Study raises specter of soaring jobless rate

With the expected removal of trade quotas in the year 2005 by the World Trade Organization, the Northern Marianas will lose some 3,090 jobs annually, including 2,030 in the garment industry.

Over a seven-year period, the CNMI economy would lose a net of 2,130 jobs per year. By the year 2005, the Northern Marianas would have roughly one-third fewer jobs than it does today.

While non-resident workers would be most affected by the expected departure of garment factories, permanent resident workers would equally suffer.

Since the CNMI government now depends on the revenue from the garment industry, its departure would mean a loss of about 1,200 government jobs, between now and the year 2005, unless the government take drastic measures to reduce working hours.

This scenario was presented during the recently held conference by Dr. Richard Conway, principal of Conway & Associates, a Seattle-based firm engaged in regional economic research and consulting since 1981, in analyzing the CNMI economy

According to Conway, the CNMI’s tourism industry, which has been battered by Asia’s financial crisis, may grow faster than 5 percent annually between now and the year 2005, thus, creating 540 jobs annually in the industry and 960 jobs per year throughout the economy.

In spite of freer world markets, Conway said, some garment companies may still be in the CNMI beyond 2005.

Considering all the factors, the CNMI economy appears headed for a recession between now and 2005. “The real question is how bad it will get,” Conway said.

Historical growth

In projecting the growth of the CNMI, Conway reviewed and analyzed the island’s economy. The growth of the CNMI economy was fueled by two factors — the apparel and tourism industries.

In 1980, virtually no one was employed in the apparel industry. At present, more than 14,000 are working in different garment firms on the island. Likewise, the number of visitors to the CNMI jumped from 10,000 in 1980 to nearly 700,000 in 1995. Although there was a sharp decline in visitor arrivals in 1998 brought about by the
Asian economic woes, there were still five times more visitors in 1998 than 1980.

From 1980 to 1998, employment dramatically jumped from 6,000 to 45,000 while the population rose from 17,000 to 75,000.

The phenomenal economic growth was due to the seven-fold gain in employment and the four-fold increase in population was primarily due to massive recruitment of labor from various countries.

Thus, it was not surprising if the CNMI economy grew faster than any state in the United States. It grew four to five times faster than Washington, which is considered a rapidly growing economy on the mainland and seven times faster than Hawaii.

“While the growth rate of the CNMI economy since 1980 has been extremely high, it is typical of the so-called “take-off economies,” which means economies in their early stages of development,” Conway said. He cited the Republic of Palau, as an example, which has had a similar growth rate in recent years.

History shows that such rapid growth rate are not sustainable in the long run. Eventually, the CNMI economy had to slowdown or even experience a recession, he added.

Economic structure

In 1995, the CNMI economy was supported by the apparel exports which amounted to $206 million while visitor expenditures totaled $544 million.

Based on the CNMI economic model, the apparel industry employment multiplier in 1995 was 1.46 which simply means that each garment job supported 0.46 other jobs in the economy.

Conway said this is low compared to other multipliers found in other states. For example, in Washington, the apparel multiplier is about 2.3. “Nevertheless, the CNMI multiplier is significantly greater than one, implying that the industry is not self-sufficient and that is has an appreciable impact on the rest of the economy,” he said.

On the other hand, the visitor industry employment multiplier was 1.81 in 1995, which is higher than the apparel industry multiplier because of its greater use of local labor. Local labor in general earns more money than imported labor and tends to spend a greater share of it in the CNMI economy. Conway said.
What this means
Records show that the apparel industry employed some 7,711 workers in 1995. Taking into account its indirect impact, Conway said the industry supported some 11,270 jobs in the CNMI economy or 31.4 percent of the total employment. In other words, almost one-third of the commonwealth’s jobs were dependent upon the apparel industry during that year.
An estimated 9,569 jobs were employed in the visitor industry which include jobs in tourism related businesses. Taking into account its multiplier effect, the tourism industry supported 17,344 jobs or 48.3 percent of the total CNMI employment.
Both the apparel and tourism industries accounted for four out of every five jobs in the economy, Conway said. But 20.3 percent of the jobs in the economy were due to other exports, federal expenditures and transfer payments, and other external sources of money, he added.
The impact of the garment industry on government amounted to 930 jobs or 18.5 percent of total government jobs in 1995. Simply put, without the garment industry, there would be about one-fifth fewer jobs in the CNMI government.
All government jobs tied to the apparel industry were held by permanent residents. Altogether, the apparel industry supported 2,118 jobs held by permanent residents or slightly less than one-fifth of all the jobs held by permanent residents.
“In other words, one-fifth of the permanent residents who work in a real sense owe their economic livelihood to the apparel industry,” said Conway.
The tourism industry directly and indirectly supported 88.8 percent of the jobs in eating and drinking places, 98.1 percent of the jobs in hotels and other lodging, 68.7 percent of the jobs in other trade, and 72.5 percent in other services.
An estimated 6,044 jobs held by permanent residents were dependent upon the visitor industry which was slightly more than one-half of all the jobs held by permanent residents.
Prospects
The CNMI economy now finds itself for dependent on the garment industry which has nearly doubled its employment, than the tourism industry.
In 1998, total employment in the CNMI economy amounted to 44,790 jobs. An estimated 14,200 people worked for the garment industry, a big leap from the 7,700 in three-years time.
Based on the CNMI economic model, garment employment multiplier increased slightly to 1.52 which implies that about 21,600 jobs in the economy were dependent upon the apparel industry in 1998, or nearly one-half of all employment in the commonwealth, Conway said.
In contrast, the impact of the tourism industry declined to 15,459 jobs or 34.5 percent of the total CNMI employment.
Both the garment and tourism industries accounted for 82.7 percent of the total employment in 1998, not much difference in 1995. “However, the CNMI’s relative dependence on these two industries has flip-flopped since 1995. Today, the apparel industry has emerged as the number one provider of jobs,” he said.