Peoples of the Earth: Ethnonationalism, Democracy and the Indigenous Challenge in "Latin" America
T he challenge of creating good jobs in Latin America: Recent trends & policy options
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Transcript of T he challenge of creating good jobs in Latin America: Recent trends & policy options
The challenge of creating good jobs
in Latin America: Recent trends & policy
optionsCarmen Pagés
Chief of Labor Markets UnitInter-American Development Bank
This presentation:
Unemployment & Underemployment in
LAC
Explaining the good jobs deficit in LAC
Addressing the good job deficit in LAC
1. Unemployment and underemployment in LAC
On average, unemployment in LAC is lower than in OECD countries, but not much lower…
Average LAC: 7.5%Average OECD: 8.5%
Source: Own elaboration from LAC household surveys and OECD data; OCDE 2010, LAC Circa 2009
Youth unemployment is also below, but close to OECD levels…
Source: Own elaboration from LAC household surveys and OECD data; OCDE 2010, LAC Circa 2009
and underemployment is much higher…
Underemployment: Share of workers that work less than 30 hours but willing to work longer
Source: Own elaboration from LAC household surveys and OECD data; OCDE 2010, LAC Circa 2009
Share of total Employment Underemployed
And most jobs are created in the informal sector…
Composition of new job creation
And within the formal sector, half or more of the jobs are temporary…
Composition of new job creation
32%
33%
21%
21%
12%
9%
2. Explaining the good jobs deficit…
GDP growth is the engine of job creation, and productivity growth is the engine of GDP growth.
10
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
0.60
0.70
0.80
0.90
1.00
1.10
1.20
0.69
0.76
1
0.91
GDP pc LAC/ GDP pc US TFP LAC/ TFP USFactor Accumulation LAC vs. US
Inde
x 19
60=1
Loss of factor accumu-lation
Loss of productiv-ity
Evolution of relative GDPpc, TFP, and Factor accumulation, vs US
11
Productivity growth in LAC lags other parts of the world
( Index1960=1)
Evolution of TFP
Developed Countries
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0
2.1
2.2
2.3
1960
1964
1968
1972
1976
1980
1984
1988
1992
1996
2000
2004
South East Asia
LAC
US
Productivity growth lags in manufacturing, and more importantly in
services
1951─75 1975─90 1990─2005 1951--75 1975─90 1990─2005 1951─75 1975─90 1990─2005Agriculture Industry Services
2.8%
1.8%
3.5%
1.8%
-0.9%
2.0%
1.3%
-1.8%
0.1%
3.8%
2.5%
3.2%3.5%
2.4% 2.5%
5.0%
3.6%
2.6%2.2%
1.3% 1.4%
Latin America East Asia High Income Countries
Average Annual Labor Productivity GrowthAgriculture, Industry, and Services, 1951–2005
Source: Authors' calculations based on Timmer and de Vries (2007).
Productivity gaps are highest in the service sector…
13
Agric
ultu
re
Indu
stry
Serv
ices
010203040506070
L abo r P rod uctivi ty by Se ctor, re la tiv e to US =1 00
2002 197 3
Sou
rce:
Dua
rte
and
Res
tucc
ia (
2009
).N
ote:
Lab
or p
rodu
ctiv
ity r
elat
ive
to th
e U
nite
d S
tate
s.D
evel
oped
Cou
ntrie
s ar
e ire
land
, Can
ada,
Uni
ted
Kin
gdom
, Aus
tral
ia, N
ew Z
eala
nd, B
elgi
um, S
wed
en, N
orw
ay, I
taly
, Spa
in, D
enm
ark,
Por
tuga
l, A
ustr
ia, N
ethe
rland
s, F
ranc
e (2
002)
, Fin
land
, Gre
ece,
Tur
key
(200
2).
Services have grown to be 60% of employment but most jobs in this sector are of low productivity informal
14
38.8
23.2
38.1
1970
AgricultureIndustryServices
18.4
20.760.
9
2005
AgricultureIndustryServices
Productivity is higher in larger firms…
Chile 2006 Uruguay 2005
Colombia, 1988
El Salvador 2005
Venezuela, 2001
Bolivia 2000
0
60
120
18020-49 50-99 100-249
Firm size (number of employees)
Perc
enta
ge in
crea
se in
Pro
duct
ivit
y
Source: Pagés (2010) based on individual countries, firm-level manufacturing surveys.
Productivity (TFP) by firm size, relative to firms with 10–19 workers, Manufacturing Firms
and there is a strong association between productivity and informality
C. Colombia: TPFQ computed as in Hsieh-Klenow, 2009
Counterfactual: Increasing share of medium and large firms, would increase productivity by..
• 90% in El Salvador
• 120% in Mexico
In sum, low productivity growth hampers the creation of good quality jobs…Most jobs created in micro firms of low
productivity that survive being informal.
Need to discern whether:• Insufficient supply of good firms that can
grow and create good jobs in the process.
• Insufficient creation of large, productive companies.
3. Addressing the good jobs deficit.
How to improve productivity?• A number of policies can help improve
productivity & good job creation in the region:
– Reducing transportation costs that prevent productive firms from growing
– Improving tax regimes that prevent productive firms from growing
– Promoting innovation that prevent firms from growing in productivity
• But also, need to improve labor policy
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Labor policy• In the face of precariousness, informality and
temporality many labor authorities resort to tighten (or attempt to tighten) their labor laws…
• But on paper, restrictions to temporary employment, informality and other forms of precarious work are already very high..
• Although often not well enforced…
• And for a reason… with low productivity compliance is not an option, the choice is between precariousness or unemployment.
Instead labor policy should go to the root of the problem and foster productivity growth:
• Improving training systems
• Redesigning social insurance
The % of LF that benefits from training is low
Republica ChecaLuxemburgo
SueciaBelgica
EslovaquiaDinamarca
Reino UnidoEspaña
NoruegaPortugal
GreciaChile
Colombia
0 10 20 30 40 50 60 70
LF share that receives on the job training (%)
Training systems suffer from:
• Low quality
• Low pertinence & relation to needs of firms
• Information problems
Improving training systems:
• Increase quality control: (M&E, follow up graduates, skill certification, accreditation).
• Improve information about the system: Who is doing well, who is not?. What professions pay more?
• Increase pertinence: Increase involvement of private sector to define training contents.
• Increase competition or improve regulation.
• Co-financing
Social insurance systems:• Finance health & pensions with high taxes
on labor.• Mandate very high employment
protection, but in most countries no UI.• Reach only a minority.
– New wave of non-contributory programs for informal.
• Reduce incentives to hire in the formal sector & increases informality.
• Reduce productivity
Improving SI
Universal Coverage funded with broader base taxes– Advantages: (specially in health)
• It covers everyone, all the time, with the same benefits
• It reduces distortions in the labor market• It allows for an integrated health system
– Disadvantages:• It is fiscally costly, but due to reduction in
distortions could be affordable. Levy et al, 2011
Improving SI
• Subsidizing SS for low wage workers – Advantages:
• It reduces distortions in the labor market• It allows to keep contributory system
– Disadvantages:• It may lead to underreporting of wages
Improving SI
• Reforming EPL to become more like UI. – Pre-financing:
• Individual accounts or contributions to a fund.
– Improving ALMP (so workers find jobs faster)• Better Intermediation systems• Better job insertion programs
Conclusions
• In order to create higher quality jobs, Latin America needs to increase the growth of productivity…
• …particularly in the fast growing service sector.
• Improving training
• Modernizing social insurance schemes(pension, health, , EPL and UI) –which prevent companies from hiring, particularly low skilled labor.