Despite Decade-long Reform Programs, Social Progress Risks Stalling in Latin America, Caribbean Unemployment and Low Pay Persist

Released in Washington, D.C. and Lima, Peru

Unemployment in Latin America and the Caribbean is rising fast and is expected to affect an average 9.5 percent of the region’s regular workforce this year, surpassing the peak jobless rates during the external debt crisis of the 1980s, despite a decade of economic reform and modernization, says the International Labour Office (ILO).

The report, Decent Work and Protection for All, Priority for the Americas, by ILO Director General Mr. Juan Somavia, says that reforms and modernization succeeded in taming rampant inflation and prompted a return to growth and investment throughout much of the region. However, the jobless rate of Latin American and Caribbean economies rose steadily in the 1990s and job insecurity increased as the modern sector of the economy virtually ceased to generate employment. The result, says the ILO report: “Economic growth and price stability have not produced a significant improvement of the employment situation or wages.”

“The outlook for 1999 is not encouraging,” the report notes. It forecasts an economic growth rate in the region of between 0 to -0.1 percent this year. “The less dynamic world economy, together with deteriorated trade conditions and the worsening Brazilian crisis will thwart growth in the region even further.”

Throughout the past decade, employment growth in modern, organized sectors has been generally stagnant, with upwards of 85 percent of all new jobs being created in the informal sector, involving micro-enterprises, farming and small-scale services, where wages, productivity and levels of social protection are generally much lower than in the formal sector. Temporary and part-time work has increased and available information suggests that “the share of wage earners in the private sector without a work contract has augmented.”

“In 1998, nearly all new jobs were created in the informal sector, where employment expanded by 4.6 percent per year,” the report says. “Unfortunately, workers in this sector are almost never protected by any laws, nor are they usually able to join recognized unions that would protect their interests.”

Women and younger workers have been especially hard hit by these trends. Youth unemployment rates are usually double the national average and triple for workers between ages of 15 and 19. Women’s unemployment rates are between 10 percent and 60 percent higher than men’s rates.

For example, 1998 figures in Venezuela showed 9.7 percent of males unemployed, versus 14.1 percent of women; in Panama, 12.4 percent of males versus 20.1 percent of females; in Columbia, 12.8 percent of males versus 19.5 percent of females; and Peru, 5.5 percent of males versus 11.2 percent of females.

While overall poverty levels remained constant or decreased in most countries due to lower inflation and higher output growth, impoverished families continue to suffer disproportionately from the paucity of income opportunities and growing deterioration in the quality of employment.

The report expresses “growing concern” about child labor, which affects roughly 15-19 percent of children in the region between the ages of 10 and 14 and its potential to “perpetuate indigence” if left unchecked.

The ILO’s Director-General said the results of the 1990s in Latin Americans reveal “tremendous strides in modernizing economies, while maintaining steady growth and overcoming inflation.” However, the downside has been “the cycle of low wages, decreased employment and social security and weaker labor-market institutions.”

Mr. Somavia insisted that “in an open international economic system, the struggle for macroeconomic stability and increased productivity was necessary and inevitable, but the burden of adjustment has been heavily borne by the work force. The modernization of the economy is coming about as a result of casualization of labor relations, with often disastrous social consequences for workers.”

The priority today, he argued, has to be the provision of decent work and social protection, which are “the greatest guarantors of social progress and the best means of consolidating the gains of the past decade.”

In view of the slowdown in the global and regional economies, Mr. Somavia said that the region’s burgeoning labor market problems requires urgent action, “notably by improving the skills, working conditions and income prospects of millions of men and women who are today unemployed or underemployed via improved training and strengthened institutions for social dialogue, which should be a natural outgrowth of democracy.”

“Broadening opportunities for decent work for men and women and what people are asking for and, what is more, it is what our countries must have if we are to build stable societies for the future,” the report says.

Mixed Results

The ILO report, which provides an extensive overview of Latin America’s labor market and economy this decade, was prepared for the Fourteenth Regional Meeting of the ILO, American Member States, which will be held in Lima, Peru August 24-27, 1999.

Among the other findings of the 149-page report are:

  • Inflation dropped to an average of 10.2 percent yearly in 1998 as compared to 550 percent registered during the 1990-93 period;
  • Population growth slowed, from 2.0 percent per year in the 1980s to 1.8 percent this decade, causing a decrease in the Latin American labor force growth rate from 3.8 percent during the 1980s to 3.1 percent up to 1998.
  • The unemployment rate in the formal sector averaged about 6 percent from 1990 through 1993, when it began to slowly rise, increasing to 7.7 percent by 1996 and rising to 8 percent in 1998;
  • Rural-to-urban migration continued strongly, as increasing numbers of rural poor flock to towns and cities: 76 percent of the labor force lived in urban areas by the end of 1998, up from 66 percent in 1980 and urban unemployment rates are growing.
  • Workers’ buying power in Latin America also fell dramatically during the past decade, dropping to 27 percent below what a salary bought in 1980 for minimum wage earners,
  • Overall employment in Latin America increased on average 2.9 percent between 1990 and 1998, a rate this was not sufficient to absorb the annual 3.1 percent expansion of the labor force.

Relative wage reductions and productivity declines

In addition to slower growth in the global economy, other the factors fuelling the region’s labor-market woes derive from slow productivity growth and modest wage gains.

The ILO report indicates that workers in employment have made little gain in real income during the 1990s. Although industrial wages have risen in real terms by 2.7 percent annually throughout the decade, the average wage is only slightly higher than in 1980.

