Liberalsing the local labour market

Brian FrancisThe implications of trade liberalisation for the labour market and the effects of free trade on income distribution among production factors are well documented in trade theories.

Indeed, one argument suggests that the production of labour-intensive goods and services can be more advantageous to countries with abundant labor supply. Furthermore, it is argued that protectionism increases the returns of scarce production factors. In the context of most developing countries, labour would be considered a scarce production factor.

Another perspective in support of trade liberalisation is that for developing countries, openness shifts the production composition towards more labour abundant industries, thus increasing the demand for labour. Also, labour inputs in exportables tend to rise.

Furthermore, at the macroeconomic level, it is argued that countries that have adopted outward-oriented development strategies have achieved higher growth rates as compared to countries that have been hesitant to open their economies to free trade.

It is also believed that trade liberalisation raises the employment generation potential of a country through the growth of labour-intensive industries and exports arising from gains in comparative advantage; fewer government interventions, distortions, and rigidities in the labour markets of more open countries; and improvements in the international competitiveness of firms producing in the domestic economy.

Clearly, then, on the basis of these arguments only, one may be inclined to infer that it would be advantageous for Grenada to liberalise the labour market. If one reaches that conclusion, he or she may be right; but, only partially. For that reason, I wish to argue otherwise.

Indeed, if Grenada liberalises its labour market, based, in part, upon recent experiences, is there likely to be a huge inflow of foreign workers into the country from within as well as outside the Caribbean?




If labour could have been consumed in the very same way we consume, say, flying fish, except for the outflow of foreign exchange associated with the repatriation of resources from the consumption of imported labour, there would have been nothing to concern ourselves with. Unfortunately, that is not the case since labour is embedded in individuals.

The fact that labour is embedded in individuals implies that the issue of the liberalisation of labour markets poses serious challenges for Grenada, which must be addressed in a holistic manner if the desired objectives of sustained growth and improvement in living standards for all of our citizens are to be fulfilled.

Undoubtedly, increasing levels of foreign workers into the country create dire consequences for the educational system, health care provision, housing, social services, public transportation, crime and violence, and the maintenance of law and order.

What these dynamics suggest is that the liberalisation of the labour market in Grenada has to be dealt with against the backdrop of the issue of the country’s carrying capacity. In other words, given the wide-ranging implications of greater numbers of foreign workers for most, if not all, major institutions in the country, one important question must be answered: What is the optimal size of the population that Grenada can afford while maintaining a relatively high quality of life for the entire population?

As long as a well-reasoned and thoroughly researched answer to this question remains elusive, then, Grenada should be extremely careful in adopting a more liberal policy towards foreign labour.

 

(Dr. Brian Francis, the former Permanent Secretary in the local Ministry of Finance, is a Senior Lecturer in the Department of Economics at the Cave Hill Campus in Bridgetown, Barbados of the University of the West Indies)

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