The economic crisis is pushing many workers into the informal labor market in Latin America and the Caribbean

Economic crises like the one in Latin America and the Caribbean are having lasting effects on the structure of employment and could permanently drive many people out of the formal economy, according to a new World Bank report. .

The Covid-19 pandemic has the biggest impact on low-skilled workers and exacerbates already high inequalities in the region, according to JOBS IN CRISIS: the path to better jobs in post-Covid-19 Latin America. Low-skilled workers often suffer from lower incomes for a decade following a crisis, while high-skilled workers rebound rapidly. Accordingly, government labor policies should focus on establishing social safety nets and recycling, as well as improving the macroeconomic and business environment to ensure long-term and inclusive economic growth.

“The economic recovery has often been a myth when it comes to jobs, but it doesn’t have to be so,” said Carlos Felipe Jaramillo, World Bank vice president for Latin America and the United States. Caribbean. “The right policies can help limit the impact of crises on jobs and help create more jobs in recoveries.”

As some of the most significant shocks that have rocked the region in recent decades show, the consequences of the crisis in Latin America and the Caribbean are long-term and have profound effects on employment. For example, data on employment before and after the Brazilian debt crisis, the effects of the Asian financial crisis in Chile, and the impact of the 2008-2009 global crisis in Mexico show that the rapid recoveries have not subsided. not materialized. In all three cases, the employment curve has undergone a strongly negative deviation as a result of these crises, which, far from being reversed, has become more pronounced over time.

On average, after three years, major crises result in a net loss of 1.5 million jobs, with a 3% contraction of formal work and an expansion of the informal. The current crisis could be even worse and cause a contraction in formal employment of up to 4%.

Low-skilled workers tend to suffer the most, exacerbating persistent inequalities in the region. For them, the scars of crises can last for up to a decade, with loss of income and greater vulnerability. In addition, two-thirds of the countries in the region do not have national assistance or unemployment insurance programs. To minimize these scars in the long run, governments should adopt policies to support a sustainable recovery of economies and facilitate the recovery in employment.

“We must seize the opportunity to build back better,” said Joana Silva, senior economist at the World Bank and lead author of the report. “We need to strengthen our labor markets so that they are able to cope with and rapidly reverse the impacts of future shocks.”

The first key step is to put in place strong and prudent macroeconomic frameworks and automatic stabilizers to protect labor markets from potential crises. Sound fiscal and monetary policies can preserve macroeconomic stability and avoid system-wide financial strains in the face of a shock. Fiscal reforms, including less distortive taxation, more efficient public spending, financially sustainable pension programs and clear fiscal rules are the first line of defense against crises.

Countercyclical income support programs, such as unemployment insurance and other transfers to households during downturns, limit the damage caused by contractions and help economies recover. One of the challenges for the region, however, is that large segments of the workforce are informal and therefore cannot be reached through traditional unemployment insurance.

In addition, it is crucial to increase the capacity of social protection and labor policies in the region, integrating these policies into systems that provide income support and prepare workers for new jobs through retraining and retraining. re-employment assistance. The rapid response of governments to expand some social protection and labor programs in the aftermath of the pandemic may lead to progress in creating better and more integrated social registries. This is achievable in the short term and can make a difference in the reach of these programs.

But stronger macroeconomic stabilizers and reforms to social protection and labor systems are not enough. It is also necessary to relaunch the recovery in employment by supporting vigorous job creation. This effort will require addressing structural issues. Competition policies, regional policies and labor regulations are key areas. If countries do not address these fundamental problems, the recovery will remain characterized by sluggish job creation.

World Bank response to the COVID-19 pandemic

Since the start of the COVID-19 pandemic, the World Bank Group has committed over $ 125 billion to combat the health, economic and social impacts of the pandemic, the fastest and most important crisis response in its history. Funding helps more than 100 countries strengthen pandemic preparedness, protect the poor and jobs, and launch a climate-friendly recovery. The Bank is also provide $ 12 billion to help low- and middle-income countries purchase and distribute COVID-19 vaccines, tests and treatment.

Learn more about the World Bank’s work in Latin America and the Caribbean:

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