The Central American region experienced a long duration of political unrest and civil conflicts over the previous decade. Many of the Central American states experienced a slow economic growth, low inflation rates, and a growth in foreign direct investments (FDI). Such positive economic achievement could be attributed to properly macroeconomic and fiscal policies as well as trade reforms. Most significantly, the Dominican Republic of Central American Free Trade Agreement (DR-CAFTA) greatly tried to minimize the barriers linked to trade and foreign direct investments between the Central American states, United States, and the Dominican Republic (Bashir et al., 3). Most of the Central American states, with the exception of Panama and Costa Rica, have not obtained a high productivity resulting from growth. A great percentage of economic growth in the region has emanated from the agriculture sector outweighing manufacturing and services sectors.
Agriculture and Manufacturing Sectors
The reduced rate of unemployment in the region could be attributed to the migration and economic growth experienced in the region. Most of the unskilled individuals have been absorbed in the agriculture and services sectors. The level of employment in the manufacturing industry has also increased in few countries but reduced in most states. Besides, the emigration of the youth, mainly comprising of unskilled laborers, to the United States and within the Central American region has substantially promoted absorption of labor and income generation. Such factors have largely contributed to maintaining an average rate of unemployment in a stable and reduced manner as per the Latin American Standards (Bashir et al., 5). Moreover, the rate of unemployment among the young generation in the region still demonstrates a high trend that is a bit shocking since the labor force is expected to grow in the future.
The focus of the economic policies formulated in the region on increased job creation targeting at breaking the poverty cycle and promotion of a stable growth in the economy can be explained in various ways (Schmalzbauer, 20). These may include the expectation that the rise in the number of unemployed youth is likely to result in inequality and hence violent crime which is a threat to economic growth. Another reason may be that the creation of employment raises the vulnerability to shocks in the commodity prices and economic crisis and thus necessitating the maintenance of employment growth at its pre-crisis status. The other possible reason is that most of the jobs have been created in the low productivity and technology industries, therefore, outlining the stagnation of the real wages and aggregate productivity over the last ten years. The implication is that creating employment in higher value-added activities is of great significance since it increases the economic growth rate in the Central American region (Bashir et al., 6). It also results in the improvement of real wages and the overall living standards among the residents of the region.
Poverty and Inequality
The main employment barrier in Central America is the development of better conditions to foster the generation of more productive employment in the context of a rapidly increasing labor force. Controlling such barriers could lead to poverty reduction, low inequality, and reduced social exclusion. Such factors have been prevalent in many states of the Central American region. In handling such challenges, there is the need for implementation of policies that enable producers and employees to move up the value chain (Bashir et al., 6). This may sometimes mean the diversification of the production structure through expansion of the manufacturing and services share. At other times it may imply an improvement of the technological and knowledge aspect of the already existing activities to increase their productivity, i.e., agriculture.
Low-Skilled Labor Force
The region could also consider a great improvement regarding a large number of the unskilled labor force. Specifically, the quality and accessibility of high school, and college education. The available secondary and higher education is regarded to be of a low quality. Another significant aspect can include the development of human capital equipped with at least a scientific or technical skill to promote the embrace of new and technological advancements. The region should also ascertain that its labor force and human capital are guarded against income shocks and poverty by using an effective system for social protection (Portes et al., 15). The implication is that the existing programs require assessment and the respective state governments may have to make an improvement of coordination, reduction of fragmentation, and expansion of the coverage. Employment in North America is mainly found in the agriculture and services sectors. The rising agricultural employment is usually as a result of economic growth (Bashir et al., 9). All the states in Central America have a significant employment growth in the services industry. Such services mainly include the restaurant, hotel, and retail services. Costa Rica, Panama, and El Salvador have witnessed a significant employment growth in the services relating to business and various knowledge-intensive services such as medicine, education, and public sector among others.
Most of the available employment opportunities in Central America are low-skilled. Many of the Central American states have people who have low attainments regarding education when compared to other countries at the same development level. This is of course with the exception of Panama and Costa Rica whose educational attainment levels are beyond the Latin American average. Research implies that Panama is the only country with education attainment levels which are better than other countries at the same level of development. The rest of the countries in Central America, apart from Costa Rica and Panama, usually specialize in exporting commodities which are typically unskilled labor-intensive (Bashir et al., 14). The only two areas in Central America where skill-intensive and knowledge-intensive commodities and services constitute a significant percentage of exports are Costa Rica and Panama.
