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Growth, Employment, and Poverty in Latin America$

Guillermo Cruces, Gary S. Fields, David Jaume, and Mariana Viollaz

Print publication date: 2017

Print ISBN-13: 9780198801085

Published to Oxford Scholarship Online: June 2017

DOI: 10.1093/oso/9780198801085.001.0001

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Dominican Republic

Dominican Republic

Chapter:
(p.250) 13 Dominican Republic
Source:
Growth, Employment, and Poverty in Latin America
Author(s):

Guillermo Cruces

Gary S. Fields

David Jaume

Mariana Viollaz

Publisher:
Oxford University Press
DOI:10.1093/oso/9780198801085.003.0013

Abstract and Keywords

During the 2000s, the Dominican Republic experienced above-average economic growth along with mixed results in labour market indicators. Gross domestic product per capita stagnated through 2004 and, for the most part, grew rapidly from 2005 through 2012. Comparing 2000 with 2012, many unfavourable developments were seen. Among them: an increase in unemployment; worsening in the employment composition by occupation and position; a substantial fall in labour earnings; and no progress in reducing poverty. The international crisis slowed economic growth but did not reverse it and had a negative effect on some labour indicators, which failed to return to pre-crisis levels by 2012.

Keywords:   Dominican Republic, economic growth, labour market indicators, gross domestic product, unemployment, poverty

13.1 Introduction

This chapter on labour markets and growth in the Dominican Republic since 2000 is one of sixteen studies of Latin American countries, each of which analyses the growth–employment–poverty nexus and aims to answer the following broad questions: Has economic growth resulted in economic development via improved labour market conditions in Latin America in the 2000s, and have these improvements halted or been reversed since the Great Recession? How do the rate and character of economic growth, changes in the various labour market indicators, and changes in poverty relate to each other?

To answer these questions, we analyse the growth experience of the Dominican Republic during the 2000s and a wide set of labour market indicators that we assign to one of two different categories: employment and earnings indicators, and poverty and income inequality indicators. More specifically, for the group of employment and earnings indicators we construct statistics on the following variables: the unemployment rate; the employment structure by occupational group, employment position, economic sector, registration of workers with the social security system, and educational level; and mean labour earnings and hourly wages. We present all these indicators for the employed population as a whole and for different population groups (youth, adults, men, and women). For the group of poverty and income inequality indicators, we compute poverty rates using the official moderate and extreme poverty lines and the international lines of 2.5 and 4 dollars a day. We also calculate the Gini coefficient of household per capita income and labour earnings.

All of the statistics in this chapter on labour market conditions and income distribution are obtained using microdata from the October wave of the Encuesta Nacional de Fuerza de Trabajo (ENFT) for the years 2000–12. In the years 2005 and 2008, the country implemented changes in its household surveys. The pre-2005 and post-2005 surveys are fully comparable except in relation to non-labour incomes. While the change does not affect comparability in terms (p.251) of labour earnings, it does impede seamless comparison of per capita household income (poverty rates and Gini index). The pre-2008 and post-2008 surveys differ only in the classification of occupations. As a consequence, comparability problems in the analysis of this labour market indicator may arise between the 2000–7 and 2008–12 periods. The nationwide surveys were processed following a harmonization methodology and incorporated into the SEDLAC—Socio-Economic Database for Latin America and the Caribbean (CEDLAS and World Bank 2014).1 The resulting labour market indicators were compiled into a large number of tables and figures, which are available in an earlier version of this study (henceforth, Cruces et al. 2015). Chapter 1 of this book provides the definition for each of the indicators we analyse here, while Cruces et al. (2015) includes details on definitions and classification systems used by Dominican Republic’s household surveys, and on comparability issues of these surveys over time.

13.2 Economic Growth

During the 2000s, the Dominican Republic experienced above average economic growth. Within the period, GDP per capita stagnated through 2004 and, for the most part, grew rapidly from 2005 through 2012. However, economic growth slowed during the international crisis of 2008 but remained positive in every year. (Cruces et al. 2015: figures 1 and 2)

From 2000 to 2012, the Dominican economy grew at an above-average rate by Latin American standards. GDP per capita increased by 53.3 per cent, while the average for the region’s eighteen countries was 36.2 per cent during the same period. GDP (measured at 2005 PPP dollars) grew by 81.8 per cent and GDP per employed person rose by 41.1 per cent. GDP per capita grew at an annual rate of 3.6 per cent over the period with a minimum of −1.7 per cent in 2003 and a maximum of 9.1 per cent in 2006 (Table 13.1).

