Losing Ground in the Employment Challenge
The Case of Paraguay
Albert Berry
- 354 pages
- English
- ePUB (mobile friendly)
- Available on iOS & Android
Losing Ground in the Employment Challenge
The Case of Paraguay
Albert Berry
About This Book
Most developing countries face significant and sometimes dramatic challenges in generating stable jobs that provide reasonable incomes and decent working conditions. For developing countries that have undergone lengthy periods of economic stagnation, these challenges are especially acute, and popular dissatisfaction correspondingly marked.Paraguay is a case in point. It is unlikely that any "employment policy" could lead to a major improvement in the quality of labor market outcomes unless designed and implemented in a sophisticated and coherent way. Such an approach has been infrequent in developing countries in general, and especially so in those that, like Paraguay, also suffer severe institutional weaknesses of governance. Paraguay's past failure in employment creation is mainly the result of a number of structural weaknesses described in this volume. Its current crisis is also the accumulated legacy of over a quarter century of economic stagnation and political failure fl owing from those weaknesses. The new reformist administration of President Fernando Lugo has raised hopes that the future might be better than the past.This study aims to contribute to improved policy making by analyzing the source of the problems and providing policy recommendations. The chapters describe the potential contribution of various policy areas in the face of a dauntingly negative track record and identify a number of steps that have to be taken if success is to be achieved. They put into perspective the reforms that have been undertaken to date by the country's previous administration.Paraguay's experience offers insight into the problems faced by other developing countries in today's global economy. The central message is that policy improvements must be made in a number of areas and implemented in a coordinated fashion for there to be any reasonable hope of success.
Frequently asked questions
1
Elements of an Employment Strategy for Paraguay
The Challenge
What Has to Be Changed in Paraguay? A Diagnosis of the Present Situation
Signals and Symptoms of Growth Mechanism Defects
- i) Not surprisingly in light of the disastrous growth record over the last quarter century, there is now a large and growing excess supply of labor in the country. Adding together open unemployment, underemployment (those who work less hours than they want to) and discouraged workers (those not in the labor force because they have little hope of getting work), this excess now involves 55-60 percent of the âpotentialâ labor force (defined to include discouraged workers).1 The share of the potential labor force working age population that was âwell-employedâ in full time jobs with remuneration at least equal to the minimum wage fell from about 37 percent in 1997 to a much lower 32 percent or so in 2003 (Chapter 2, Table 2.2). On the one hand, the countryâs poverty and desperation are concentrated within this group; on the other hand, it is also a resource whose potential productivity is currently being wasted or underused. The existence of a major labor surplus gives special importance, among other things, to a policy of expanding aggregate demand. Among the possible instruments to achieve such an increase, the exchange rate is of special interest (see below).
- ii) The countryâs investment rate, although lower than in previous periods, seems not to be too far out of line with those of other countries in the region.2 What is more striking is the low productivity of this investment (judged by the low marginal output/capital ratio for the economy) especially in the recent recession. Clearly, investment efficiency must be improved. In terms of public investment (and public spending in general),3 efficiency has been much restrained by the traditionally high level of corruption and the limited competence of most state institutions. In the case of private investment, the causes of low average productivity are less clear, though it is highly probable that one factor has been uncertainty as to the economyâs future direction and the areas in which competitiveness can be developed; this often both discourages investment per se and also creates a tendency to invest in lower yielding assets such as buildings, instead of in other more productive ones.
- iii) Given the need to raise both the quantity and quality (yield) of investment, it is very ironic that in recent years the banking system has had plenty of liquidity that it does not or cannot translate into loans and corresponding investments. Such funds constitute another underused resource.
- iv) The main challenges for the countryâs fiscal policy are to increase tax revenues,4 reduce waste in the form of salaries of non-productive public employees, and more efficiently allocate investment spending (including spending on education). Two feasible and necessary fiscal policy objectives are, therefore, to produce a current available surplus for public investment, and to allocate this resource efficiently. A marked improvement in this area over the course of a few years should raise the growth rate of GDP by at least one or two percentage points.
- v) The low gross investment yield over the last few years points to a series of limitations and problems in the area of productivity. Given the dominant weight of small businesses (and farms) it can be deduced that productivity has shown little dynamism in these sectors of Paraguayâs economy.5 Neither the determinants of productivity on small farms and in small non-agricultural businesses, nor the mechanisms and support systems which may be used to improve their performance are well known. What is evident, however, is that the Paraguayan state spends very little on supporting such improvements and that without a significant increase in such support, overall productivity in Paraguayâs economy will continue to stagnate. It is important to identify channels through which the state can contribute to improve the technological development of businesses (see Chapter 8).
The Solution, in Brief
- i) general increases and improvements in the supply of resources available as inputs to production; and
- ii) identification and promotion of branches of activities, products, or areas in which the country can develop competitiveness.
The General Relation between Policies to Increase Resource Utilization and Policies to Identify and Strengthen Competitiveness
- i) a sufficiently expansive fiscal-monetary policy to promote short and medium term growth through fuller resource utilization and stronger inducement for investment and technological improvement;
- ii) an exchange rate policy that improves the external demand for Paraguayan exports and raises the internal demand for locally produced importables with similar effects as those of monetary and fiscal policy; and
- iii) a policy that improves land use, inducing a transformation towards greater labor intensity and greater land productivity.