Empirical analysis of the labour market earnings determination process in the Eastern Caribbean

The study utilizes Labour Force Surveys (LFS) for Barbados, Dominica, and St.Lucia for selected periods within 1996 – 2004 to analyse the themes of private rates of returns to the individual investment in education; and inter-industry wage structure and the subthemes of public sector pay premium and the gender pay gap. The interval coded nature of the earnings data reported in the LFS, requires the use of an interval regression model estimated by maximum likelihood techniques. A key empirical finding in the study is that the Eastern Caribbean labour market places a relatively high valuation on formally acquired post-primary human capital assets. The industrial wage structure in the selected countries reflects the effects of recent trade policy changes in regard to agriculture. The overall inter-industry wage dispersion was found to be high in Dominica and St.Lucia, remaining relatively constant in the two periods in the latter country. In Barbados the inter-industry wage structure was substantial but unlike the other countries expanded over time. The study finds the ceteris paribus public sector pay premium in the recent past has improved for women and is relatively large and suggests public sector workers are securing a high rent through employment in this sector. A gender pay gap in the range of 14 percent – 20 percent is detected and in Dominica there is also evidence of a sizeable ethnic pay disadvantage for male members of the island’s indigenous population. In all respects the outcomes for the selected countries follow a clear pattern that mirrors the findings in the empirical literature on the Caribbean.