Mandatory pensions as job fix
Damion Crawford, GUEST COLUMNIST
The recently released national unemployment report by the Statistical Institute of Jamaica has suggested that joblessness now stands at 16.3 per cent. The survey, which was conducted March 25-31 last year, therefore, suggests there are approximately 215,550 Jamaicans who are desirous of a job but are not being employed for even a minimal hour's work.
The answer to whose fault it is changes based on mostly a political bias, because, of course, blame is a fluid concept with little conversation about the long- and short-term solutions. I care little about whose fault it is - except maybe on a political platform - but in today's article, I will mention two possible reasons for unemployment and then focus on exploring a potential solution.
Among the reasons I believe unemployment has increased and, unfortunately, will continue to rise (if all current factors remain constant) is the natural impact of economic decline that causes profit-seeking institutions to operate at a 'new normal' as it relates to labour.
In this instance, for example, tasks that may have been done in the past by two people will be amalgamated in hard times to one employee. The norm, however, is that even in economic recovery, there is no reversion to the past employment numbers; instead, there is a continuation of what some will call the 'overburdening' of a reduced employee pool bearing greater responsibility.
The second reason for a potential increase in the unemployment statistics in the foreseeable future is a result of the search for business efficiencies through automation and mechanisation, which reduce the use of human input while increasing unemployment.
A noteworthy example is in construction, where the effort of 50- 60 cement mixers is replaced by a single truck that guarantees greater consistency at a cheaper cost. While this is a simple example, it reflects what happens every day as companies contend with high energy costs, a sliding dollar, and the high cost of borrowing.
mandatory pension plans
It is my view that a viable solution to our rising unemployment problem exists in the Government making pensions mandatory. While economic growth isn't the core basis upon which the Government should make such a decision, I will seek to show in the remainder of the article that economic activity is a derived benefit of a mandatory pension.
Of the 953,000 non-government employees, only 80,000 currently have a pension plan, therefore, indicating that more than 873,000 employed Jamaicans will retire with no 'source of independence'.
A mandatory pension will, therefore, force persons who will most likely become dependent on either friends, relatives or the State after retirement, to save for the 20 years they are likely to survive after retirement.
This mandatory pension will foster economic growth in the following ways:
1. It will foster a mushrooming of available capital that must find a destination for investment. With the Government's reduced appetite for loans, this will channel greater investment into private activity, thereby increasing employment.
An example of this is Sagicor Life Jamaica's investment in three hotel properties locally with the pool of pension funds that it currently manages.
success of pension funds
In the May 31, 2013 edition of The Gleaner ('Williams defends Sagicor hotel investments'), chairman of the insurance company, R. Danny Williams, was quoted highlighting the success of the pension funds, saying, "These are earnings in foreign currency and it offers a tremendous opportunity. People of Jamaica are owning these hotels ... . I am happy to say that Dunn's River made US$1 million the first year, US$2.5 million the second year, and US$3.5 million the third year."
Let's imagine for a minute if funds under their management were to be quadrupled, and what it would mean for the economy and, by extension, employment.
2. This increase in investment-seeking capital will also reduce interest rates, therefore further increasing the economic activity both on the supply side through the access of funds for investments and on the demand side as it relates to access to funds for consumption.
3. Such a pension plan reduces the dependent population, thereby increasing the consumption potential - a necessary variable for increased economic activity.
The concept of a mandatory pension isn't a new one. Countries such as Australia, Denmark, Mexico, and Poland have implemented mandatory pensions. The positive impact on the economy, nevertheless, can be mitigated by the propensity to substitute the mandated pension for voluntary savings.
However, the average inclination to save in Jamaica is fairly low. Therefore, the aforementioned mitigating factor should not be a problem. Further research shows that even in high-saving economies, the tendency to substitute savings is no more than .51, which means even if so high, there will still be material increase in capital available.
automation and mechanisation
In addition, with services being the likely area of Jamaica's competitive advantage and, therefore, the most likely avenue for new capital investments - services are less impacted by automation and mechanisation because of their inseparable labour-intensive nature. This suggests that the employment will be fairly sustained in the long term.
Such a drastic increase in local capital and, by extension, investments will also result in a diminished outflow of profits. This will, therefore, increase the multiplier effect of each dollar invested, leading to even further investment and economic activity.
In closing, I can already foresee a key argument of the detractors, who might say Jamaicans will not be willing to give up any more of their income. Conversely, what I will posit is that it has been the unwillingness to defer gratification that has caused our current plight.
Today, one in 13 Jamaicans is age 65. In 10 years, one in eight Jamaicans will be over 65, and in 30 years, approximately one in four will be over 65. This will be a different Jamaica from our present one, and we must prepare for it. Privatised but mandatory pension is one answer - a model under which no Jamaican can escape the promise of dignity in old age, and a process that will jump-start the economy.
Damion Crawford is MP for East Rural St Andrew and state minister for tourism and entertainment. Email feedback to firstname.lastname@example.org.