Table 13.1 Dominican Republic: Evolution of growth and labour market indicators over the 2000s

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Growth Indicators

GDP per capita

5,737

5,751

5,991

5,886

5,876

6,326

6,901

7,380

7,660

7,818

8,312

8,573

8,794

Dominican Republic

GDP per capita growth rate

4.00

0.24

4.18

−1.75

−0.19

7.67

9.08

6.94

3.80

2.05

6.33

3.14

2.58

Dominican Republic

Employment and Earnings Indicators

Employment-to-population ratio

53.83

52.79

53.24

52.70

53.19

52.74

54.09

54.36

54.51

52.46

53.80

54.75

55.20

Dominican Republic

Unemployment rate

4.72

5.49

4.11

4.92

4.21

4.25

3.64

3.20

2.07

3.85

3.14

3.94

4.92

Dominican Republic

Share of low-earnings occupations

48.77

48.84

49.98

47.81

48.52

48.63

49.84

50.28

50.42

52.54

52.08

53.59

52.96

Dominican Republic

Share of mid-earnings occupations

35.89

35.62

34.63

35.13

35.01

35.14

33.42

33.38

32.42

30.44

31.12

30.60

30.27

Dominican Republic

Share of high-earnings occupations

15.35

15.53

15.39

17.06

16.47

16.24

16.74

16.34

17.17

17.03

16.81

15.81

16.76

Dominican Republic

Share of employers

2.59

3.86

3.19

3.49

4.72

4.42

3.87

4.23

4.04

4.86

3.75

3.18

3.12

Dominican Republic

Share of wage/salaried employees

56.90

54.30

53.29

54.80

55.18

52.83

53.56

54.23

52.14

51.07

50.62

51.33

53.18

Dominican Republic

Share of self-employed workers

38.98

40.26

42.16

40.27

38.57

39.99

40.04

39.14

40.20

42.56

43.36

43.79

41.87

Dominican Republic

Share of unpaid family workers

1.53

1.58

1.36

1.44

1.53

2.76

2.52

2.41

3.62

1.51

2.27

1.70

1.82

Dominican Republic

Share of workers in low-earnings sectors

31.21

28.51

29.71

27.65

28.66

27.59

27.40

27.55

26.54

25.84

25.55

25.85

25.70

Dominican Republic

Share of workers in mid-earnings sectors

53.17

55.73

54.13

55.13

55.60

56.17

56.73

56.25

56.15

57.39

57.17

56.65

57.53

Dominican Republic

Share of workers in high-earnings sectors

15.62

15.77

16.16

17.22

15.74

16.24

15.86

16.20

17.30

16.77

17.28

17.51

16.77

Dominican Republic

Share of low-educated workers

56.47

57.22

55.21

54.36

53.52

53.69

52.16

50.13

49.63

49.56

48.32

47.27

46.09

Dominican Republic

Share of medium-educated workers

27.37

27.67

28.25

28.73

29.21

29.80

31.01

32.66

31.11

31.67

33.16

35.50

35.19

Dominican Republic

Share of high-educated workers

16.15

15.11

16.55

16.91

17.27

16.51

16.84

17.20

19.26

18.76

18.52

17.24

18.71

Dominican Republic

Share of workers registered with SS

46.66

53.89

64.07

71.43

71.75

74.72

71.18

70.89

Dominican Republic

Mean labour earnings

330.0

327.0

307.6

263.1

217.3

257.8

270.2

258.9

251.7

271.3

261.1

248.1

241.8

Dominican Republic

Poverty and Inequality Indicators

Official extreme poverty rate

7.77

6.79

8.84

10.42

14.50

9.40

8.09

7.31

6.89

5.92

5.25

5.43

5.35

Dominican Republic

Official moderate poverty rate

24.68

24.83

25.53

32.91

39.12

31.31

28.60

27.50

28.69

25.89

25.80

24.51

24.22

Dominican Republic

Poverty rate 2.5 dollars a day

15.71

15.84

17.61

21.83

27.77

21.08

18.66

17.90

18.44

16.40

16.14

13.97

14.55

Dominican Republic

Poverty rate 4 dollars a day

32.63

33.27

33.07

41.73

49.50

40.48

37.48

36.41

37.89

34.71

35.12

33.34

33.26

Dominican Republic

GINI of household per capita income

0.519

0.504

0.500

0.520

0.519

0.499

0.519

0.487

0.490

0.489

0.472

0.474

0.457

Dominican Republic

GINI of labour earnings

0.499

0.487

0.483

0.481

0.479

0.476

0.484

0.464

0.457

0.471

0.464

0.468

0.451

Dominican Republic

Note: The shaded figures of labour market indicators represent statistical significant improvements at 5 per cent between the initial and final years for all the employment and earnings indicators and poverty and inequality indicators. The only exceptions are the share of mid-earnings occupations, share of mid-earnings sectors, and share of medium-educated workers for which we did not assign welfare evaluation criteria. The vertical lines indicate that the series 2000–4 and 2005–12 are not comparable due to changes in the household survey. For the poverty rates and the Gini coefficient of household per capita income we compared 2005 and 2012.

Source: SEDLAC (CEDLAS and World Bank 2014) and World Development Indicators (World Bank 2014b).

