the same period was 0.7 per cent, 2.9 per cent, 2.4 per cent, 1.5 per cent and 0.3 per cent in Barbados, Costa Rica, Dominica Republic, the United States and Mexico, respectively.
The BOJ concluded that notwithstanding the focus on one factor of production, the assessment underscores the need for diligence in pursuing the structural reforms embodied in the economic reform programme as well as other reforms geared towards improving the business environment and overall levels of productivity.
Moreover, an active process of identifying and eliminating impediments to the productivity of labour, capital and technology will remain integral to Jamaica's economic growth prospects, it said.