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.
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. In its simplest form therefore, the debate on labour remains highly polarised with some believing that there is not enough protection of Caymanians and others believing that there is just far too much.
But our attempt to strike the ‘perfect’ balance should also be informed by an understanding, and continuous monitoring, of how the labour market works in the Cayman Islands. It also requires a full appreciation of the various issues which policymakers are attempting to address.
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 55/45 percentage share of Expatriates and Caymanian employees in the labour force to reverse in favour of Caymanians anytime soon (See Figure 1). 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.
The three structural features of disproportionately large foreign labour, leakages and relatively low unemployment should be key considerations in our approach to policy making. But neither can we speak about the labour market without addressing a number of very serious issues that policymakers in the Cayman Islands have been attempting to address for decades. The two primary areas of concern are:
1) The practice of some firms discriminating against Caymanians when recruiting new hires. No one can argue that discriminatory practices do not occur; the question is to what extent is this happening and whether the approach of policymakers to date has been effective in dealing with the problem. Sadly without any reliable published data aside from anecdotal evidence, we can never be too sure of the extent of this challenge. The risk we have always faced in this regard is that of utilising occasional anecdotal evidence (for example individual complaints) as a primary source of information for policymaking. This risk obviously increases during election years.
2) Another area relates to lack of upward mobility of Caymanians in the work force and unequal treatment with regard to benefits or otherwise in the workplace. The Immigration department will have received numerous complaints against firms in this regard. Again we are not aware of how often this occurs, so it is hard to ascertain the extent of the problem. But we can assume reasonably with some confidence that it does exist.
The question we have to ask is whether the traditional focus on work permits adequately addresses these two important concerns. The answer, in my opinion, is probably not. The traditional work permit approach, which has also recently been improved, represents an attempt at a ‘carrot & stick’ approach which is not adequately integrated with the country’s education and labour policies. The problem with the tactic is that in effect there is not much of a carrot to speak of. Firms are put through the hoops and pay relatively high fees to secure work permits under the assumption that if they have to essentially ‘prove’ their need for the permits, they will be able to secure them. Some critics argue that the firms simply develop underhanded recruitment tactics to counter this approach and if you review some of the HR adverts displayed during the high growth period in the past 15 years or so, you might be hard pressed to disagree with the critics. Others argue that the Immigration department’s existing approach continues to be unnecessarily aggressive as it stands, because it is already in a firm’s best commercial interest to hire Caymanians as this usually works out better for the firm’s bottom line.
When striking the balance between protection of Caymanians and labour market functionality, there are two mistakes that are traditionally made by policymakers: the first is that a national strategy to prepare Caymanians in terms of their own education and training has been largely neglected during the four decades of unprecedented growth. We do not need statistics to prove this assertion; the frustration has been publicly documented by businesses, politicians, parents and teachers over the years and in particular culminating in a couple of education conferences recently from which there is a written report that clearly illustrates this neglect.
And some private sector firms are not immune to the blame in this area. The lack of a coherent national strategy in my opinion, is at the heart of the problem, but firms in the private sector must accept responsibility for their neglect to provide continuing education and training to Caymanians as well. Gary Becker, who won the nobel prize in economics for his work on human capital once said: “Skills don’t last a lifetime. They depreciate. Any company has to recognise that not only is the human capital of their employees a major asset, it is also a depreciating asset that needs continuing investment”.
The concern now is that the business sector has in recent years been paying for this neglect today in the form of a great sense of urgency and protectionism relating partially to the employment impact on Caymanians as a result of the recession. But addressing the neglect to develop Caymanians over four decades cannot now be addressed in five or ten years. This will have to be done in a structured manner over many years and possibly a couple of decades.
The second mistake, as far as my personal perception of this balancing act over the years is concerned, is that the structural features outlined above have unfortunately not resulted in a more realistic approach to the labour issues. It is almost as if there is a belief in some quarters over the past few years, that the Cayman Islands could actually develop sufficient local labour to address its expansion needs in the next decade, despite significant statistical evidence on labour demand and local population growth rates pointing to the contrary.
Furthermore, the fact that the foreign labour force has been allowed to expand over the years is not in itself proof that the country has adequately recognised the importance of foreign labour or that they have been sufficiently flexible (Cayman is extremely flexible compared to other countries; the question is whether it is flexible enough for its own needs). That is like the flawed argument that, because the number of work permits has grown over the past few years, this somehow means that the rollover policy has ‘worked’. What is missing from this way of looking at things is the fact that the demand for labour in the Cayman Islands has been so significant that the foreign labour force is bound to have increased anyway. As official government data shows, the growth in our labour force, and in particular the expatriate portion, has been so rapid and overwhelming, that no amount of ‘bad policy’ is likely to stop some form of increase year upon year for many years.
Back to reality
Finally, regardless where we stand on these issues, a difficult pill to swallow for some of us is that no amount of policy will likely stop the outnumbering of Caymanians in the work force over the next seven to ten years, as long as the country continues to grow. But we should probably also be asking ourselves: is it doing us more harm than good to continue to pursue an unrealistic balancing goal? Or can we accept the structural needs of the economy while doing what is required to ensure that Caymanians benefit significantly either as entrepreneurs or via upward mobility as the country grows? Should our approach to the issuance of work permits not be guided by a long-term strategy for human resource development where we understand (and maybe accept) the inevitabilities of further growth as far as the country’s demographics are concerned?
Whatever the answer, simply ‘slowing’ economic growth or putting businesses in a position where they have to fight tooth and nail for every work permit may seem effective today, but in the long run it will only result in them outsourcing jobs elsewhere, as we are currently seeing from banks and fund administration companies to places like India and Halifax. And if this outsourcing continues and in particular increases, our economy will not grow because the local population growth alone cannot keep pace with the growth in international demand for our services.
What is required is a long term plan for human resources in the country which integrates the areas of labour, education and immigration and that has as its aim maximising the benefits of economic development to Caymanians, while taking into account the structural features of our labour market and the economy’s needs for continuing success. This article is not the place to outline a human resources strategy, but one of the many things that we should consider doing is to develop such a strategy. In fact there are valuable statistics at the Immigration Department on the types of work permits being granted which tells us a lot about where our training and education focus should be (See Figures 2&3).
This plan would give us an opportunity to better manage our economic growth and the resulting demographic changes, provide measurable criteria for the participation of Caymanians in the process and serve as a guide as to what we should be doing in the areas of education and training.