GOOD JOBS WANTEDGOOD JOBS WANTED: : Labor Markets in América LatinaLabor Markets in América Latina

Inter-American Development Bank

Inter-American Development BankInter-American Development Bank

2004 Economic and Social Progress Report2004 Economic and Social Progress Report

SOMETHING IS WRONG…SOMETHING IS WRONG…

Unemployment has reached the level Unemployment has reached the level of the crisis of the 1980sof the crisis of the 1980sUrban unemployment in Latin America

Unemployment rate GDP growth rate

5

6

7

8

9

10

11

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

-4

-3

-2

-1

0

1

2

3

4

5

6

Median unemployment rate

Median GDP growth rate

Slow Growth in WagesSlow Growth in WagesPercentage change in real wages, 1990s

-6 -4 -2 0 2 4 6 8

Latin America average

Guatemala

Peru

El Salvador

Brazil

Chile

Panama

Costa Rica

Colombia

Ecuador

Paraguay

Argentina

Honduras

Uruguay

Dominican Rep.

Bolivia

Mexico

Nicaragua

Venezuela

One in Two Workers EarnsOne in Two Workers Earns “Poverty Wages” “Poverty Wages”Percentage of workers age 15-65 earning less than PPP $1 an hour

Late 1990s, national data

0 10 20 30 40 50 60 70 80 90

Honduras

Nicaragua

Paraguay

El Salvador

Bolivia

Peru

Guatemala

Brazil

Ecuador

Colombia

Dominican Rep.

Costa Rica

Uruguay

Mexico

Chile

Panama

Venezuela

Argentina

Unemployment, Low Wages and Job InstabilityUnemployment, Low Wages and Job InstabilityAre the Main Problems for Latin AmericansAre the Main Problems for Latin Americans

Most pressing problems in the country

0% 5% 10% 15% 20% 25%

Unemployment

Corruption

Poverty

Delinquency/insecurity

Job instability

Low wages

Terrorism/political violence

Poor quality education

Inflation

Lack of opportunities for youth

Drug abuse

Human rights violations

Health problems

Drug trafficking

Housing problems

Transportation

Environment

Racial discrimination

LESSONSLESSONS

1. Growth in the supply of labor1. Growth in the supply of laboris not the cause of worsening labor is not the cause of worsening labor market conditions....market conditions.......it is a source of economic growth...it is a source of economic growth

2. Liberalization and privatization2. Liberalization and privatizationare not the cause of unemployment are not the cause of unemployment or other labor market problemsor other labor market problems

3. The labor market in the region 3. The labor market in the region has adjusted through wages...has adjusted through wages... .... .... but that seems to be changingbut that seems to be changing

...which explains ...which explains the growth in unemploymentthe growth in unemployment

in some countriesin some countries

4. The problem is not technology4. The problem is not technology..........but lack of technology....but lack of technology

Technology does not cause Technology does not cause loss of jobs... loss of jobs...

...lack of technology...lack of technologyleads to low growthleads to low growth

in employment and wages in employment and wages

5. Many workers are poor, 5. Many workers are poor, but focusing on informal work but focusing on informal work is misleadingis misleading

It is more useful to increase It is more useful to increase productivity and social productivity and social

security coverage security coverage

6. Improving educational 6. Improving educational performance is a necessary performance is a necessary condition...condition....... .... but it is not sufficientbut it is not sufficient for reducing povertyfor reducing poverty

Education significantly improves earnings,Education significantly improves earnings,but many educated workers are poorbut many educated workers are poor

Percentage of workers who have completed secondary education and earn less than PPP $1 an hour

0 10 20 30 40 50 60 70 80

Honduras

Bolivia

Nicaragua

El Salvador

Dominican Rep.

Ecuador

Colombia

Brazil

Panama

Costa Rica

Uruguay

Chile

Mexico

Venezuela

7. Job churning is very high7. Job churning is very high: : One in four jobs is created One in four jobs is created or destroyed each yearor destroyed each year

Job churning results Job churning results in productivity growth in productivity growth

but has costsbut has costsfor workersfor workers

Problem:Problem:How to preserve the engineHow to preserve the engine

of economic growth and protect the of economic growth and protect the earnings and well-being of workersearnings and well-being of workers

8. The current system of regulation 8. The current system of regulation and protection does not solve and protection does not solve this problemthis problem

Labor Laws in Latin America Labor Laws in Latin America Are Too Rigid...Are Too Rigid...

Job protection index (0-1)

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8

Latin America and the Caribbean Eastern Europe and Central Asia

Middle East and North Africa Continental Europe Sub-Saharan Africa

East Asia and the Pacific Islands South Asia

English-speaking developed countriesMexico

PeruBrazil

PanamaEcuador

VenezuelaColombia

BoliviaArgentina

Dominican Rep.Chile

JamaicaUruguay

...and Do Not Cover the Majority...and Do Not Cover the Majority 56% of workers in the region are not covered 56% of workers in the region are not covered

by labor regulationsby labor regulationsPercentage of salaried workers without social security benefits

0 10 20 30 40 50 60 70 80

Nicaragua 2001

Peru 2000

Bolivia 1999

Dominican Rep. 1998

El Salvador 1998

Venezuela 1998

Argentina 2001

Brazil 1999

Mexico 1999

Colombia 1999

Chile 1998

Costa Rica 2000

RECOMMENDATIONSRECOMMENDATIONS

Regulate to increase Regulate to increase productivity, not to reduceproductivity, not to reducejob churningjob churning

Help workers find good jobsHelp workers find good jobs

Ensure incomeEnsure incomefor unemployedfor unemployed workerworkerss

CreCreateate incent incentivesives for training for training and adultand adult educa educattiioonn

Strengthen the Labor MinistriesStrengthen the Labor Ministriesso that...so that...

The laws will be enforceableThe laws will be enforceable ...and evasion will be punished...and evasion will be punished

The ministries can evaluate which The ministries can evaluate which policies work and which need to be policies work and which need to be changedchanged

2004 Economic and Social Progress Report2004 Economic and Social Progress Report

Inter-American Development BankInter-American Development Bank

www.iadb.orgwww.iadb.org