Fri | Apr 10, 2020

Andre Haughton | A country that underemploys much of its labour will remain underdeveloped

Published:Wednesday | February 19, 2020 | 12:00 AM

In light of the current fall in unemployment which signals an increase in underemployment arising from insufficient economic growth, some people question whether it is better to be employed and underemployed than to be unemployed. This might be plausible for the individual or a subset of individuals but not for the majority of the citizens of a country.

For if the value of what is produced after an additional person is added to the production process is of lesser or equal value to that which was previously produced using fewer people, then their compensation and therefore their standard of living will decrease. As a result, the country will not grow sufficiently to develop. Many countries are underdeveloped because they underemploy much of their labour.

LET US SIMPLIFY

A company employs four people to make four patties that are sold for $5 each. All the patties are sold and the company earns $20 (4x5). This is split between four people each earning $5. Each person can buy $5 worth of consumer items for themselves and their families. Assume now that the company hires one more person. Now the company employs five persons such that unemployment falls, but the company produces the same four patties so the economy didn’t grow. The company continues to sell each patty for $5 each. The company once more earns earning $20 (5x4).

The difference is now the same $20 has to split between five people. So instead of four people earning $5, you have five people earning $4. Before, a person had $5 to spend now he/she only has $4. Their standard of living falls.

As you can see, the fall in unemployment without increase in GDP growth is associated with a fall in standard of living. In other words, the increase in employment is associated with a drop in the standard of living of four people while increasing the standard of living on only one (the person who is newly employed); holding all other factors constant.

IS THIS THE BEST APPROACH?

What value is a country if much of the labour it employs creates little or no added value? I put it to you that every country has the ability to create added value. If a country employs labour, it must have an intention as to how best that labour can be employed. If its intention is to increase the value that each unit of labour adds to the productive process, it must create industries that have the ability to do so.

The country’s revenue will increase and therefore standard of living of the people employed. These countries, on a consistent basis, move from a process of underdevelopment to a state of development over time. However, if its intention is for new labour to create little or no added value, then its intention is to remain underdeveloped.

MIGRATION MIGHT ENSUE

Those who value their labour might choose to migrate to another country where their labour is of greater value. In this case, they are in a position to receive a better compensation for their labour.

HOW IS THIS DONE?

Countries that have developed tend to focus and direct their labour to a process that creates added value. Germany, for example, focuses on the building of motor vehicles and other machinery that they believe the world will continue to demand over the foreseeable future. Singapore, for example, might focus on making microchips and technologically driven products. In these scenarios, people’s labour is employed so that it increases the value of what is produces.

More important, every year these companies as well as the government embark on consistent research and development to improve these cars, the microchips to keep up with the pace of the world, allowing the quality of their products to evolve as the world evolves. Jamaica has the ability to do the same if it embarks on processes to employ labour where it is of increased value added.

HOW CAN JAMAICA CREATE VALUE?

In order for Jamaica to create value, it must first place emphasis on the value that it has the ability to create. For example, sports, music, art, etc. Incorporate new technology to assist these industries to find innovative ways to earn revenue.

However, Jamaica oftentimes focuses on that which does not create added value, it appears. By doing so, effort and policies are expelled towards those processes and the country finds itself underdeveloped for the foreseeable future if it does not change its approach.

Senator Dr André Haughton is a lecturer in the Department of Economics on the Mona campus of The University of the West Indies. Follow him on Twitter @DrAndreHaughton; or email editorial@gleanerjm.com.