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Labour Market in Mauritius An Analysis of the Continuous Multi Purpose Household Survey La thorie, cest quand on sait tout,

, mais rien ne fonctionne. La pratique, cest quand tout fonctionne et que personne ne sait pourquoi. Ici nous avons runi thorie et pratique : Rien ne fonctionne et personne ne sait pourquoi! Albert Einstein The structure of the labour market in Mauritius has evolved over time, with the advent of fundamental structural changes in the Mauritian economy over the last 30 years. In fact, the rapid development of the manufacturing sector in the seventies and eighties led to the rapid expansion of relatively low-skilled job creation to meet the need of the fast growing EPZ sector. However, by the end of the eighties and early nineties, the emergence of new sectors, namely in the field of tourism and financial services required higher skilled manpower. In the wake of the new millennium, the demand for high skilled labour was further accentuated as the Government moved forward to promoting new poles of growth in high value added services such as the ICT sector. This economic transformation necessarily entailed some adjustment costs: the economic cycle necessitated the decline of certain traditional sectors and saw the birth of new ones, which were very different in nature. At the same time, remaining sectors had absorbed almost all their capacity of unskilled labour. Today, the new sectors are service-oriented and therefore necessitate different input mix, generally more capital intensive than labour intensive. These new emerging sectors however have some potential to absorb labour, which necessitate skilled human capital. It is unfortunately observed that those who are being laid off from the traditional sectors are not technically prepared to be absorbed in the new sectors. In fact, minimum requirements for job entry in the services sector are higher than what were required in the traditional sectors. They require not only additional academic qualifications but also additional skill such as language skills and a higher degree of technological know-how. Unemployment: A structural phenomenon Despite a relatively stable economic performance, Mauritius is experiencing Ucurve employment phenomenon since the last decade. It can be observed that the rate of unemployment has been slowly crawling, from a record low level of 4% in the early 1990s. A closer look at the nature of unemployment shows that the majority of those without a gainful job have the following characteristics: (i) they are young, often less than 30 of age, (ii) many have never held a first job, (iii) most of them have failed primary or secondary education, (iv) they had no vocational or technical training and (v) they are single and family supported. It is however interesting to note that despite the rising trend in joblessness, two paradoxical facts can be observed. On the one hand, the EPZ is crippled by labour supply shortages, and is compelled to import foreign labour mainly from China. On the other hand, the number of unfilled skilled-job vacancies, especially in the financial services sector and in the ICT sector has been increasing since the last 10 years.

Figure 2: Unemployment Rate 1980 - 2004



15 Rate 10 5 0

It is therefore appropriate to say that the unemployment phenomenon is of a structural nature. It basically means that due to changes in demand and technology, there is a mismatch between available skills and available jobs. Structural unemployment cannot be cured solely by reflation, which is the macroeconomic policy to increase aggregate demand in view of creating more jobs. Instead, a policy that would emphasise on retraining and relocation of the affected workforce is necessary. Here, it is worth noting that the education system plays a central role in supplying skilled labour. Although Mauritius is ranked as having a comparatively high literacy rate, it has some weaknesses in its secondary and technical education, especially in the teaching of natural science, engineering and vocational subjects. Our education system is rather academic and based on traditional fields of study. There has been, until recently a lack of training/ retraining programmes that would prepare the labour force for the newly emerging sectors, such as ICT and high value added services. Before the reforms in education launched in 2001, a large proportion of the young were unable to access secondary education because of the competitive system for entering secondary schools and therefore could not supply the necessary skilled labour. Figures show that for the 2004 CPE exams, 37% of students failed to pass their exams, and among those who were sitting for the exams for the second and last time, the failure rate was as high as 62.6%. Many of those who fail their CPE exams drop out of the system, therefore remaining unskilled. The consequence is obviously a deficit in the skilled labour market, especially in the emerging sectors. Let us note that Government has come up with a comprehensive reform programme in the education system, which present certain remedial measures to this problem, such as training/ retraining programmes, technical courses and additional university courses, in particular in ICT.

