Economy Latin America News South America

Informality and Working Poverty Weigh Down Labour Markets in Latin America and the Caribbean

Lima, PERU (ILO News) – Latin America and the Caribbean faces a “highly complex and uncertain” labour market in 2023 due to a conjunction of multiple crises that impact labour markets and make it necessary to implement policies to create formal employment, the ILO Regional Office for Latin America and the Caribbean said today as it presented a new edition of its Labour Overview report.

“At this time, it is urgent to implement and strengthen different types of policies that contribute to the creation of formal employment and to sustaining labour income,” said ILO Regional Director a.i. for Latin America and the Caribbean, Claudia Coenjaerts, when presenting the analysis of the employment situation, which has been published annually for the past 30 years.

The estimated average regional unemployment rate of 7.2 per cent at the end of 2022 “is significantly lower” than that of 2019, before the crisis caused by the COVID-19 pandemic, when it registered a level of 8 per cent.

The report highlights that this drop in the unemployment rate was driven by job creation (employment rate) that by the third quarter of 2022 had recovered pre-pandemic levels, coupled with a still incomplete recovery in labour participation rate levels, which remain slightly lower than in 2019.

The report highlights that the recovery of employment in 2022 was stronger among women than men, and among young people than adults. In both cases, these are groups that had been fiercely impacted in the labour crisis as a result of COVID-19. On the other hand, structural gaps by gender and age are still present in the labour markets.

The drop in unemployment “is positive news, especially after the large-scale crisis caused by the pandemic,” said Coenjaerts.

But at the same time, she said that this year progress could stall. “The low dynamism of the economy forecasted for 2023 will negatively affect the generation of new jobs and this will cause unemployment to register only slight variations in 2023,” reaching levels of between 7.2 and 7.5 per cent.

The ILO report also states that beyond regional averages, it is important to consider the situations of individual countries. In 9 out of 15 countries, the employment rate was still lower than three years earlier, while in only 2 out of 15 countries was the participation rate above pre-pandemic levels. The unemployment rate fell in 10 out of 15 countries by the third quarter of 2022.

The Labour Overview highlights that the region is affected by the conjunction of multiple global crises, such as the persistence of the pandemic or the war between Russia and Ukraine, and at the same time faces the prospect of low economic growth, the aftermath of high inflation, limited fiscal space and high levels of indebtedness.

Coenjaerts said that “in this economic scenario the most pressing labour issue for the region is the quality of employment and the insufficient labour income generated by workers and their families.”

The report highlights that the labour recovery has been strongly driven by the increase in informal occupations, which represented between 40 and 80 per cent of the jobs generated. Although in recent months this trend has been attenuated in favour of formal jobs, the regional informality rate has already reached 50 per cent – which is where it was before the pandemic – although in some countries it is much higher.

“The reality is that one out of every two people has an informal job, which is usually accompanied by job instability, low income and no social protection,” said Coenjaerts.

The Regional Director explained that according to ILO estimates, “informal workers are between 3 and 4 times more likely to be poor than formal workers, while accounting for between 70 and 90 per cent of the total working poor”.

In addition, the report warns that the real incomes of working people in the region are being affected by a regional inflation rate that would have been above 8 per cent in 2022, causing a loss of the purchasing power of average wages and minimum wages.

In the case of minimum wages, for example, in 9 of the 17 countries analysed the real value was lower than before the pandemic.

“The impact of informal employment, added to that of the loss of purchasing power of wages, is fundamental to understand why we must be alert to the ‘working poor phenomenon’, i.e., those people who even though they have a job, even a formal job, may find themselves in a situation of poverty,” explained Roxana Maurizio, Labour Economist at the ILO Regional Office for Latin America and the Caribbean and Coordinator of this edition of the Labour Overview.

Maurizio explained that in the region “Labour income represents 80 per cent of family income”, and is therefore essential to understand the inflows and outflows of people living in poverty.

To address this situation “policies to sustain and create more and better jobs, especially formal jobs, are necessary,” she added.

The ILO report states that policies are also needed to provide income guarantees for those most affected by the loss of purchasing power, and if possible, in conjunction with active policies for accessing the labour market.

On the other hand, wage negotiation mechanisms emerge as an imperative need in a context of high inflation that also demands the strengthening of labour institutions like the minimum wage and collective bargaining.

“If we want to move towards a region with greater social justice and less inequality, it will be necessary to adopt strong measures to generate more and better jobs,” concluded Coenjaerts.

Source : International Labour Organization