All projections indicate negative growth, both for the population as a whole and for the segment of working age. This will result in a progressive deterioration of the dependency relationship. Demographic variables only change in the very long term, and their trends are maintained for decades. In fact, a sudden increase in the birth rate would only increase the pressure for at least two decades, given the resulting increase in the dependency ratio. The good news is that both the economic activity rate and labor productivity can change in the medium term if effective policies are implemented.
Increasing the rate of economic activity as a remedy?
A smaller number of people of working age, together with an increase in their median age, means less labor mobility. This is bad news because the economic structure must continue to change, and this implies the transfer of labor between sectors. For example, unmet demand in light manufacturing, home and personal services, and business services create enormous potential for job creation in these activities. This process is always more difficult when the number of workers is smaller. A higher average age creates additional friction for changing career paths and incorporating new skills. And that need requires a new approach to the educational system to properly orient it towards lifelong learning, and the training of adult workers.
But the lower availability in the working age range can be offset by the increase in the rate of economic activity. At present, due to the advance of the demographic transition, policies are increasingly oriented towards taking advantage of the so-called gender bonus.
The aforementioned ECLAC study identified this as a very relevant source for Cuba, given the adverse demographic scenario. However, even for men, participation rates in formal employment have contracted over the past decade. The scarce monetary and professional development incentives that dominate the Cuban labor market constitute a transversal problem that requires attention to reverse the current trend. The materialization of the gender bonus implies the need to consider the economic contribution of unpaid domestic and care work, and the urgency of making faster progress in gender equality in the labor market.
Too often women are concentrated in “feminine” occupational categories according to the sexual division of labor. Likewise, vertical segregation is maintained from a greater agglutination of women in low-hierarchy positions, despite having similar qualification levels to their male peers. If the gap in economic activity rates between the two genders were halved from 2020 levels, this would represent around 300,000 additional workers in the labor market.
A real reform is needed
Lastly, increasing labor productivity appears to be the most durable and sustainable response to the challenge of development under the new conditions, but it requires a more complex cocktail of interrelated measures with feedback over time. Two key dimensions can be highlighted that have failed in the past. On the one hand, it is essential to increase investment in physical and human capital. The availability of resources does not guarantee profits in this regard, as was demonstrated during the boom of the 1980s. Centralized planning is especially defective when it comes to generating efficiency in productive investment. Capital accumulation requires a regulatory framework that makes it possible and promotes it unambiguously.
The prevailing approach is based on expanding access to foreign savings through credit and foreign investment. Although the business environment can be improved to continue advancing on both levels, the truth is that the effectiveness in the use of these resources continues to depend on the economic model.
Without true reform, the nation will only run dangerously in debt. In addition, it has been shown that foreign investment, which is not free, only favors development within a framework of public policies with a clear productive vocation and works as a complement to national capital. The ideological problem for the Cuban model is that it equates national to state. In this way there is no solution to this urgency.
In the right environment, the private sector has the capacity to simultaneously address the need to create jobs and mobilize new sources of capital that are not available to the public sector. Even more important: successful ventures generate the resources to finance their future development. The capacity for job creation has been evident since 2010, under challenging conditions. Due to the nature of these activities, the investment needed per job is several orders less than the norm in large state-owned companies and even in businesses with foreign capital.
Labor productivity will also depend on a better match between the training of the labor force and the jobs available. Any policy aimed at increasing the endowment of human capital must consider this condition. For this reason, it is essential to guarantee this pairing, expanding the access of the private sector to the most complex activities. It’s about more and better jobs. The increase in productivity will provide resources and free up workers to guarantee the care that a growing segment of the population requires without compromising long-term economic growth.
Conclusion
This scenario does not have to condemn the Island to a perpetual path of low growth and generalized impoverishment. However, mitigating the negative effects and increasing the potential for long-term growth does mean a break, in some cases radical, with the current paradigm. Whether the Island can go down this path is a question that can only be answered at the political level.
Grades
[1] Economic benefit associated with an increase in female participation in formal employment, taking into account that historically there has been a gap in economic activity rates by gender.
[2] The value of machines, equipment, tools, and physical infrastructure such as roads, telephone lines, or ports available on average for each employee in the economy.
[3] It is a rough measure of the potential job supply. Measures the number of dependent people (out of working age) in relation to those of working age.
