sector representatives, “are a key remaining issue to be addressed in order to improve the labor regime” (IMF 2004b, p.16).

_Table 2: Labor Market Rigidity Indicators_

|Indicator|Jamaica|Region|OECD|
|---|---|---|---|
|Difficulty of Hiring Index|11.0|40.5|30.1|
|Rigidity of Hours Index|0.0|50.9|49.6|
|Difficulty of Firing Index|20.0|29.5|27.4|
|_Rigidity of Employment Index_|_10.0_|_40.3_|_35.8_|
|Hiring cost (% of salary)|11.5|15.9|20.7|
|Firingcosts(weeks of wages)|60.2|62.9|35.1|
|Collective relation Index|22.6|46.5|46.2|
|Social Security Index|16.8|57.8|73.9|

_Source_ : For the first 6 rows the Doing Business (2006) website, for the bottom two rows Botero et al (2004). _Note_ : Four areas are subject to statutory regulation in all countries: employment, social security, industrial relations and occupational health and safety. Doing Business focuses on the regulation of employment. The _rigidity of employment index_ (in italics in the table) is the average of three subindices: a _difficulty of hiring index_ , a _rigidity of hours index_ and a _difficulty of firing index_ . All the subindices have several components, and all take values between 0 and 100, with higher values indicating more rigid regulation. The _hiring cost_ indicator measures all social security payments and payroll taxes associated with hiring an employee. The cost is expressed as a percentage of the worker’s salary. The _firing cost indicator_ measures the cost of advance notice requirements, severance payments and penalties due when dismissing a redundant worker, expressed in weekly wages. In Botero et al (2004), the _Collective relation index_ combines information from two sub-areas of the collective action laws: (i) the power granted by the law to labor unions and (ii) the laws governing collective disputes. The sub-index of labor union power measures the power of labor unions over working conditions. The second sub-index measures protection of employees engaged in collective disputes. Higher values of the index are associated to higher workers’ protection. The _Social security index_ considers coverage and generosity of pensions, sickness and healthcare insurance, and unemployment.

Even if it does not constitute a formal test, the previous evidence casts some doubts on the validity of the first two hypotheses— unbalanced labor bargaining power and excessive intervention in the labor market—on why high unemployment rates do not seem to exert downward pressure on wages. What about the third one? Is it possible that an ‘exogenous’ increase in non-labor income of households and individuals has resulted in rising reservation wages and thus higher unemployment rates? Remittance flows have shown tremendous growth in recent decades and, as shown in Kim (2006), there is some evidence that they have reduced labor supply through a positive and large income effect. In terms of their size, remittance receipts are not only an important source of income for Jamaican households, but are also a major source of financing for the economy as a whole. In 2002, remittances accounted for 14.3 percent of GDP and financed 19.8 percent of household consumption. In addition, workers’ remittances were approximately half of all financial inflows from the rest of the world and therefore contributed significantly to financing the current account gap. The importance of remittances for Jamaica has steadily grown over the last three decades: Figure 1 shows the receipts of worker’s remittances rising from less than two percent of GDP in 1976 to 17 percent of GDP in 2003. In real terms, the average annual growth over the period has been 7.8 percent. Even more striking is the growth over the last ten years, when the volume of remittances grew at an average annual rate of 18.2 5