At the beginning of the 2000s, economic growth was erratic. From 2000 to 2004, GDP per capita increased by only 2.4 per cent due to years of economic growth (2000 and 2002) followed by years of decline (2003 and 2004). The export-oriented growth model that had been in place in the Dominican Republic since the 1990s faced a series of external shocks during this period, which included a rise in oil prices and the slowdown in the US and Europe in (p.252) (p.253) (p.254) 2001 (Agosin 2009; Godínez and Máttar 2009).2 However, the country faced a bigger shock in 2003 when a banking crisis arose mainly from governance problems that went undetected for many years (IMF 2003). The banking crisis contributed to the flight of capital, an increase in the inflation rate, a sharp rise in the public debt, and the devaluation of the currency (IMF 2003; Agosin 2009). GDP per capita fell by 1.8 per cent in 2003.

The government that took office in 2004 formulated a programme to address the weaknesses in macroeconomic policies. The rebound in confidence and activity led to a virtuous cycle of declining inflation and interest rates, and exchange rate stability (IMF 2005). From 2005 to 2008 the Dominican economy exhibited rapid economic growth, with an annual GDP per capita growth rate of 6.9 per cent and GDP growing at 8.4 per cent a year. The growth process was based on non-tradable sectors during this period, mainly communications, commerce, financial intermediation, construction, and transport. In particular, the growth of the communications sector was remarkable due to important foreign and domestic investments in telecommunications (Agosin 2009; ILO 2013; ILO 2014). This pattern of growth, based on non-tradable sectors, was characterized by a high capital–labour ratio, which differentiates the Dominican Republic from other Latin American countries over the period studied (Abdullaev and Estevão 2013).

In 2009, the economy suffered a slowdown as a consequence of the international crisis, with GDP per capita growth falling from 3.8 per cent in 2008 to only 2.0 per cent in 2009. The deceleration was the result of the global credit crunch, a weak external demand, and a procyclical fiscal policy, such as a reduction in social spending (IMF 2009; Lavigne and Vargas 2013). The government increased the stock of public debt to address the increasing balance of payment needs and conducted countercyclical policies (IMF 2011). The pre-crisis growth rate was surpassed in 2010 (6.3 per cent), though there were subsequent slowdowns in 2011 (3.1 per cent) and 2012 (2.6 per cent).

13.3 Unemployment

The unemployment rate fell from 2000 to 2008, increased from 2008 to 2012, and ended up slightly higher in 2012 than it had been in 2000. This V-shaped pattern was also observed for youth and adults, and for men and women. The unemployment rate was impacted adversely by the (p.255) international crisis: it increased between 2008 and 2009, dropped in 2010, though not to the pre-crisis level, and continued to rise through 2012. (Cruces et al. 2015: figure 3)

The unemployment rate (measured as the ratio of unemployment to labour force) increased from 4.7 per cent in 2000 (146,457 unemployed people) to 4.9 per cent in 2012 (204,390 unemployed people) (Table 13.1). The evolution of unemployment followed a V-shaped pattern: it fell from 4.7 per cent in 2000 to 2.1 per cent in 2008, the lowest value of the series, and increased to 4.9 per cent in 2012. The international crisis had an impact on unemployment that rose from 2.1 to 3.8 per cent between 2008 and 2009 (66,862 new unemployed people). The increase in the rate and number of unemployed people occurred mainly due to a reduction in the number of employed persons. From 2008 to 2009, the number of people in the labour force increased just by 17,090 persons, while the number of employed persons fell by 49,772. While there was a respite from rising unemployment in 2010, the unemployment rate grew again in 2011 and 2012, when GDP slowed down, and closed the period at 4.9 per cent, a level that is still above its pre-crisis value.

While the unemployment rate increased for youth, adults, and men between 2000 and 2012, it decreased for women between those years. The unemployment rate of all population groups mirrored the aggregate trend, with a low point in 2008. All population groups—youth, adults, men, and women—were affected by the rise in unemployment that ensued during the international crisis, and they all experienced a slight recovery in 2010, followed by further increases in unemployment in 2011 and 2012.

13.4 Job Mix

In terms of the composition of employment by occupational group, there was a slight worsening over the period, with an increase in the shares of low-earning and high-earning occupations and a consequent decrease in the middle-earnings occupations’ share. The evidence indicates a slight deterioration over time for youth, adults, men, and women. For the employed population as a whole, the share of low-earning occupations continued to increase during the international crisis and the share of high-earning occupations fell and, as of 2012, the pre-crisis level had not been reached. (Cruces et al. 2015: figure 4)

The share of the following occupations shrank between 2000 and 2012: plant and machine operators (drop of 3.7 percentage points); agricultural occupations (drop of 2.4 percentage points); and crafts and trades occupations (p.256) (drop of 2.3 percentage points). The share of the following occupations grew: elementary occupations (increase of 4.9 percentage points); and services and sales jobs (increase of 1.8 percentage points).3 The share of the other occupational groups exhibited smaller changes. These changes in the occupational composition of employment can be interpreted as a slight worsening since the share of low-earning occupations (elementary, agricultural, forestry and fishery occupations, and services and sales jobs) increased by 4.2 percentage points and the share of high-earning occupations (management, professional jobs, and technicians and associate professionals) also increased but by a smaller magnitude (rise of 1.4 percentage points). Consequently, the share of mid-earning occupations declined over the period (clerical, crafts and trades occupations, and plant and machine operators) (Table 13.1).

