Can too many work permits be bad for the economy?

It’s a question that surfaces almost every day on some radio show or in private debates about the ‘demise’ of the Cayman Islands economy. Broadly speaking, there are two common answers to this question.  

The ‘yes’ group believes that every, or many, work permit holders could be replaced by a Caymanian. In this scenario, a large part of the reason that this country has unemployment is due to either the discriminatory recruitment practices of employers and/or the governments heavy reliance on work permit fees as a revenue source. 

The ‘no’ group feels pretty strongly that the vast majority of work permit holders in the Cayman Islands are there because there is no equivalent Caymanian to do the job.  

I think the answer lies a bit closer to the position of no group but to the credit of those that continue to have doubts, there are also some important policy issues that need to be addressed. 

The Cayman Islands labour market has a large percentage of foreign workers and one would be hard pressed to find more than a handful of other countries with such a disproportionately large percentage of foreign to local labour. But that is one of the unique features of this economy arising from a combination of rapid economic growth, small population, under-investment in education and training over the long term, and heavy reliance of foreign labour to support this growth. 

Work permit holders can therefore be viewed as simply part of the resources needed to drive the economy. The rise in work permits is driven by labour demand from firms who need the additional resources in order to meet the increased demand for their own services. 

Firms can find suitable Caymanians up to a point at which the small size of the local population means they have always had to recruit foreign labour. This version of the story works very well when the labour being imported is highly skilled. It is also good for the economy because productivity is increased in the economy, there may be some additional infusion of knowledge which is passed on to locals, there is little or no burden socially due to the average higher salaries earned by this group, and finally, there is some revenue benefit to the government. The most common objections raised in this area of skilled workers is that there is insufficient transfer of knowledge (eg former waitress becomes paralegal etc), or that Caymanians are not being trained effectively to allow a faster conversion of certain jobs from a work permit holder to a local.  

But the real source of controversy and difference of opinion on the value of work permits tends to centre around the lower or unskilled jobs. And because statistically this is where most jobs fit in Cayman, emotions and politics tends to influence opinions on the economics of work permits. 

The employers of lower skilled workers tend to be small businesses owned by Caymanians. These employers seek the best employer at the lowest wage and this latter feature is one of the main sources of the difference of opinion. In summary those that argue that too many work permits are bad for the economy point out that the tendency to hire cheap labour brings with it a host of social issues such as increased poverty and crime, which are all bad for the economy.  

The is the primary source of calls for a minimum wage to be introduced so that Caymanians would be more “attracted” to these lower skilled jobs, many of which they traditionally/culturally refuse to accept, and also to ensure that when foreign workers are employed in these positions, they can afford to live at decent standards and not in poverty-like conditions.  

But the minimum wage can itself have very serious unintended effects. It will increase the cost of doing business to the small businesses, which are themselves Caymanian owned and represent the largest source of employment in the country. And there are serious doubts as to whether the new wages will have any impact on whether Caymanians are more attracted to these jobs or whether foreign workers will make any changes to their living conditions etc, even after receiving the pay rise. 

All this means that work permits at the lower skilled end may be no more worse or better than those issued for workers in higher paying jobs. And while the very large numbers of work permits is a difficult picture to accept alongside the evidence of Caymanians being unemployed, there is no country which has zero unemployment so that target is unrealistic.  

That does not mean that we cannot ‘convert’ more work permit holders into Caymanian jobs, but this goal has to be a medium to long term objective, with the support of more effective investment into education and training and improved enforcement by labour officials to address the labour abuse and importation of poverty issues. The correct question may not be so much about whether the sheer number of work permits is having a negative impact on the economy as it is about whether we are addressing these policy and enforcement issues effectively. 

 

Paul Byles is CEO and partner of First Regents Bank & Trust, which provides private banking, investment advisory and consulting services. He is an experienced economist and finance professional having worked in the financial services industry for 20 years. He formerly served as an external consultant to the Ministry of Finance from 2009 to 2010. He is former director of a big four consulting firm and a former financial services regulator. 

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The Cayman Islands labour market has a large percentage of foreign workers.
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