Countries of the World/COUNTRYS.BIN/dp/0277/02775.txt

Text File | 1991-06-25 | 34KB | 559 lines

$Unique_ID{COW02775}
$Pretitle{246}
$Title{Panama
Chapter 3B.   Human Resources and Income}
$Subtitle{}
$Author{Dennis M. Hanratty, Sandra W. Meditz}
$Affiliation{HQ, Department of the Army}
$Subject{canal
percent
panama
panama's
states
united
million
bank
cfz
banking}
$Date{1987}
$Log{Figure 9.*0277501.scf
}
Country:     Panama
Book:        Panama, A Country Study
Author:      Dennis M. Hanratty, Sandra W. Meditz
Affiliation: HQ, Department of the Army
Date:        1987

Chapter 3B.   Human Resources and Income

     A 1985 World Bank study concluded that in spite of a relatively well-
educated work force, unemployment was Panama's "gravest economic and social
problem." The unemployment rate climbed steadily, from 8.1 percent in 1978 to
11.8 percent in 1985. The study predicted that the unemployment situation
would further deteriorate unless the government took forceful measures to
change structural rigidities in the labor code and market. Legislation
approved in March 1986 addressed some of the rigidities in the 1972 labor
code. Those changes may have been responsible, at least in part, for the
lowering of the unemployment rate in 1986 to 10 percent.

Employment

     As a result of declining birth rates and stabilizing mortality rates,
Panama's overall population growth rate fell from an annual average of 2.6
percent between 1965 and 1980 to 2.2 percent between 1980 and 1985 (see table
2, Appendix A). The working-age population (15 years and over) increased from
1,011,700 in 1978 to 1,256,800 in 1985, at a rate of approximately 4 percent a
year. From 1970 through 1984, the rate of job creation was less than half the
growth rate of GDP. Analysts have estimated that the economy would have to
grow indefinitely by 7.5 percent a year to absorb new entrants into the labor
market--a level almost impossible to sustain and far above Panama's average
annual growth rates in the past.

     Panama's experience suggested that a government's ability to improve the
employment situation through direct intervention in the labor market is
severely limited. In the 1960s, an average of 13,000 new jobs were created
each year. During the recession in the 1970s, unemployment rose dramatically.
In late 1977, the government sought to reverse the deteriorating employment
situation with an emergency jobs program. As a result, 28,000 new jobs were
created within a year--20,000 of which were in the public sector. The
employment program drained government resources, however, and in 1980 it was
terminated. Only 11,000 jobs were created annually between 1979 and 1982.

     In 1985 the sectoral distribution of the labor force reflected shifts
that had taken place since the 1960s (see table 15, Appendix A). The services
sector, led by financial services, continued to grow and accounted for 57.4
percent of the total labor force in 1985. Agriculture (including forestry and
fishing) consistently experienced a relative decline, but still furnished 26.5
percent of the jobs. Industry's share of the labor force grew slightly between
1965 and 1980, but dropped to 16.1 percent in 1985.

     The public-sector share of total employment rose slightly from 11 percent
in 1963 to 13.1 percent in 1970. With the expansion of the public sector in
the 1970s under Torrijos and the Emergency Employment Program in 1977, that
share peaked at 25.1 percent in 1979. In 1982 the public sector still
accounted for 25 percent of total employment.

Wage Policy and Labor Code

 Panama's salaries were high by regional standards in the mid-1980s. In a 1982
study comparing salaries in manufacturing, Costa Rica's average monthly salary
was only 41 percent that of Panama's; Guatemala's, 71 percent, and Honduras's,
84 percent. In 1985 the average monthly salary in Panama was US$450, but that
figure was influenced by salaries in the canal area, which averaged US$1,300
per month. In 1985 the minimum wage in the metropolitan area was US$0.82 per
hour; that wage was adjusted for location and type of industry.

     In the 1970s, the government became heavily involved in labor matters and
intervened actively to increase wages. Although a labor code had existed for
many years, only the minimum wage provisions were consistently enforced. In
1971 two decrees were issued; the first imposed an education tax and the
second required employers to pay workers an extra month's wage each year.

     In early 1972 a broad labor code, patterned after that of Mexico,
substantially changed labor-management relations. Workers' security, benefits,
and bargaining power were increased considerably. Collective bargaining and
unionization were encouraged and resulted in rapid growth of union membership
(see Business, Professional, and Labor Organizations, ch. 4).

     Although the 1972 labor code contributed to political stability in the
1970s, it substantially raised costs for employers, especially those in
labor-intensive activities. The code also created disincentives to further
hiring and private investment. Employers were prohibited from reducing a
worker's salary. Therefore, piecework and assembly-type industries could not
reward workers on the basis of productivity. As a partial result of these
rigidities, Panama's labor costs were among the highest in the Caribbean
Basin. According to a 1984 World Bank report, the annual cost of running a
textile plant with 500 workers was US$588,300 in Haiti; US$789,800 in Costa
Rica; US$919,700 in the Dominican Republic; US$1,048,500 in Colombia;
US$1,057,600 in Mexico; and US$1,156,700 in Panama. Only Jamaica's costs were
higher (US$1,828,300).

     The labor code caused the effective cost of wages to rise, fueling
inflation and discouraging private investment. The government, unable to
devalue the currency, was forced to address the root of the problem-- high
labor costs. Law 95, which became effective in 1977, modified provisions of
the labor code that related to job security and benefits. Previously,
employers could only dismiss workers during their first two years on the job;
that term was extended to five years. New provisions inhibited union actions,
such as strikes, and imposed a two-year moratorium on collective bargaining
agreements, which froze wages.

     As a condition for the disbursement of a structural adjustment loan, the
World Bank in 1985 recommended making the code more flexible. Panama's
then-President Nicolas Ardito Barletta Vallarino (October 1984- September
1985) fully backed the World Bank recommendations. Opposition from unions and
from within his own party, the Democratic Revolutionary Party (Partido
Revolucionario Democratico--PRD), forced Ardito Barletta to withdraw the
proposed changes and contributed to his resignation. His successor, Eric
Arturo Delvalle Henriquez, was more successful. In March 1986, the Legislative
Assembly approved major reforms in the labor code, in spite of widespread
protests and a ten-day work stoppage by the unions. The changes included
production-based wages, uniform rates of overtime pay, piecework provisions,
removal of protective measures in industry, and flexible agricultural pricing.
On the whole, the labor code modifications were aimed at making Panama's
industry and agriculture more competitive internationally and expanding
employment opportunities. Nonetheless, the economy was deemed likely to
continue to experience high unemployment, especially in the metropolitan area,
where unemployment rates tended to be much higher than the national average.

Income Distribution

     One of Torrijos's major goals was to address the problem of unequal
income distribution, which during the 1960s was one of the most skewed in the
world. In 1970 the richest quintile (20 percent) of the households received
61.8 percent of the income; in stark contrast, the poorest quintile received
only 2 percent of the income. Results of a study conducted in 1983 by the
Panamanian government suggested that the Torrijos policies did, in fact, make
income distribution more equitable. The income share of the