The evolution of employment composition by occupational group followed the aggregate pattern for all population groups who exhibited a slight worsening over the period.

During the international crisis, the composition of employment deteriorated in the aggregate and for young, adult workers, and men. The share of low-earning occupations continued to increase, while the share of high-earning occupations began a downward trend and by 2012 was still below the pre-crisis level. For women, the previous trend of slight worsening continued during the international crisis.

The employment structure by occupational position deteriorated; the share of wage/salaried employees fell and the share of self-employed workers rose. While this trend holds true for all the population groups studied, it was particularly dramatic among young workers. The prior negative trend in this indicator continued during the international crisis. By 2012, though, the share of wage/salaried employees had surpassed its pre-crisis level. (Cruces et al. 2015: figure 5)

From 2000 to 2012, the share of wage/salaried employees—the largest occupational category—decreased from 56.9 to 53.2 per cent, while the share of the self-employed increased from 40.0 to 41.9 per cent. The share of employers and unpaid workers exhibited small increases, from 2.6 to 3.1 per cent and from 1.5 to 1.8 per cent respectively (Table 13.1). The evolution of the share of wage/salaried employees was erratic; it hovered around 55 per cent from 2000 to 2004—when the economy changed its productive structure radically—and (p.257) then began a downward trend, with some ups and downs over the period. The worsening in the structure of employment by occupational position is striking considering that the unemployment rate was low and, up to 2007, exhibited a declining trend. The change in the productive structure of the economy following the episode of the banking crisis in 2003 provides an explanation. The sectors that gained share in the economy (mainly telecommunications, commerce, construction, and financial intermediation) were less labour-intensive compared to the manufacturing sector that was the driving force of the economy before the banking crisis. Consequently, economic necessity may have compelled displaced workers from the industry sectors to look for free-entry self-employment activities. The effect of the international crisis is difficult to discern since the negative trend for this indicator began in 2007, i.e. before the crisis, and continued through 2010, i.e. after the crisis had subsided.

The share of paid employees in total employment decreased for all population groups from 2000 to 2012, and the drop was greater among youth and men compared to adults and women. The crisis had a greater impact on the occupational position of adults and men than on youth and women: between 2008 and 2009, the share of wage/salaried workers increased for youth and women, while it diminished for adults and men. However, for both adults and men the decline had started in 2007.

The employment composition by economic sector improved over the course of the period studied, overall and for all population groups. During the international crisis, the distribution of employment was squeezed, i.e. the share of mid-earning sectors increased and the shares of low- and high-earning sectors fell, and this trend continued up to the end of the period. (Cruces et al. 2015: figure 6)

The period 2000–12 witnessed major changes in the composition of employment by sector in the Dominican Republic. The share of workers in low-earning sectors (domestic service, primary activities, and low-tech industries) diminished by 5.5 percentage points, from 31.2 per cent in 2000 to 25.7 per cent in 2012. The share of workers in middle-earning sectors (high-tech industry, commerce, utilities and transportation, and education and health) increased by 4.4 percentage points, from 53.2 to 57.5 per cent. The share in high-earning sectors (construction, public administration, and skilled services) rose as well, by 1.2 percentage points, from 15.6 to 16.8 per cent (Table 13.1). Underlying the reduction in the share of low-earning sectors in total employment was the change in the productive structure of the Dominican economy. Before the severe banking crisis in 2003, the economy’s growth was based on export-oriented sectors, mainly in the production of textiles by the maquila or export free zone, captured by the low-tech industry sector in our statistics. The low-tech industry sector’s share exhibited the largest (p.258) reduction among the low-earning sectors, falling by 5.1 percentage points over the period. After the episode of the banking crisis, the economy’s growth switched to non-tradable sectors, mainly telecommunications, commerce, construction, and financial intermediation. But these sectors are less labour-intensive than the manufacturing sector, and their shares in total employment showed small increases during the period. The commerce, construction, and utilities and transportation sectors increased their shares by 0.6, 1.1, and 1.5 percentage points respectively. The reduction in the share of low-earning sectors in total employment was then offset mainly by the increase in the share of employment in other services sectors, like education and health, and domestic service, sectors characterized by their low productivity and low earning levels (Abdullaev and Estevão 2013; ILO 2013). During the international crisis of 2008, the distribution of employment by economic sector was squeezed: the share of mid-earning sectors increased, while the shares of low- and high-paid sectors declined by a similar magnitude. This trend continued up to the end of the period.

There was no dramatic difference between population groups (youth and adults, men and women) in the reduction in the share of low-earning sectors and in the increase in the share of high-earning sectors in total employment. The international crisis of 2008 led to an increase in the share of mid-earning sectors along with a reduction in the shares of both low- and high-earning sectors for young and adult workers and for men. This trend continued up to the end of the period for these three population groups. For women, the improving trend continued even during the international crisis.

