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Dominican Republic Jobs Diagnostic Summary

Core Content

This report, Dominican Republic Jobs Diagnostic, conducted by Hernan Winkler and Miriam Montenegro, evaluates the labor market challenges in the Dominican Republic, focusing on job quality rather than just quantity. It highlights the disconnect between wage growth and productivity, and outlines policy implications to address these issues and improve the overall labor market environment.

Main Findings

1. Economic Growth and Job Quality

• The Dominican Republic has experienced strong economic growth, with GDP per capita increasing by almost 90% from 2000 to 2018.
• Employment rates have increased significantly, with women's labor force participation and employment rates rising by about 13 percentage points.
• However, job quality has deteriorated, as real wage growth has remained stagnant despite rising productivity.
• The share of wage-based employment has not changed since 1995, and formal employment with social security remains low.

2. Sectoral Shift and Productivity

• The labor force is increasingly concentrated in the services sector, which has seen a decline in labor productivity.
• Industry sector productivity has tripled since the mid-1990s, but employment has not expanded.
• The agriculture sector is traditionally the least productive, but it is now catching up with the services sector in terms of productivity growth.
• The lack of productivity in the services sector is a major concern, as it hampers wage growth and job quality.

3. Human Capital and Education

• Educational attainment and learning levels in the Dominican Republic lag behind other Latin American countries.
• The expected years of education for the future labor force are the lowest among comparator countries, at about 88% of Chile's level.
• Learning-adjusted education levels are even lower, at 66% of Chile's.
• In 2017, only 12% of third-grade students achieved satisfactory levels in Spanish, and 27% in mathematics.
• PISA scores for the Dominican Republic are among the lowest in the region for reading, mathematics, and science.
• Educational outcomes have worsened since 2015, particularly in reading scores.

4. Gender Inequality

• Women are overrepresented in low-quality jobs, such as domestic service and agriculture, and underrepresented in high-quality jobs in the formal sector.
• The gender pay gap remains significant, despite improvements in labor force participation.
• Women perform more unpaid work than men (31 hours vs. 9.6 hours per week).
• Teenage pregnancy is prevalent and contributes to poor human capital and labor market outcomes.
• In 2018, 93 births per 1,000 women aged 15–19 occurred in the Dominican Republic, one of the highest rates globally.
• Teenage pregnancy is strongly correlated with poverty and lower educational attainment.

5. Business Environment and Market Competition

• The Dominican Republic's labor market is dominated by large and old firms, which have limited role for new entrants.
• Firm entry rates are among the lowest globally, hindering job creation.
• Productivity growth is more common in younger firms, making them critical for wage and job quality improvements.
• The country has a poor business environment, ranking low in access to credit, protection of minority investor rights, and access to electricity.
• Trade liberalization and pro-competition reforms are essential to improve market dynamics and reduce distortions.

6. Minimum Wages and Labor Market Efficiency

• There are multiple minimum wage regimes across industries, regions, and firm types, which may lead to market segmentation and inefficiencies.
• Minimum wages have not kept pace with inflation, contributing to stagnant wage growth.
• Reducing the number of minimum wage levels could improve labor market efficiency and reduce wage-productivity gaps.

Key Policy Implications

Short-Term

• Implement CCT transfers and wage subsidies for formal employees to mitigate the impact of the COVID-19 crisis on poverty and employment.
• Address unpaid work burdens on women through targeted support and policy measures.
• Ensure adequate social protection for vulnerable workers, especially in the informal sector.

Medium- and Long-Term

• Invest in human capital by improving education quality and access, particularly in STEM and digital skills.
• Promote gender inclusion by addressing structural barriers and supporting women's participation in the formal labor market.
• Enhance the business environment by reducing entry and operating costs, promoting competition, and implementing antitrust reforms.
• Improve trade openness and reduce tax exemptions to foster internal competition and economic integration.
• Simplify the minimum wage structure to reduce segmentation and improve wage growth.
• Level the playing field between firms in Special Economic Zones (SEZs) and those outside, as well as across sectors.
• Strengthen backward linkages between the export sector and domestic producers to create more and better jobs.

Conclusion

The report underscores that while the Dominican Republic has achieved strong economic growth, job quality has not improved proportionally. This is due to a combination of structural issues in the labor market, including low productivity in the services sector, weak human capital development, gender inequality, and an uncompetitive business environment. Addressing these challenges is essential for achieving inclusive growth and sustained poverty reduction, as well as for preparing the labor force for future technological and global changes.