The trap of undeclared employment in Latin America
In recent years, Latin America has reached a situation of economic growth with a historic unemployment reduction. However over 100 million people in this region find jobs in the undeclared or informal economy .A murky economic area that perpetuates poverty and strengthens inequality. By Elizabeth Tinoco
30 September 2013
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According to the latest indicators, informality is in 47.7% of non-agrarian employment in Latin America. This rate covers a heterogeneous reality and includes countries such as Brazil, which concentrates the most part of active population with a rate of 38.4% ; Costa Rica with 33.6%, Argentina with 46.9% , Mexico 54.2% , Colombia with 56.9%; Colombia with 56.8%, Peru with 68.8% and Honduras with 70.7% .
Labour informality is present in almost all countries in Latin America, where a large number of people are trapped in poor-quality and low-wage jobs. The work is generally unstable neither with any perspective nor with social protection. This becomes an important obstacle to reach social inclusion goals in the region.
This situation exists in other regions as well. Recently-published data indicates that the undeclared economy in countries like Spain and Portugal is close to 20% of GDP. Many are concerned that this situation may become worse due to the crisis.
Economic growth is essential to generate more jobs of better quality. However that is not enough. Even if Latin America grew 4% per year (a high level that will not be reached this year due to economic uncertainty), it would take at least 55 years to cut the informal economy figures by half. This would be a very long period to wait and would also go against the development goals sought in our countries.
To truly reduce undeclared employment, we must put into practice policies and deliberate actions to complement economic growth.
The first step is to improve the measurement and diagnosis of such complex and heterogeneous phenomenon, which generally develops in an underground way and has different characteristics depending on the geographic area, the sector, the population group or the age of workers.
Which workers are informal? According to available data, there is a high percentage of informality among self-employed workers (83%), domestic workers (77.9%), employers (36.3%) and even company employees (29.3%).
Nearly 80% of employment in Latin America is generated by the private sector. Approximately 58.8 million people own a business; however 48 million are self owned and 8.5 million are micro- and small enterprises with less than five employees. In both cases, informality is predominant.
In the fight against informality, it is crucial to review regulations and standards to ease their compliance by enterprises and workers. It is also relevant to consider strategies that can be incentives to formalization so that it can be considered as a good business.
Besides that public administration labour inspection skills must be improved. Education and vocational training of workers, technological development and innovation, simplification of bureaucratic and administrative requirements, productive articulation, and access to markets are also essential.
Above all, the issue of productivity is the one of outmost importance. One of the main problems our region faces is the low productivity level. Since 2000, productivity has increased only 10% in the region, considerably below the 85% reached in emerging Asian economies.
Any effort to combat informal employment must take into account that we live in a very dynamic society: every year about 5 million people, mostly young workers, join the labour market in Latin America. This means that from now until 2020, approximately 40 million formal jobs must be generated simply to keep current situation from worsening.
The figures on informality in this region are clear and eloquent. It is in times of positive economic situation that the region must implement the drivers for formalisation.
By Elizabeth Tinoco
Regional Director of the ILO Regional Office for Latin America and the Caribbean
Labour informality is present in almost all countries in Latin America, where a large number of people are trapped in poor-quality and low-wage jobs. The work is generally unstable neither with any perspective nor with social protection. This becomes an important obstacle to reach social inclusion goals in the region.
This situation exists in other regions as well. Recently-published data indicates that the undeclared economy in countries like Spain and Portugal is close to 20% of GDP. Many are concerned that this situation may become worse due to the crisis.
Economic growth is essential to generate more jobs of better quality. However that is not enough. Even if Latin America grew 4% per year (a high level that will not be reached this year due to economic uncertainty), it would take at least 55 years to cut the informal economy figures by half. This would be a very long period to wait and would also go against the development goals sought in our countries.
To truly reduce undeclared employment, we must put into practice policies and deliberate actions to complement economic growth.
The first step is to improve the measurement and diagnosis of such complex and heterogeneous phenomenon, which generally develops in an underground way and has different characteristics depending on the geographic area, the sector, the population group or the age of workers.
Which workers are informal? According to available data, there is a high percentage of informality among self-employed workers (83%), domestic workers (77.9%), employers (36.3%) and even company employees (29.3%).
Nearly 80% of employment in Latin America is generated by the private sector. Approximately 58.8 million people own a business; however 48 million are self owned and 8.5 million are micro- and small enterprises with less than five employees. In both cases, informality is predominant.
In the fight against informality, it is crucial to review regulations and standards to ease their compliance by enterprises and workers. It is also relevant to consider strategies that can be incentives to formalization so that it can be considered as a good business.
Besides that public administration labour inspection skills must be improved. Education and vocational training of workers, technological development and innovation, simplification of bureaucratic and administrative requirements, productive articulation, and access to markets are also essential.
Above all, the issue of productivity is the one of outmost importance. One of the main problems our region faces is the low productivity level. Since 2000, productivity has increased only 10% in the region, considerably below the 85% reached in emerging Asian economies.
Any effort to combat informal employment must take into account that we live in a very dynamic society: every year about 5 million people, mostly young workers, join the labour market in Latin America. This means that from now until 2020, approximately 40 million formal jobs must be generated simply to keep current situation from worsening.
The figures on informality in this region are clear and eloquent. It is in times of positive economic situation that the region must implement the drivers for formalisation.
By Elizabeth Tinoco
Regional Director of the ILO Regional Office for Latin America and the Caribbean