The educational level of the employed population improved over the period for all population groups through the increase in the share of employed workers with medium levels of education mainly. The international crisis brought this trend to a standstill. (Cruces et al. 2015: figure 7)

The share of employed workers with low educational levels (eight years of schooling or less) dropped from 56.5 per cent in 2000 to 46.1 per cent in 2012, while the shares of employed workers with middle and high educational levels (nine to thirteen years of schooling and over thirteen years of schooling) grew from 27.4 per cent in 2000 to 35.2 per cent in 2012 and from 16.1 to 18.7 per cent respectively (Table 13.1).4 We interpret this result as an improvement for the employed population as the level of education is an important predictor of labour earnings. Consequently, the changes in the employment structure by educational level implied an increase in the share of workers that (p.259) tend to have high levels of earnings and a decline in the share of workers with low earnings levels.5 During the international crisis of 2008, the trends described above stalled, but they resumed during the post-crisis period. Along with the improving trend in the educational level of the employed population, a disproportionate increase in the share of workers with medium and high educational levels in low-skill jobs, such as sales and services occupations and elementary jobs, took place in the Dominican Republic (Abdullaev and Estevão 2013).

The educational level of all population groups (young and adult workers, men and women) improved significantly. During the international crisis of 2008, the educational distribution of employment deteriorated for young workers (the share of workers with low educational levels grew and the shares of those with medium and high educational levels declined), while it continued with the improving trend for adults, especially through a reduction in the share of workers with low educational levels and an increase in the share of those with medium levels of education. A possible explanation for the worsening in the employment structure of young workers by educational level can be found in the previous evidence of increasing unemployment and worsening employment structure by occupational position during the international crisis. Better-educated young workers could afford to remain unemployed during the crisis, while the less educated young workers were compelled by economic necessity to take up free-entry self-employment activities or unpaid family work. For men and women, there were minor changes in their distribution of employment by educational level. The previous improving trend resumed during the post-crisis period.

As a result of a concerted effort by the government, the overall share of wage/salaried employees registered with the social security system increased dramatically among the population as a whole and among all population groups from 2005 (when data on this variable started becoming available) to 2012. While the international crisis slowed this upward trend, it resumed following the crisis. (Cruces et al. 2015: figure 8)

The social security system in the Dominican Republic includes old-age, disability and survivorship, family health, and occupational hazard insurance plans. Since 2001, the system has followed an individual capitalization account model which comprises three regimes (Lavigne and Vargas 2013). First, the contributory regime covers wage earners from the public and private (p.260) sectors and the self-employed. It is funded by workers’ and employers’ contributions. This regime has a solidarity component (Fondo de Solidaridad Social) funded by employers’ contributions in order to guarantee a minimum pension for all affiliated, especially those with low incomes. Second, the fully subsidized regime protects self-employed workers with unstable incomes below the minimum wage, as well as the unemployed, disabled persons, and indigents. This regime is funded by the government. Finally, the contributory-subsidized regime aims to protect self-employed professionals and technicians that receive incomes equal or superior to the minimum wage through contributions from workers and the government. This regime has not been put into practice yet.

Social security records show a major increase in the percentage of wage/salaried employees registered with the contributory regime of the system from 2005 to 2012. The share of wage/salaried employees registered with the system grew from 46.7 per cent in 2005 (725,970 registered workers) to 70.9 per cent in 2012 (1,321,044 employed workers) (Table 13.1). Most of the increase in the percentage of registered wage/salaried employees took place between 2005 and 2008 when this share grew from 46.7 per cent to 71.4 per cent (474,115 newly registered workers). This rise coincides with the system’s health insurance contributory scheme coming into force in 2007. From 2008 to 2010, a period that included the Great Recession, the upward trend slowed (rising from 71.4 per cent to 74.7 per cent). Between 2010 and 2012, the percentage of wage/salaried employees registered with the social security system fell to 70.9 per cent. The registration of workers in the social security system is expected to continue with the general upward trend of the period 2005–12 when the contributory-subsidized regime comes into force. The population targeted by this scheme is about 40.0 per cent of the working population of the country, and consequently, will require a substantial subsidy from the government. That is the main reason for the delay in the implementation (ILO 2014).

The aggregate trend towards greater enrolment in the social security system holds true when the employed population is broken down by age and gender.

