ECLAC's head offices in Santiago, Chile. (Image courtesy ECLAC/CEPAL)

● In a new joint report, ECLAC and ILO indicate that in the medium term it will be necessary to rebuild more resilient labour markets and foster formalization ●

(ECLAC/ILO) — The Economic Commission for Latin America and the Caribbean (ECLAC) and the International Labour Organization (ILO) released a new joint report today in which they indicate that in the current context of crisis, governments in the region face the challenge of supporting the income and labour reintegration of the most vulnerable segments of society—especially women and young people—while also fostering the conditions for creating decent jobs, above all among Micro, Small and Medium-sized Enterprises (MSMEs).

Furthermore, they sustain that in the medium term, reforms will be needed to make labour markets more resilient by supporting reactivation measures with programmes to drive the shift from informality to formality, together with a redesign of social protection.

In edition No. 25 of their joint publication Employment Situation in Latin America and the Caribbean: Policies to protect labour relations and hiring subsidies amid the COVID-19 pandemic, the two United Nations organizations analyse the effects of the crisis caused by the coronavirus disease (COVID-19) pandemic in the region’s labour markets during 2020 and 2021, and they stress the importance of the policies implemented by countries to mitigate this impact.

According to the report, in 2021 the recovery in employment and job creation has been partial and slower than the reactivation in economic activity. Although it is forecast that the region will end this year with 5.9% economic growth, this will not be enough to return to the level of Gross Domestic Product or employment recorded in 2019. Therefore, labour markets will have experienced their second year of unprecedented crisis.

ECLAC and the ILO add that during the first half of 2021, an increase was seen in the labour participation rate (which reached 60.0%, 2.7 percentage points below the levels in the same period of 2019) and employment recovered, although without regaining pre-pandemic levels (the employment rate reached 54.0%, still 3.4 percentage points below the figure from the same period of 2019). As a result, the unemployment rate has gone down slightly versus the second quarter of 2020, but it is still 1.7 percentage points higher than in the second quarter of 2019, amounting to 10.1% on average.

In addition, the gaps in labour integration between men and women have widened in 2021, and women have slower labour reintegration and face more difficulties in finding work. The recovery in employment has taken place primarily among self-employed workers, while salaried employment is still lagging, which suggests that the increase in the employment rate is associated with lower-quality work. Moreover, the inflation dynamics observed in the first six months of the year could have a negative impact on workers’ real wages and, therefore, on household consumption.

“Given the slow recovery of labour markets, policies to boost employment are still very important and the challenge is to make progress both in creating new jobs and in avoiding the destruction of existing sources of employment,” Alicia Bárcena, ECLAC’s Executive Secretary, and Vinícius Pinheiro, the ILO’s Regional Director for Latin America and the Caribbean, indicate in the publication’s foreword.

The report takes stock of the measures implemented in the region to maintain jobs, primarily in 2020, which proved effective in reducing the decline in employment. These programs mainly included requirements linked to wages and to the use of the minimum wage as a reference for determining benefit amounts, which meant that they were primarily geared towards formal salaried workers with the lowest income. However, the high incidence of informality and the absence of unemployment insurance in various countries made designing and implementing these economic support programs for vulnerable groups a more complex task.

Meanwhile, in 2021, in a context of incipient recovery with more specific confinement measures—which last for less time and cover smaller geographic areas—the transition towards other policies began, particularly with regard to hiring subsidies, following the same sequence as more developed countries. In some cases, depending on vaccination progress, these subsidies have been focused on the sectors and groups most affected by the pandemic, and they seek to benefit youth and women, especially those with fewer skills.

According to ECLAC and the ILO, similarities can be seen between countries regarding some of the subsidies’ conditionalities linked to paying taxes and formalizing employment. However, due to budget restrictions and weaknesses in the labour-related institutional framework, not all the region’s countries have specific programs to encourage new hires. In that sense, the institutions conclude that the continuity of these employment policy instruments—for this crisis and any others arising in the future—constitutes a challenge.

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For more information, visit ECLAC’s COVID-19 Observatory in Latin America and the Caribbean.