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Unemployment Rate

Continuous Multi Purpose Household Survey 2004: A New Methodology Recently published statistics confirm the structural nature of unemployment. Until 2003, labour force statistics were estimated on the basis of the Population census or Labour Force Sample Survey. A new methodology, named the Continuous Multi Purpose Household Survey (CMPHS) was introduced in March 2004 by the CSO, upon the recommendations of the World Bank, to estimate the labour force, employment and unemployment rate. It is based on a sample of households that presently covers a total 8,640 households for the whole of 2004. Estimates are conducted on a quarterly basis, on 2,160 households per quarter. The new methodology indicates some marked changes in labour force, employment and unemployment in the four respective quarters, which deserve some attention and some possible explanations. In the new CMPHS, the age cut-off point for labour force was raised from 12 years to 15 years, therefore contributing to lower the labour force and to increase the inactive population, especially among the young. Furthermore, the reforms in the education system have raised the compulsory age limit of school children to 16 years as from 2004. This measure contributed further to reduce the labour force among the young and therefore to raise the inactive population. It can also be added that additional training programmes were made available to school leavers in technical, vocational and tertiary fields. The table below gives the estimated figures for 2004: Table 1: Labour Force, Employment and Unemployment
March 2004 Labour force - Male - Female Employment - Male - Female Unemployment - Male - Female Unemployment Rate (%) 541,100 348,700 192,400 494,100 328,400 165,700 47,000 20,300 26,700 8.7 June 2004 540,700 347,500 193,200 491,200 324,600 166,600 49,500 22,900 26,600 9.2 September 2004 527,800 349,400 178,400 483,500 329,800 153,700 44,300 19,600 24,700 8.4 December 2004 522,300 346,900 175,400 482,400 328,400 154,000 39,900 18,500 21,400 7.6 Average 2004 532,100 348,200 183,900 487,000 327,900 159,100 45,100 20,300 24,800 8.5

A few inconsistencies with regard to the results of the survey have however been noted, which probably indicate some weaknesses in the new methodology. Contrary to what one would logically expect, the CMPHS estimates indicate a downward trend in the labour force in 2004. From the above observations, it may be said that the changes in figures relating to labour force, employment, unemployment and inactive population actually reflect a change in methodology. It is premature at this stage, based solely on the CMPHS, to say that the labour market has improved. Changes in the methodology have, in aggregate, inevitably altered the number of people in the labour force and consequently have led to a fall in the number of employed and the number of unemployed. There is no clear indication however that the fall in unemployment is due to employment creation. 3

It is observed that, from March to June, there was a fall of 400 people in the labour force. However, a larger fall was observed, with a contraction of 12,900 jobs from June to September 2004. For the period September to December 2004, the labour force went down further by 5,500. On average, the labour force stood at 532,100 for the year 2004. Surprisingly, a contraction of 17,000 was observed among the female labour force, while it was estimated that some 1,800 males left the labour force in 2004. The large contraction in the female labour force is partially explained by the closure of EPZ firms, where the share of female employment was relatively high. The total number of people employed during the year also followed a downward trend. There was a fall of 11,700 in total employment in 2004, where the number of people employed fell from 494,100 in March to reach 482,400 in December 2004. No change was observed in the male labour force in 2004, whereas 11,700 female workers were estimated to have been laid off during the same period. Despite the significant fall in the level of employment in 2004, the overall level of unemployment has also gone down, from 8.7% in March to 7.6% in December 2004. This paradoxical situation is explained by the proportionally larger contraction in the labour force in that period. Main Characteristics In 2004, employment in the primary sector showed a slight improvement, from 9.6% of total employment in March 2004 to settle at 10.3% in December 2004. The trend in the secondary sector, which includes manufacturing, electricity and water and construction industries, showed a slight increase in percentage distribution, from 33.0% in March 2004 to reach 34.4% in December 2004. The share of the tertiary sector, which covers hotels and restaurants, transports and all service industries, dropped from 57.4% in March 2004 to 56.6% in December 2004.
Table 2: Percentage Distribution of Employed Population by Industrial Sector March 04 June 04 Sept 04 Dec 04 Primary 9.6 9.9 11.3 9.7 Secondary 33.0 32.4 34.4 33.7 Tertiary 57.4 57.7 54.3 56.6 Total 100 100 100 100

According to the CMPHS, the number of unemployed increased from 47,000 in March 2004 to 49,500 in June 2004. However, in the last two quarters, two consecutive drops were observed, where the number of unemployed was estimated at 44,300 in September and 39,900 in December respectively. The unemployment rate, defined as the percentage of people unemployed to the labour force, increased from 8.7% in March to 9.2% in June to drop down to 8.4% in September and further to 7.6% in December 2004. On average, the unemployment rate was estimated at 8.5% for the year 2004. 4