The knowledge-intensive services are offered in various departments including financial, transport and communications among others. Such departments have provided the highest level of employment for the people of Central America with the exception of Nicaragua. Since the poor people in Central America may not have access to quality education, they are most likely to end up in low-skilled occupations (Reardon et al., 16). Since the economies of Central America are export-oriented, the labor-intensive and knowledge-intensive services provide an avenue for increasing the demand for high-skilled labor, and thus, could allow an exit from the unsustainable and low-skilled labor-intensive production of exports. The labor force may also be educated and the countries will need to establish an improved infrastructure regarding information technology.
Besides the growth of employment, emigration has provided a significant alternative absorption for the labor force in Central America over the previous decades. A great percentage of the labor people from El Salvador, Honduras, Guatemala, and Nicaragua have emigrated to the US, especially in search of well-paying jobs (Schmalzbauer, 25). The process of emigration has been beneficial to the people of Central America since they have improved their remittances and hence lowered the poverty level and offers a buffer against shocks. However, emigration may pose some negative impacts in that it may reduce the available labor force in most affected countries. The reduction of human capital may result in various ways. The labor force that is highly skilled is likely to emigrate leaving behind the less-skilled section of human capital (Bashir et al., 15). The implication is that emigration may cause some form of a “brain drain” hence negatively impacting on the average human capital level of the working population in the Central American region.
The emigration also seems to have negatively impacted on the investment in education among the young people who remain behind. This is partly due to the incentives to make educational investments and the negative consequences resulting from emigration of the parents. This is evidenced in that, high educational returns are obtained in El Salvador and Guatemala, but such returns are low among the Salvadoran and Guatemalan immigrants are low compared to their counterparts born and raised in the US. The educated emigrants from Central America often get the low-skilled jobs in the US (Bashir et al., 16). The reason for such trends may be due to the low quality of education provided in the Central American countries or even the incompatibility of the education system with that offered in the US. The incompatibility makes the US employers not to value the education originally obtained by the immigrants from their home areas.
The main benefit is that the wages paid to the low-skilled labor are high in the US as opposed to the amount paid in Central America. Such aspects imply that the process of emigration and getting employment in the US could result in higher remittance rather than invest in higher education in Central America. The higher education gained in Central America may play a small role in improving the income earned by immigrants when they get to the US. The implication is that emigration is likely to lower private investment in education as a result of the reduced incentives for the young people in Central America to be maintained in the education system not considering whether the returns are only high in the region. The young people whose parents may have emigrated are likely to end up adopting several vices in life which may negatively impact on the region in future. Such children may even drop out of school leading to a negative impact on the labor force through an increase in unskilled labor.
There are several barriers which face the poor individuals during the process of finding work in the Central American region. Such challenges include low skills, poor quality of education, emigration, low remunerations, and low technological advancements among others. The poor people in Central America mainly depend on the agriculture sector for income generation. The manufacturing sector also provides employment for a few individuals in the region. Thus, the poor people in Central America face numerous challenges in the process of searching for jobs but alternatively, they have other channels of making a living including being actively involved in the agriculture sector.
Works Cited
Acemoglu, Daron, and James A. Robinson. Why nations fail: The origins of power, prosperity, and poverty. Broadway Business, 2013.
Bashir, Sajitha, T. H. Gindling, and Ana Maria Oviedo. Better jobs in Central America: the role of human capital. World Bank., 2012.
Fay, Marianne. The urban poor in Latin America. World Bank Publications, 2005.
Portes, Alejandro, and Rubén G. Rumbaut. Legacies: The story of the immigrant second generation. Univ of California Press, 2001.
Reardon, Thomas, Julio Berdegué, and Germán Escobar. “Rural nonfarm employment and incomes in Latin America: overview and policy implications.” World development 29.3 (2001): 395-409.
Schmalzbauer, Leah. “Searching for wages and mothering from afar: The case of Honduran transnational families.” Journal of marriage and family 66.5 (2004): 1317-1331.