ECLAC: Latin America will grow 0.8% with impacts on informal employment

Latin America will grow in the decade from 2014-2024 by 0.8% on average, less than the lost decade of the eighties due to the debt crisis (2%), whose cumulative effects will accentuate the “vicious circles” of the economy with a possible increase in informal workpoverty and inequality, says the executive secretary of the ECLACJosé Manuel Salazar.

Nearly half of Latin Americans have worked informally in 2022 (49%), a structural phenomenon of their labor market that is partly explained because “Latin America is sick with low growth” in the long term, Salazar explained.

The secretary agrees with research that indicates that high and sustained growth becomes “almost automatic in the increase in formality, and therefore, a growth of 0.8% is a “bad news” for the region.

Salazar studied eleven regional episodes of employment formalization at the ILO in 2018, where some countries reduced informality by more than 10 points, and what they had in common was “the period of high growth.”

But there was also “specific policies”, As the “monotribute” (simplified and reduced tax), which has facilitated the formalization of microbusinesses and self-employed workers.

The rise in formality during “the golden growth of Latin America”between 2002 and 2014, is explained by “the highest investment rates that allowed the creation of formal jobs”says Salazar.

Among the eleven formalization experiences, Salazar mentions the case of Argentina, which during that “Golden era” It reduced informality by 11.8 points, while in Brazil it fell 4.8 points, in Colombia 4 points, in Costa Rica 10 and in Ecuador 16 points.

“It is much easier to create quality jobs with growth of 3%, 4% and hopefully 5% and reduce poverty,” because “These growths would provide more tax revenue, which would allow financing social policies, which are key to reducing informality”he indicates.

In addition to promoting high growth, for the ECLAC leader it is important to implement focused policies, with adjustments to the laws of each country, but added to a reinforcement of labor inspection.

Salazar has highlighted the reduction of costs for the registration of microenterprises as another of the successful measures to reduce underground employment, where the formalization of businesses has achieved the additional benefit of access to credit through the formal financial system.

ECLAC has also detected in all countries that the social security model, copied from the European welfare states financed with formal work, “it does not work” in a Latin America where informality exceeds half of its economy.

For this reason, countries have had to “put patches, through non-contributory systems, social policy transfer schemes, school cafeterias, special pension transfers.”

Although the growth “it is not a magic wand against informality”, ECLAC suggests “scale productive growth policies”through “collaboration processes” of “triple helix” between the State, companies and academia, such as the initiatives “cluster” to launch productive sectors, instead of policies focused on subsidies.

ECLAC has identified 14 sectors with opportunities for investment and collaboration that drive growth, such as the energy transition, electromobility, circular economy, bioeconomy and pharmaceutical industry, among others.

Although almost a third of Latin America (33%), some 201 million people, are below the poverty line and many of them survive through informal jobs, informality has also been established in small and medium-sized businesses, microenterprise and even in large companies, although here its incidence is lower.

The latest report prepared by ECLAC and the ILO in June 2023 has placed the informality rate in the region at 48.7% of the employed population, one tenth less than in 2022.