Wage spillover and unemployment in a wage gap economy, the Jamaican case

The first, and more familiar, problem is how to accelerate the rate of growth of employment in the high-wage, modern sector. The second problem which is frequently perceived incorrectly to be the mere converse of the first, is how to reduce the stock of unemployment. The paper analyzes the second problem with reference to Jamaica. It argues that the level of unemployment is largely a function of the wage structure. The wage gap between the high-wage modern sector and the rest of the economy is shown to be a cause of both employment problems -- slow employment growth and high unemployment. The wage gap itself is the result, in most instances, of misguided policies aimed at sharing with workers the high profits of extractive and import substitution industries. If less developed countries are to make headway in solving their employment problems, they must take policy measures such as higher taxes or lower tariffs to spread the benefits of rising incomes more widely.