A brief on the Dominican Republic’s Labor Market Conditions: The SupplySide

By Odalis F. Marte

@ofmarte

During the last forty years, the Dominican Republic has transitioned from an agriculture-based economy to a services one, despite efforts to create an import-substitution-based national industry that failed to absorb the excess labor out of the primary sector. That import-substitution-based industry received generous incentives and subsidies that ended up hurting the economy as a whole, as it constituted a burden for the agricultural export sector. This, in turn, fueled the mass migrations from the countryside to the cities, leading to a rise in informal economic activities, as well as emigration to more developed countries, as young people’s efforts to seek employment proved to be in vain.

After a domestic financial crisis in 2003 that reportedly accounted for 20% of GDP, the Dominican Republic’s economy began a strong recovery, growing by an average of around 6% between 2005 and 2008. Following the international financial crisis and ensuing global economic slowdown, the Dominican economy decelerated and the unemployment rate began to rise. In fact, according to official figures from the Central Bank of the Dominican Republic, in 2004 the open unemployment rate was 6.3% with a decreasing tendency until 2008, when it fell to 4.6%. Beginning in 2009, this rate started to climb, rising to 4.9% in that year, followed by 5.0% in 2010, 5.6% in 2011, 5.9% in 2012, and the current 7.0% in the first half of 2013.

During the past six years, the participation rate in the DR’s labor market has been around 56% (68% men; 44% women), except in 2009 when in dropped to 54%. It is important to mention that the informal sector accounts for around 60% of the labor market, and more than half of the new jobs were generated by informal small businesses. Between 2000 and 2012, the government was responsible for 62% of the 285,000 formal new jobs created in the economy.

Overall, the unemployment rate in young people is around twice the labor market’s unemployment rate, which can be explained by a lack of skills, deficiencies in the education system (including its coverage and quality), as well as the rigidities in the labor market that makes firing expensive for businesses. This benefits those individuals who are currently employed, at the expense of those seeking employment, especially the unskilled and less experienced ones.

The Dominican government has expressed its will to help create 400,000 jobs in 4 years, so it is actively implementing some policies in other areas to support small businesses, especially in the rural areas. Nonetheless, the DR economy is experiencing the impact of the poor performance of the world economy, especially the United States’, its major trade partner.