An International Monetary Fund working paper “Growth and Employment in the Dominican Republic: Options for a Job-Rich Growth” by Umidjon Abdullaev and Marcello Estevao released on 8 February focuses on business conditions in the Dominican Republic and pinpoints areas for improvement.
It highlights that while the Dominican Republic has posted high rates of output and productivity growth, labor market indicators have remained weak during the past 20 years. The paper documents these trends, showing that the rapid productivity growth originates in a few sectors, while the bulk of job creation is concentrated elsewhere. It explains that the speed of job creation has not been enough to raise employment rates, and lackluster real earnings along with still-rampant labor market informality suggest that most of the new jobs are of low quality. Low real wages and low labor force participation suggest the need of raising market wages above fallback incomes to attract individuals to the labor force. For that, measures to improve education with a focus on business training and technical training and reduce product market distortions would be helpful.
The World Bank Enterprise Surveys clearly indicate that firms in the DR operate in a regulatory environment that is not fully conducive to expansion and growth. Indeed, business conditions in the Dominican Republic lag behind several other Latin American and Caribbean countries, resulting in a prevalence of small-scale enterprises and self-employed workers – traits usually associated with lower productivity levels. Lowering bureaucracy costs, the incidence of business-related corruption, and the cost of tax compliance would notably contribute to an improved business climate with significant payoffs in terms of higher labor productivity growth. Reducing the incidence of corruption in firms’ everyday operations might strengthen the effect of other initiatives aimed at improving the business climate, the study reports in its conclusions.
The study suggests that recent growth performance in the DR, showing in particular that high output growth and large productivity gains has been concentrated in a few sectors. Such sectors (especially manufacturing, telecommunications and financial services) have had limited impact on employment generation, even though they have been growing at above-average growth rates and generating a large share of the Dominican GDP.
The paper says that widespread labor market informality is an obstacle to raising job quality in the Dominican Republic. Informality is pervasive and self-reinforcing: firms using informal labor arrangements tend to pay less tax and interact mostly with other firms hiring informal workers to avoid detection, which spreads the incidence of informality in the economy.
www.imf.org/external/pubs/cat/longres.aspx?sk=40309.0