13.5 Labour Earnings

Despite above-average economic growth when comparing 2000 and 2012, real labour earnings decreased at the same time. This is true for almost all the groups analysed. The effect of the international crisis on labour earnings is difficult to discern: labour earnings fell between 2007 and 2008, rose between 2008 and 2009, dropped again in 2010, and continued to decrease up to the end of the period. (Cruces et al. 2015: figure 9)

(p.261) Average monthly earnings, expressed in dollars at 2005 purchasing power parity (PPP), decreased by 26.7 per cent, from US$330 in 2000 to US$242 in 2012 (Table 13.1). This decrease was not uniform over the course of the period. Labour earnings decreased by 34.2 per cent between 2000 and 2004, the year of the economic downturn. They increased by 24.3 per cent from 2004 to 2006, fell again by 6.8 per cent from 2006 to 2008 (the start of the international crisis), and increased by 7.8 per cent between 2008 and 2009. A downward trend began in 2009, lasting until the end of the period. The lack of relationship between GDP per capita and labour earnings in the Dominican Republic is striking: from 2005 to 2012, GDP per capita increased by 39.0 per cent, while labour earnings decreased by 6.2 per cent. This phenomenon is explained by two factors. First, minimum wages have declined in real terms over the period studied. In 2010, real minimum wages were 7.0 per cent lower than in 2000 (Godínez and Máttar 2009; ILO 2013). Second, workers’ bargaining power has weakened over time. Labour earnings and hourly wage reductions were a common trend in all economic sectors, even in those that exhibited productivity increases such as communications, financial services, and transport (Abdullaev and Estevão 2013). Hourly wages in the sectors that increased their share in total employment, services sectors mainly, also decreased. This evidence can be interpreted as a sign of the weakened bargaining power of workers.

Labour earnings dropped overall between 2000 and 2012 for all population groups and almost all employment categories, and losses for high-earning categories tended to be larger than earning losses for low-earning categories. The drop in labour income for high-earning occupations was larger than the loss for low-earning occupations. Employers suffered the largest labour income loss among occupational positions, followed by self-employed workers and wage/salaried employees. The loss in labour income was larger for high-earning economic sectors than for low-earning economic sectors. Educational level was not an important determinant of labour income change: the labour incomes of workers with low, medium, and high educational levels dropped by a similar magnitude in percentage terms. The relative wages among educational groups show a reduction in the wages of workers with high educational levels with respect to workers with low and medium educational levels, and an increase in the relative wage of workers with medium educational levels relative to those with low educational levels (Cruces et al. 2015: table 7). These trends can be interpreted in light of the increase in the educational level of people in the labour force (Cruces et al. 2015: table 8), and changes in the productive structure of the economy. Previous evidence indicated that the sectors that increased their share in total employment increased their use of workers with medium and high educational levels despite being mainly low-productivity sectors (Abdullaev and Estevão 2013). The prediction of a supply and demand (p.262) analysis is that the relative wages of workers with high and medium educational levels relative to those with low educational levels will rise or fall depending on which effect dominates (increase in the relative demand versus increase in the relative supply). In the Dominican Republic economy, the increase in the relative demand for workers with medium educational levels (with respect to workers with low educational levels) offset the increase in their relative supply, driving up the wages of workers with medium to low educational levels. The contrary occurred for workers with high educational levels, for whom their relative wages (with respect to workers with low educational levels) decreased. The adjustment process also led to a reduction in the unemployment rate of workers with high educational levels, an increase for workers with low educational levels, and no change for workers with medium educational levels (Cruces et al. 2015: table 9).6

The evidence regarding the effects of the international crisis is mixed. In general, for all population groups and employment categories, labour earnings fell from 2007 to 2008, grew between 2008 and 2009, and dropped once again from 2009 to 2010.

Poverty and Inequality Poverty increased from 2000 to 2004 and decreased from 2005 to 2012. One cannot be certain whether poverty was higher or lower in 2012 than in 2000 owing to data incomparability. (Cruces et al. 2015: figure 10)7

The moderate and the extreme poverty rates (measured by the country’s poverty lines) exhibited an upward trend from 2000 to 2004, the year of the downturn in the Dominican Republic, when the moderate and extreme poverty rates peaked at 39.1 and 14.5 per cent respectively. The percentage of working poor households (defined as the proportion of persons in the population living in poor households where at least one member works) experienced a similar trend and reached 35.7 per cent in 2004. Despite the overall reduction in labour earnings, those rates dropped almost every year from 2005 to 2012, a period that included the Great Recession. However, poverty did not decline as much as expected during a period of strong economic growth (World Bank 2014a). Analysis based on the 2.5 and 4 dollars-a-day PPP international poverty lines also shows peaks in 2004 followed by a downward trend after the Dominican crisis in 2003/4 and through 2012 (Table 13.1).

(p.263) The pattern of reducing poverty in the Dominican Republic since 2005 can be understood by examining incomes from various sources. Household labour earnings and remittances from abroad suffered a reduction from 2005 to 2012 (Cruces et al. 2015: figure 11). Despite this reduction, remittances have represented around 7.0 per cent of GDP during the 2000s, helping to mitigate the impacts of low wages and a weak social protection net (Ondetti 2012). On the other hand, pensions and government transfers increased from 2005 to 2012. Government transfers have improved their design, starting in 2005. Before 2005, most social programmes were poorly targeted, reinforcing the private transfers pattern, such as remittances, which are directed to non-poor households mainly. Moreover, the amount of per capita government transfers was low, limiting their impact on poverty reduction (World Bank and IDB 2006). Starting in 2005, the number of beneficiaries has increased and the target has improved. However, the funding of social protection interventions has suffered reductions, especially during downturns. During the international crisis of 2008, the Dominican Republic was the Latin American country that cut social spending the most (Lavigne and Vargas 2013).

