Understanding different forms of informality can help shape more effective policy responses in Latin America and the Caribbean

LIMA (ILO News) – Labour markets in Latin America and the Caribbean have moved beyond the post-pandemic recovery phase and entered a new period shaped by structural forces, including demographic transition, technological change and persistent informality, according to a new report from the International Labour Organization (ILO).

The report, titled Labour Market Trends in Latin America and the Caribbean, finds that the unemployment rate fell to 5.3 per cent, one of its lowest levels in recent decades. It also notes that the impact of informality on productivity requires targeted policy responses that take into account the different capacities and constraints faced by workers and businesses.

Informality is not a uniform reality for all. Some businesses generate incomes that are too low to cover the costs of operating formally, while others have the capacity to formalize but lack sufficient incentives or perceive few benefits in doing so. In addition, part of informal employment exists within registered enterprises that do not formalize all employment relationships

Against this backdrop, employment policies must also evolve. Alongside promoting job creation, governments need to simultaneously strengthen productivity, support formalization, expand skills development and reinforce social protection.

A microenterprise struggling to survive does not face the same barriers as a business with the potential to grow that continues to operate informally.
Ana Virginia Moreira Gomes, ILO Regional Director for Latin America and the Caribbean

"A microenterprise struggling to survive does not face the same barriers as a business with the potential to grow that continues to operate informally. Effective responses therefore require a more precise diagnosis and a combination of policy instruments tailored to the needs and capacities of each group," said Ana Virginia Moreira Gomes, ILO Regional Director for Latin America and the Caribbean.

The report also shows that the relationship between formalization and productivity works in both directions. Formalization can improve access for enterprises and workers to finance, technology, markets and institutional protection. At the same time, stronger productivity can enable economic units to grow, increase their incomes and create the conditions needed to formalize.

For this reason, the report argues that policies are likely to be more effective when they combine complementary measures rather than focusing solely on reducing registration costs or increasing labour inspection. Skills development, access to finance, technology, social protection, business development services and market access can address both the barriers to formalization and the constraints that limit productivity.

Labour market trends in 2026

The report also provides a comprehensive review of labour market developments in 2025. The regional employment-to-population ratio increased from 59.7 to 59.9 per cent, while the labour force participation rate stood at 63.2 per cent, remaining broadly unchanged.

The unemployment rate fell to 5.3 per cent, the lowest level in the last ten years. However, the decline in unemployment also reflects a quieter but significant shift in regional labour market dynamics, as demographic transition begins to reshape labour supply across the region.

Understanding who is finding employment, who remains outside the labour market and what types of opportunities are being created will become increasingly important

Gerson Martínez, Report's lead author and ILO Regional Specialist in Labour Economics

"Labour market trends in 2025 remain broadly positive, but they need to be considered as a whole. Employment increased and unemployment declined, while labour force participation remained largely unchanged. Understanding who is finding employment, who remains outside the labour market and what types of opportunities are being created will become increasingly important," said Gerson Martínez, the report's lead author and ILO Regional Specialist in Labour Economics.

The first data available for 2026 indicate that employment continues to grow and unemployment continues to decline in several countries. So far, there is no evidence of a widespread deterioration in labour market conditions, although trends differ across economies. Employment growth remains relatively strong in some countries, while in others it has slowed. The report notes that monitoring developments over the coming quarters will be essential to determine whether these differences are temporary or signal the emergence of a new trend.

Despite this relative stability, an increasingly uncertain global environment and ongoing structural transformations underscore the need to strengthen policies that promote formalization, productivity, skills development and social protection. Such policies should be tailored to the diverse realities and needs of enterprises and workers across the region.

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