The debate on labour in the Cayman Islands is often too polarised due to either lack of understanding of the labour economy or politicisation of the issue, argues Paul Byles.
As is the case with most countries, issues surrounding labour and immigration in the Cayman Islands are very emotive and at times downright controversial. They also seem to be at the centre of key policy decisions and in the case of Cayman, represent arguably the single most important issue for the country’s economy.
In debating or seeking policy solutions relating to labour and immigration in the Cayman Islands, and in particular the work permit system, a balance is required between the need to protect and develop Caymanians and the need to allow sufficient flexibility for the labour market to function – ie for businesses to be able to recruit the staff that they need.
To achieve this balance is easier said than done and it remains an unresolved issue at least partially because some of the debaters and policymakers have either intentionally ignored or are not fully aware of the key structural features of our economy with respect to the labour force and its role in the Cayman Islands.
Three structural features of labour in Cayman
As a service-based economy, the country’s most valuable resource has always been the quality of its workforce. Without the high quality of human capital that the Cayman Islands has either attracted or developed from within, the country would not be where it is today.
But this fact combined with the reality of a relatively small population, gives us the first of our structural features, namely the persistent reliance on a very high percentage of foreign labour. This is regarded as a ‘structural’ feature because it is unlikely to change over the next three or four decades.
Economic growth in the Cayman Islands has been fuelled primarily by international demand from tourists and financial services clients overseas. This demand for services has increased exponentially and hopefully will continue to do so after our economy recovers from the current downturn. As firms looked to benefit from this new business their own demand for human capital far exceeded what could be provided strictly by Caymanians at current birth rates – or the pace of new citizenship grants.
At first glance, this may seem an obvious point since the country has clearly relied on a disproportionately large percentage of foreign labour for decades. But the significance of this gap between the demand and supply for labour requires further demonstration. If the country continues to grow even remotely near its current growth rate after the economic recovery, it is virtually impossible for the roughly 60/40 percentage share of Expatriates and Caymanian employees in the labour force to reverse in favour of Caymanians anytime soon. In fact it is more realistic to expect that Expatriates will outnumber Caymanians in the workforce by 2 to 1 within the next two decades or so.
If any of this sounds overwhelming, don’t shoot the messenger. The Cayman Islands 1999 census, Dr Philip Pedley’s Population scenarios (2007) and the 2008 National Assessment of Living Conditions (aka the “poverty study”) when read together will all help to bring this point home and in no uncertain terms.
In other words, even the most effective education framework will not deliver enough ‘home grown’ talent to match the very high demand for services from outside and the required expansion by businesses. It is not that education policies won’t be effective for the development of Caymanians; it is the reality that the significant international demand for our services has always outstripped (by a very wide margin) the number of qualified Caymanians that we can possibly supply to meet this growth.
The second major structural feature of our labour force is related to the first. With such a large percentage of our labour force being foreign workers, we tend to experience remittance outflows as a result of workers sending funds to their home country. There is nothing wrong with this practice in itself; it is common in just about every economy. What makes us unique is that we face this risk from such a disproportionately huge segment of our work force. This increases the likelihood of leakages and minimises the impact of policies targeted at increasing local spending in the economy.
The third feature relates to the role of employment in the economy more generally. For many countries increased employment is a primary objective of economic growth. Such countries face lengthy periods of unemployment with literally tens of thousands or millions of employees being out of work at any given time. For their policymakers maintaining high economic growth rates is critical to keeping their citizens in a job.
In the Cayman Islands, the economy has experienced rapid economic growth for the past four decades and there are usually relatively few employable Caymanians out of work at any given time. For most of the past two decades for example, unemployment has been kept at around 5 per cent or below with the exception of a few years, notably in 2001 when the country faced its last major economic downturn due to a global crisis. Considering that the economic benchmark is that a 2 to 3 per cent unemployment rate can be considered ‘full employment’ due to a variety of reasons such as the existence of the unemployable and the so called natural rate of unemployment, this has been a remarkable result for Cayman.
This is not meant to imply that the Cayman Islands do not have unemployment concerns. In fact unemployment has been on the increase over the past few years and has increased every year since 2006. And if 2001 is any indication of how the labour market in Cayman is affected in a downturn, we can expect to see the current unemployment rate, which is just under 5 per cent, to climb to as high as 8 to 10 per cent within the next six to 12 months.
This expectation is due to the fact that the current global crisis is widely regarded as being far more serious than the global crisis which occurred around 2000. The main point however, is that when we deploy high growth policies, or perhaps more accurately when we experience high growth rates, we anticipate that this will benefit the country in many ways but employment is not usually one of the primary macroeconomic objectives. One could argue that our primary objective in this country should be to increase Caymanians’ participation in the labour force in terms of upwards mobility – ie a focus on the ‘quality’ of employment rather than the quantity.
The ‘hidden’ value of foreign workers
This last structural feature usually brings the cry from some quarters “so who are we developing for then?” These critics proceed to argue that we may as well ‘slow down’ the pace of economic development as if this would naturally mean that more Caymanians would benefit. The argument is flawed and a little awkward, because if our economy is not growing, it is more than likely shrinking, not standing still. And that means workers are laid off, including Caymanians.
When firms have to restructure their workforce in a downturn, they cannot simply be expected to take a walk around the office and tell all work permit holders to book their flights; in the real world, there are job descriptions, varying roles and strengths and weaknesses of different employees.
So if a firm objectively chooses what is right for its commercial survival, we can expect some Caymanians to be laid off in addition to work permit holders and we can expect that certain work permit holders in key positions will be kept on.
What we would all expect is that the firm will strike this balance in such as way as to minimise the negative impact on Caymanians as much as possible. If a firm does not make genuine efforts to strike this balance, this will also be addressed in other ways as the law does have direct provisions for Caymanian preference and the Immigration Department also monitors layoffs in the current economic crisis to ensure that wherever possible and legitimate, Caymanian jobs are preserved.
The economic benefits of additional workers, many of which may not be Caymanians, is that while some of them may remit some of their incomes to their home country, many of their activities do generate additional economic activity in the country.
These foreign workers spend, rent apartments, sometimes build homes and all of this brings with it opportunities for local businesses. This additional business can also lead to further employment opportunities for Caymanians either in terms of new jobs or as opportunities to move up the ladder. But perhaps more importantly, these foreign workers represent an increased consumer market for the many Caymanian-owned small businesses which is a main catalyst for the other benefits.
Paul Byles is the managing director of Focus Corporate Services & Consulting. Summary of article published in the Cayman Financial Review January 2010