Inequality of labour earnings diminished overall, though erratically. Inequality of household per capita income remained unchanged between 2000 and 2004, though the Gini coefficient moved erratically during the period, and diminished from 2005 to 2012.8 During the international crisis, there was a temporary increase in labour earnings inequality but no change in the inequality of per capita household income. (Cruces et al. 2015: figure 12)

The Gini coefficient of household per capita income was unchanged between 2000 and 2004 (0.519). However, it declined from 0.499 in 2005 to 0.457 in 2012, a period that included the Great Recession. The bulk of the decrease took place in 2007, 2010, and 2012. The Gini coefficient of labour earnings among employed workers declined from 0.499 in 2000 to 0.451 in 2012 (Table 13.1). It decreased slightly from 2000 to 2006, when it stood at 0.484; it went on to decrease rapidly until 2008, dropping as low as 0.457, only to increase to 0.471 during the international crisis. It has fallen every year since then. This reduction in labour earnings inequality is in keeping with the fact that earnings reductions were larger for high-earning employment categories compared to low-earning categories. As a consequence, the reduction in labour earning inequality in the Dominican Republic occurred at the expense of income losses for all employment categories.

Changes in household per capita income inequality in the Dominican Republic have been related to changes in labour and non-labour incomes. (p.264) Azevedo et al. (2013b) decomposed the change in the Gini coefficient of household per capita income for the period 2000–10 and found that changes in labour incomes and in incomes from transfers contributed the most and equally to the inequality reduction over this period.9 Demographical factors, such as the age structure of the labour force, had an inequality-increasing effect. Other studies have analysed the factors behind the evolution of labour income inequality. Azevedo et al. (2013a) used a decomposition approach and found that changes in the distribution of the stock of education (the ‘quantity effect’) were inequality-reducing in the Dominican Republic between 2000 and 2010 (the Gini coefficient of labour earnings decreased from 0.499 to 0.464 between 2000 and 2010), while changes in the education wage premium (or the ‘price effect’) were inequality-increasing although the effect was small.

13.6 Conclusions

By Latin American standards, the Dominican Republic experienced above-average economic growth during the 2000s. Within the 2000–12 period, GDP per capita stagnated through 2004 and, for the most part, grew rapidly from 2005 through 2012. The international crisis of 2008 led to a slowdown, but growth rates remained positive in every year.

Despite the country’s high rates of economic growth, the evidence regarding the changes in labour market indicators between 2000 and 2012 is mixed. Some indicators improved while others deteriorated over the period. The improvements were as follows. The employment composition by economic sector improved over the course of the period studied: the share of workers employed in low-earning sectors decreased, and the share of workers in mid-earning sectors increased due to the change in the productive structure of the economy that moved from being export-oriented to being based on services sectors. The educational level of the employed population improved over the period. The share of wage/salaried employees registered with the social security system increased dramatically. Inequality of household per capita income and of labour earnings diminished overall. Given differences in which incomes are included before 2005 and afterwards, one cannot be certain about what happened to poverty from 2000 to 2012; what does appear clearly is that poverty increased from 2000 to 2004 and decreased from 2005 (p.265) to 2012. However, not everything improved: the unemployment rate increased between 2000 and 2012 following a V-pattern; the employment structure by occupational group exhibited a slight worsening; the composition of employment by occupational position deteriorated over the period; and real labour earnings decreased.

The international crisis of 2008 affected most labour market indicators negatively. The unemployment rate increased during the crisis and then dropped, though as of 2012 the pre-crisis rate had not been reached. The share of low-earning occupations continued with its upward trend during the crisis as well, while the share of high-earning occupations began a downward trend and its pre-crisis level had not been reached as of 2012. The composition of the employed population by occupational position continued with the worsening trend, though by 2012 the share of wage/salaried employees had returned to the pre-crisis level. Inequality of labour earnings increased between 2008 and 2009, after which inequality returned to its pre-crisis level. On the other hand, labour earnings did not fall between 2008 and 2009, but began a downward trend and continued to decrease up to the end of the period. The comparison between the effects of the international crisis of 2008 on labour market indicators and the effects generated by the banking crisis of 2003 reveals that the crisis at the beginning of the 2000s impacted the Dominican Republic more strongly. The crisis of 2003 generated a reduction in GDP, while economic growth slowed but remained positive during the international crisis of 2008. Labour earnings suffered a reduction during the domestic crisis of 2003, which led to an increase in all poverty indicators that peaked in 2004, and in household per capita income inequality. On the other hand, the international crisis of 2008 did not have an immediate impact on labour earnings, which began a downward trend in 2010; all poverty indicators fell and household per capita income inequality remained unchanged.

