Strike by construction labor union is hurting economic growth

PANAMA - In Brief 16 May 2018 by Marco Fernandez

---

Workers of the powerful construction union (SUNTRACS) and the private sector Panamanian Chamber of Construction (CAPAC) are negotiating a four-year wage raise. After 28 days of strike, SUNTRACS recently announced that they will not accept the arbitrage procedure requested by CAPAC (and urged by President Varela), which means that the strike will continue. About half of the construction workers in the sector are affiliated to SUNTRACS, a left-leaning political movement also with aspirations for a presidential victory in the May 2019 elections. In the past, both parties submitted their wage raise proposals for 4-year terms and would eventually reach a mid-point accord. Last month, however, CAPAC proposed a 4% total increase for the next four years, while SUNTRACS proposed a 60% wage increase for the same period (with a less than 1.5% inflation rate for this period, SUNTRACS aimed at a larger real increase amid a deceleration of the construction sector).The private sector estimates a loss to the economy of US$ 30 million per day (1.4% of the level of annual nominal GDP). In 2017, the construction sector represented 18.9% of nominal GDP. Our calculations are slightly larger at US$ 32 million per day (US$ 897 million so far or 1.5% of annual nominal GDP). If we were to contemplate the total multiplier effect of the construction industry, the impact on the economy would be even larger. Construction workers, in part due to the power of the union, earn higher-than-average wages for the skills required in the job (see Table 1). After four years a qualified worker would earn more than a school teacher or a nurse per SUNTRACS initial proposal. Workers affiliated to SUNTRACS pay 2...