Business

CASE STUDY ON UNEMPLOYMENT: TRINIDAD & TABAGO

Submitted to: Mr Froylan Gilharry

Date: 15th November, 2013

Group Members:

Vivian Lizarraga
Courtney Staine
Bobby Young
Cristian Lisbey
Melina Rios
Alfonso

Table of Content

Introduction.................................. page 3

Summary of the case....................page 4

Questions & Answers.................. page 5 - 7

Reference..................................... page 8

Introduction

Unemployment: 1970 - 1996
Trinidad and Tobago is an island country off the northern edge of South America, lying just off the coast of north-eastern Venezuela and south of Grenada in the Lesser Antilles. The country covers an area 5,128 square kilometres (1,980 sq mi) and consists of two main islands, Trinidad and Tobago, with numerous smaller landforms. The two main islands are divided into nine regions, and one ward. Sangre Grande is the largest region of the country's nine regions, comprising about 18% of the total area and 10% of the total population of the country. This southern Caribbean country obtained independence in 1962, becoming a republic in 1976. Unlike most of the English-speaking Caribbean, Trinidad and Tobago's economy is primarily industrial, with an emphasis on petroleum and petrochemicals. While the petroleum sector contributed significantly to output, export and government revenue, its contribution to employment was relatively small (Downes, 1998). Unemployment occurs when a person who is actively searching for employment is unable to find work. There are different types of unemployment such as seasonal, cyclical, structural, and frictional unemployment.

TIMELINE MACROECONOMIC: TRINIDAD AND TABAGO 1962– Independence
1976– Republic
1974-----
1982 Boom period (rising oil prices)
1983-----
1989 Bust period (falling oil prices)
1986 Currency devaluation
1990 IMF Assistance
1993 Floating currency

Summary of the Case

The study case was about the different sectors in Trinidad and Tobago since the petroleum sector contributed significantly to output, export and government revenue, its contribution to employment was relatively small; however the agricultural sector was the main source of employment up to the Second World War. Agricultural products include sugar, cocoa, and citrus products in particular. The decline of agriculture (especially the fortunes of the sugar industry) resulted in high rates of unemployment. Furthermore, many persons developed a negative attitude to agricultural work and preferred to wait for higher paying non-agricultural jobs in urban areas. Due to improved conditions in the sugar industry, boom in cocoa prices or export opportunities the demand for agricultural labour increased. However, the non-agricultural sector was only able to absorb a small proportion of the available labour force. High levels of unemployment especially in the urban areas continued. In 1950s – 1960s with the decline of the agricultural sector, the petroleum sector (i.e., exploration and production, refining, petrochemicals, service contracting and asphalt production) became the major source of output growth. By the 1950s, several major oil companies (i.e., Shell,
Texaco) were involved in large scale oil refining. The petroleum sector contribution to employment was relatively small. However, it did contribute significantly to output, export and government revenue. In the 1970s the oil prize bonanza of the 1970s (oil price shock in 1973 and 1979) increased the share of the petroleum sector in current price Gross Domestic Product significantly. The sectoral distribution of employment indicates that in 1970 while the agricultural sector accounted for 23% of the employed labour force, the petroleum and related sectors accounted for 4.9 percent. With the decline of the agricultural sector as the main employer of labour, the wholesale, retail, manufacturing and government sectors became the main sources of employment in Trinidad and Tobago. The unemployment rate decreased steadily from its peak at 15.4% in 1973 to 9.9% in 1982. The steady decrease in unemployment (growth in employment) was therefore associated with the ‘boom’ period in
Trinidad and Tobago. In 1980s the dependence of the economy on the petroleum industry can be seen when the slump in oil prices in the early- 1980s brought the fiscal position under serious pressure. The Government cut spending, devalued the currency (1986) and ultimately required the assistance of the IMF in 1988. The period 1982 to 1990, saw a sharp increase in the rate of unemployment from 9.9% to 20%. In 1990s since 1990, there has been a steady fall in the rate of unemployment. The Government intensified efforts in economic diversification which resulted in the creation of jobs in the services sector, with most of the employed engaged in private sector (including self-employment) activities.

Questions and answers

1. How is the unemployment rate measured? Consider the labour force, students and the elderly in your answer. The unemployment rate is a measured of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed individuals by all individuals currently in the labour force. There are also different ways national statistical agencies measure unemployment. These differences may limit the validity of international comparisons of unemployment data. To some degree these differences remain despite national statistical agencies increasingly adopting the definition of unemployment by the International Labour Organization. The unemployment rate is expressed as a percentage, and is calculated as follows:

As defined by the International Labour Organization, "unemployed workers" are those who are currently not working but are willing and able to work for pay, currently available to work, and have actively searched for work. Individuals who are actively seeking job placement must make the effort to: be in contact with an employer, have job interviews, contact job placement agencies, send out resumes, submit applications, respond to advertisements, or some other means of active job searching within the prior four weeks. Simply looking at advertisements and not responding will not count as actively seeking job placement. Since not all unemployment may be "open" and counted by government agencies, official statistics on unemployment may not be accurate. Other ways how unemployment is measures is by labour force sample surveys, social insurance statistics, and employment office statistics. The labour force consists of students and elderly that are at the age that are capable of working so they are also included in the workforce.