The purchasing power of minimum wages fared much worse. Although increasing on average 0.8 percent per year during the 1990s, the present average minimum wage in Latin America stands 27 percent lower than at the beginning of the 1980s.

Real minimum wages fell 7.2 percent in Uruguay between 1990 and 1997, 4.6 percent in Mexico, 4.5 percent in Venezuela, 4.1 percent in Guatemala and 3 percent in Venezuela. Over the same period, real minimum wages rose 10.4 percent in Bolivia, 9.9 percent in Argentina and 5.9 percent in Ecuador.

Workers in the informal sector also suffered a decrease in the purchasing power of their incomes during the 1990s, the report finds. This decline resulted from the fact that the surge in informal employment was not accompanied by a proportional higher demand for the goods or services produced. Thus, the average income of informal workers shrank by 1 percent annually during the 1990-1998 period.

The ILO report says. “This continuous drop has important implications, as most new jobs were concentrated in the informal sector. It is estimated that 59 percent of non-agricultural jobs in the region are concentrated in the informal sector.

The absence of internal sources of demand, due partly to low wages and scarce jobs, was not offset by relative gains in international competitiveness. Although labor costs, calculated in US dollars, dropped in several countries as a result of currency devaluations, the competitive gains yielded were much smaller than those registered in the Southeast Asian countries. “The highest competitive gains were registered in Colombia (11 percent), while in Southeast Asia the gains fluctuated between a minimum of 20 percent in Thailand and 60 percent in Malaysia.” In other large Latin American economies, relative competitive gains were 3.7 percent in Argentina, 4.3 percent in Brazil and 6 percent in Colombia.

Productivity improvements overall were only 0.4 percent annually, indicating that most of the jobs generated during the period were of lower quality. “On the one hand, this spikes the possibilities of countries to better competitiveness and on the other constitutes a barrier for quick recovery of workers” real wages, a prerequisite to improving the distribution of income and reduce poverty,” the report notes.

Mixed results of restructuring

While these trends apply to some extent to all countries in the region, there are important variations among them. The report cites “a small group of countries which made significant strides in productive restructuring” yielding positive consequences for the labor market versus “a large number of countries which had to impose new macro-economic adjustments to respond to accrued imbalances and vulnerability created by short-term capital flows.”

The most successful experiences in the field of labor pertain to the group of countries with the most lengthy reforms (Chile, Bolivia and Costa Rica) and to one country with recent reforms (Colombia). In all these countries, the ILO report notes “unemployment shrank, wages improved, informality hardly expanded or remained unchanged and productivity, except in Bolivia, augmented.”

In all these countries economic growth was high and sustained — between 3-7 percent — resulting in a solid process of job generation. Although the growth was, to a great extent, due to the participation of the private modern sector, it was also due to the dwindling of unemployment, the report notes.

In other countries, (Argentina, Brazil, Mexico, Uruguay and Venezuela) where reforms were initiated more recently “unemployment, informality and job precariousness increased.” In all these countries, except Venezuela, industrial wages and minimum wages recovered due to success in curtailing inflation. However, they all suffered losses in modern employment as a consequence of drastic reductions in public employment and limited contribution from the large and medium-sized enterprises in generating employment.

Privatization has had a significant impact on the structure and quality of employment in Latin America. Public employment as a percentage of total employment dropped from 15.5 percent in 1990 to 12.9 percent in 1998. Modern enterprises in the private sector did not fill the void left behind by the State in its previous role an employer of the first resort and private enterprises, the report says, “opted to reduce employment and change the types of work contracts in an attempt to sustain competitiveness.”

As a result “the modern private sector decreased its participation in total employment from 32 percent in 1990 of 28 percent in 1998 and only generated 11 out of every new job positions during the period.” The increase in informal activities “was the upshot of a displacement of modern jobs to the informal sector.

The report suggests that further Latin American reforms need to shift further away from the previous emphasis on “stable but static” employment levels and towards the promotion of employability and worker protection.

“However, the reforms that are taking place are not extending protection to all workers, and indeed in some cases are actually reducing it,” Mr. Somavia says. “Many workers in the informal sector and many poor rural workers are still denied the benefits of social protection.”

The report highlights “four strategic objectives” that will define the basic thrusts of the ILO’s activities in the coming years. These are: promotion of fundamental principles and rights at work, employment protection, social protection and social dialogue.

“Each of these objectives must take into account the dimensions of development and gender,” the report says. “Gender and development concerns are inextricably linked: the promotion of gender equality is essential if we are to build a fair society and is a crucial element in development. These are of particular importance in Latin America and the Caribbean, given that most countries in the region are developing countries and women have played a key role in the development of survival strategies in times of crisis.”

The goals that the ILO supports for Latin America include:

  • New training systems to improve productivity and competitiveness;
  • Labor legislation reforms, together with increased ratification’s of international labor standards;
  • Changes in the protection of workers, including a rigorous evaluation of the effects of reform on labor legislation and social security;
  • Renewed emphasis of the labor administration and the role of the labor ministries —

Among the proposals for administrative and legislative change, the ILO report points to harmonizing labor legislation of the countries, especially with reference to labor migration; regulation of labor relations through collective bargaining at different levels; modernizing the informal sector and ensuring that labor standards are applied; designing new training and employment policies and encouraging the participation of the private sector; promoting social dialogue and strengthening of the social actor organizations; extending social protection; and finally, developing a new culture of supervision for the application of labor standards.

Full report:

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