Young workers had worse labour market outcomes over the period compared to adults, but they do not seem to be more vulnerable to macroeconomic crises. Men and women exhibited a balanced situation in their labour market outcomes and in the negative impacts of the crises. The unemployment rate was higher for young compared to adult workers; the share of young employed workers in low-earning occupations was larger than the share of adult workers, while the share in high-paid sectors was lower; the percentage of young workers registered with the social security system was lower when compared to adults; and labour earnings of young workers were below those of adults. On the other hand, the share of young workers in low-earning occupational positions was lower compared to adults. Despite the generally inferior situation of young workers in the labour market compared to adults, both age groups were negatively affected in a similar number of labour market indicators by the economic crises faced by the country. The banking crisis of (p.266) 2003 led to a larger increase in the unemployment rate and in the share of young workers in low-earning occupations, but the earnings reduction was larger for adults. The international crisis of 2008 led again to a larger increase in the unemployment rate of young workers and to a slight reduction in the share of registered young workers. On the other hand, the increase in the share of low-earning positions, i.e. self-employed workers and unpaid workers, was larger among adults. Disaggregating by gender, we found that men were better than women in some cases, e.g. the male unemployment rate was lower, the share of male workers in low-earning occupations was lower compared to women, and labour earnings of men were higher than labour earnings of women; in other cases, the opposite occurred, e.g. the percentage of workers registered with the social security system was larger for women compared to men, and the share of workers in low-earning positions and sectors was lower for women compared to men. The negative impacts of the crises affected men and women similarly. The unemployment rate increased more for men than for women during the banking crisis of 2003, but earnings losses were larger for women. During the international crisis of 2008, the unemployment rate increased more for women than for men, but the shares of low-earning occupations and positions increased by more for men.

In summary, despite the above-average economic growth for the Latin American region, changes in labour market indicators were mixed in the Dominican Republic, with the fall in real labour earnings being the more striking result.

References

Bibliography references:

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Agosin, M. (2009). ‘El desarrollo económico y social: Oportunidades y desafíos’, in M. Agosin, O. Manzano, R. Rodríguez-Balza, and E. Stein (eds), La Ruta Hacia el Crecimiento Sostenible en la República Dominicana. Washington, DC: Inter-American Development Bank, 3–20.

Azevedo, J. P., M. E. Dávalos, C. Díaz-Bonilla, B. Atuesta, and R. A. Castañeda (2013a). ‘Fifteen Years of Inequality in Latin America: How Have Labor Markets Helped?’. Policy Research Working Paper 6384. Washington, DC: World Bank.

Azevedo, J. P., G. Inchauste, and V. Sanfelice (2013b). ‘Decomposing the Recent Inequality Decline in Latin America’. Policy Research Working Paper 6715. Washington, DC: World Bank.

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Notes:

(1) See Cruces et al. (2015: table 1) for details on the size of Dominican Republic household surveys.

(2) The most dynamic sectors since the 1990s had been tourism and export free zones (maquilas) which benefited from certain incentive policies such as preferential access to US markets, tax exemptions, and lower labour costs.

(3) The change in the household surveys implemented in 2008 led to a recategorization of agricultural, forestry, and fishery occupations and of elementary occupations. Of the total changes experienced by these two occupations over the period (increase in the share of elementary occupations and fall in the share of agricultural, forestry, and fishery occupations), 2.0 percentage points took place between 2007 and 2008 and are related to the change in the categorization. Since both of these categories fall into the low-earning occupations group, this recategorization does not affect our overall conclusions about the evolution of the occupational composition of the employed population.

(4) The most frequent value of years of education for employed workers in Dominican Republic was twelve over the entire period (around 14.4 per cent of employed workers had twelve years of education).

(5) The improvement in the employment structure by educational level is related to changes in the relative demand and supply of workers with high educational levels with corresponding implications for the wage gap by educational group and the unemployment rate of each educational level. We introduce a discussion about the role of these factors in the Dominican Republic in section 13.5.

(6) These changes in the unemployment rate were obtained by making the comparison between 2000 and 2012. If the year 2010 is considered instead of 2012, which was a year of a slowdown in the activity level, a reduction in the unemployment rate of all educational groups is observed.

(7) Since the year 2005, the survey has included questions geared to better capturing non-labour incomes. The poverty rates between 2000 and 2004 are overestimated when compared to those of 2005–12. For example, had a similar set of questions been used in the 2005 and the 2004 surveys, the poverty rate of 4 dollars-a-day would have been 5.7 percentage points higher in 2005. To indicate the change in the survey instrument, lines are drawn separating the old and new questions in Cruces et al. (2015: figure 10).

(8) The changes introduced in the household survey in 2005 prevent us from making comparisons between the Gini coefficient of household per capita income before and after that year.

(9) The authors analyse the period 2000–10 and report a reduction in the Gini coefficient of household per capita income. However, they do not indicate if household income was adjusted to allow the comparability before and after 2005. We consider their result should be interpreted with caution.