Jamaica needs to fix its unemployment problem

What is unemployment?

UNEMPLOYMENT REFERS to the situation where individuals who are willing and able, are actively seeking work, but cannot find any.

Unemployment in most cases is involuntary as people who lose their jobs actively search for another. It can also be voluntary as some people willingly quit their jobs to seek another. Involuntary unemployment is more cause for concern than voluntary unemployment, since the latter represents preference rather than need.

In Jamaica, the unemployment rate increased to 14.2 per cent at the end of the first quarter this year, up from 13.7 per cent at the end of 2012. This unemployment rate measures the proportion of people actively looking for work as a percentage of the labour force.

It is necessary to understand the types of unemployment and the difference between each. Unemployment can either be structural, cyclical or frictional.

What is frictional unemployment?

A worker might find a new job before they leave the old one, but this is not always the case. If for example, a person loses his or her job today, in some instances, the individual will not find a new job the same day. Many workers who are fired or leave their jobs, must wait for some time before they find a new job.

The time between leaving one job and finding another is considered frictional unemployment. Frictional unemployment also occurs when students leave school and enter the job market for the first time or if an individual moves to a new city to find work or after a mother gives birth and re-enters the job market.

Under normal circumstances, frictional unemployment is not cause for concern, as it is usually short lived, especially now where job search is becoming easier with the aid of the Internet and other technology.

However, in Jamaica, the unemployment rate continues to increase as firms continue to lay off workers and more and more students leave school and cannot find jobs. Frictional unemployment might be a source of concern here as economic conditions continue to worsen.

What are the other types of unemployment?

Unemployment is usually lower in times of economic boom and prosperity than it is in times of economic depression. The increase in unemployment in Jamaica due to a downturn in macro economic conditions is referred to as cyclical unemployment.

This cyclical unemployment is associated with changes in the business cycle, as economic conditions worsen, people's demand for goods and services fall, firms respond by reducing production and lay off workers.

Currently in the Jamaican economy, there are more people willing to work than the number of jobs available, and if economic conditions continue to worsen, more and more firms will continue to lay off workers, and cyclical unemployment will continue to increase.

To combat cyclical unemployment, it is good to focus on the cause of the economic recession. By so doing, the country can restore overall demand so that firms are forced to produce more, hence hire more. As the economy recovers, cyclical unemployment disappears naturally.

The other type of unemployment exists due to the structure of the economy. Logically, there will not be enough jobs for all the workers who are willing and able. Structural unemployment occurs when workers have jobs skills that are not in high demand, or when more workers have a particular skill than the economy demands at a particular time.

Either way, the structural unemployment is a major cause for concern as it is imbedded in the structure of the economy. To correct this, or at least partially, Jamaica needs a long-term restructuring of the job requirement to skill set match up and retraining of some workers.

What else is a cause for concern?

Along with high, increasing unemployment, labour productivity is also a cause for concern in Jamaica. Results from research conducted by the Jamaica Productivity Centre, using data from 1972 to 2007 indicate that labour productivity in the country fell at an average rate of 1.5 per cent per annum.

Also, productivity including labour, capital energy and other inputs fell at an average rate of 1.74 per cent per annum during the same period. With such high unemployment rate and each unit of labour continuously producing less each year, overall output in the country must continue to fall. Unless these issues are addressed in a long-term sustainable manner, it will be difficult for the country to increase output and GDP growth rates will remain dismal on an annual basis.

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.