The distribution of unemployed persons by age is highly skewed towards young people. In fact, 62.7% of the unemployed were less than 30 years old in December, a little bit lower than in September, where it was 65.9%. On a gender basis, 76.6% of the unemployed males were less than 30 years old in December 2004, compared to 51.5% among the female unemployed population of the same age group. On the other hand, 21.7% of the unemployed population was aged 30 39 years in December 2004. There were 14.4% of the unemployed males in the age bracket 30-39 years and 28% of female unemployed in the same age group in December 2004.
Table 3: Percentage Distribution of Unemployed Population by Educational Attainment March 04 June 04 Sept 04 Dec 04 34.7 31.3 29.8 36.4 Primary 25.3 23.9 25.0 24.4 Below CPE 9.4 7.4 4.8 12.0 Passed CPE Secondary 54.1 67.9 64.1 60.5 Below SC 25.9 38.0 34.4 31.1 Passed SC 16.8 19.5 23.3 22.5 Passed HSC 11.4 10.4 6.4 6.9 Tertiary 9.5 2.3 4.6 4.8 Total 100 100 100 100

With regards to educational attainment, in December 2004, 34.7% of the unemployed population had attained primary education. However, 25.3% did not pass CPE. Some 60.5% of the unemployed had secondary education but 31.1% did not have a school certificate. On a gender basis, estimates show that 27.3% of female unemployed had passed the School Certificate against 16.9% males, while 6.4% females had passed HSC against 7.5% among the males unemployed. Impact of Wage Rigidity It is worth noting that the Mauritian labour market is relatively rigid, in part due to the particularities of its labour market institutions. In Mauritius, the wage determining institutions are the Tripartite Committee (TC), the National Remuneration Board and the Pay Research Bureau. The Tripartite Committee is responsible for the determination of wages at the national level through consultations involving Government, trade union and representatives of the private sector. These wage agreements of the TC are legally binding on all sector s of the economy. The NRB sets minimum wages by worker category for 29 sectors in the private sector. There are more than 400 of these minimum wages. However, changes to them are not made uniformly. The PRB makes recommendations regarding salaries in the Public Sector. The determination of wages by such a centralised bargaining system discourages sector-specific competitive wage setting, resulting in a strong relationship between wages in the traditional sectors and those in the emerging sectors. While new sectors create demand for skilled labour, wage increases typically follow in the traditional sectors leading to a loose relationship 5

between wages and productivity in traditional sectors. The rise of wages in the traditional sectors reduces domestic demand for unskilled labour and tends to increase unemployment rate of these workers. From the labour supply side, skill premium, expressed by wage differential between the two sectors is constrained by this staple relationship, resulting in fewer incentives for the young to invest in education and to supply skilled labour for the new sectors. With respect to foreign workers, the EPZ sector, has since a few years, been employing foreigners because domestic job seekers consider EPZ employment unattractive, on account of its low pay and high insecurity. There is a high degree of segmentation between the Mauritian labour force and foreign contract workers. Legal minimum wages are not applied for foreign workers and wage increases are not binding for foreign contract workers. Conclusion Given the rapidly changing economic structure of Mauritius, imminent policies, both short term and long term, are necessary to curb the unemployment problems. There needs to be significant thinking about economic as well as institutional reforms, away from the traditional policies used over the past decades, given the changing nature of unemployment itself. The most commonly spelt out policies are geared towards encouraging a sustained period of economic growth, with the emphasis on employment creating activities and investment. These require reflating the aggregate demand to a sufficiently high level so that businesses are encouraged to expand their workforces. Related macroeconomic policies therefore include lower interest rates or lower direct taxes. It might also encourage foreign investment into the economy from foreign multinationals. However, additional strong policies to tackle structural unemployment are also needed to encourage the improvement in employability of labour supply, so that the unemployed have the right skills to take up the available job opportunities. These policies should focus on the occupational mobility of labour, by encouraging regular training/ retraining in new techniques of production and technological knowhow, therefore giving the unemployed a better chance of taking new jobs that become available elsewhere in the economy. The CMPHS confirms the concerns about the labour market: a continuous fall in employment from 494,100 in the first quarter to 487,000 in the fourth quarter has been observed. However, if this is mainly due to the closure of EPZ companies, a relative stability of that sector is expected in the coming year and this will tend to improve the overall picture. Nonetheless, it is to be noted that the new statistics do not provide detailed data on industrial sectors, as did the previous methodology. It was then possible to make sectoral analysis of employment in various sectors of activity therefore giving a more precise picture of the labour market. However, the new methodology only reflects a global picture. Isabelle Ramdoo Ex Analyst-Economic Analysis and Industry Division 6