2. What are the three types of unemployment? Explain using the above case study.

The three types of unemployment are structural unemployment is an unemployment that comes from there being an absence of demand for the workers that are available. There are two major reasons that cause an absence of demand for workers in a particular industry: Changes in Technology: As personal computers replaced typewriters, typewriter factories shut down. Workers in typewriter factories because unemployed and had to find other industries to be employed in. Changes in Tastes: If bagpipes become unpopular, bagpipe companies will go bankrupt and their workers will be unemployed. Frictional unemployment is unemployment that comes from people moving between jobs, careers, and locations. Cyclical unemployment occurs when the unemployment rate moves in the opposite direction as the GDP growth rate. So when GDP growth is small (or negative) unemployment is high."Seasonal unemployment is unemployment due to changes in the season - such as a lack of demand for hotels during high tourism. Seasonal unemployment is a form of structural unemployment, as the structure of the economy changes from month to month. These are unemployment that can be seen in the case study, due to the fact that since the petroleum sector contributed significantly to output, export and government revenue, its contribution to employment was relatively small; however the agricultural sector was the main source of employment up to the Second World War. Agricultural products include sugar, cocoa, and citrus products in particular. The decline of agriculture (especially the fortunes of the sugar industry) resulted in high rates of unemployment. Furthermore, many persons developed a negative attitude to agricultural work and preferred to wait for higher paying non-agricultural jobs in urban areas.

3. Is unemployment a big problem? What are the main causes of unemployment? Compare Trinidad and Tobago’s high unemployment rate with Ireland’s high unemployment rate in the 1980s?

Yes, unemployment is a big problem to a country due to the fact of the dangerous outcomes. The main causes of unemployment are due to lack of education, poverty, crime, seasonal changes in demand and labour, business failures, technological changes, lack of natural resources etc... The 1980s in the Republic of Ireland was one of the state's bleakest times. An extremely irresponsible budget by the majority Fianna Fáil government in 1977, which included abolition of car tax and borrowing to fund current spending, combined with some global economic problems to ruin the Irish economy for most of the 1980s, causing high unemployment and mass emigration. The Charles Haughey and Garret FitzGerald governments made this bad situation much worse with more massive borrowing and tax rates as high as 60% (with one Fine Gael finance minister suggesting people were not being taxed enough). After joining the ERM in 1979, Ireland was also saddled for much of the 1980s with an overvalued currency, which wasn't rectified until the 1986 devaluation. Much of the capital borrowed in the 1980s went towards propping up this overvalued currency. Foreign investment, in the form of risk capital, was discouraged by all the evident difficulties. From 1983 until 2013, Ireland Unemployment Rate averaged 11.0 Percent reaching an all time high of 17.3 Percent in December of 1985 and a record low of 3.7 Percent in January of 2001 which that the country were at the same level how Trinidad decreased more.

4. Draw and label a business cycle. Using the case study, explain the characteristics of the different stages of the business cycle.

There four different stages in the business cycle: peak, recession, trough, and recovery. The peak is the phase of the business cycle which the GDP reaches it maximum after rising during a recovery. Recession is a downturn in the business cycle during which the GDP declines. Trough is the phase of the business cycle in which real GDP reaches it minimum after falling during a recession. Recovery is an upturn in the business cycle in which the GDP rises.
The characteristics of the different stages of the business cycle relating to the case study is that there was a prosperity between the petroleum industry and the agriculture industry which shows that the people were being employed, however; when the agriculture industry failed the unemployment rate increased which can lead to a recession and depression. In the 1960 – 1970 the unemployment rate was steady but with the boom period, when the agriculture industry rise had better conditions the rate started to become to a peak and prosper and therefore more people were being employed.

5. Are unemployment and the business cycle related? Show on the diagram (from Q.3) how you think they are related.

Yes unemployment and the business cycle are related because at the boom period that was when unemployment was at its lowest, and through the years the unemployment increased in 1987, and in the cycle it shows where the country will recover, prosper and then it will fall to recession and depression so you could say that the business cycle is reflected of the unemployment rate. Among economists, there are varying ideas about what drives the business cycle. Characterized by times of growth and periods of contraction, the business cycle causes the level of employment to rise or fall. Such changes in the employment rates are commonly referred to as recessions and expansions. Demographic trends are well-known drivers of change. Shifts in public opinions, as well as legislation, may also impact the business cycle and unemployment, and weather can also be a factor at times.

6. What is your understanding of “economic diversification”? Explain how the Trinidad & Tobago government’s efforts in economic diversification in the 1990s lowered the unemployment rate.

Economic diversification is generally taken as the process in which a growing range of economic outputs is produced. It can also refer to the diversification of markets for exports or the diversification of income sources away from domestic economic activities (i.e. income from overseas investment).Economic diversification in its standard usage, either in terms of the diversity of economic activities or markets, is a significant issue for many developing countries, as their economies are generally characterized by the lack of it. They have traditionally relied heavily on the production of primary commodities that are predominantly vulnerable to climate variability and change. Trinided and Tobago diversified their economy shifting their economic dependence from the oil industry to to other aspects as well, eg. agriculture, manufacturing and services.

Reference http://www.harpercollege.edu/mhealy/eco212i/lectures/ch9-18.htm http://www.eurofound.europa.eu/emire/IRELAND/UNEMPLOYMENT-IR.htm http://www.tradingeconomics.com/ireland/unemployment-rate