As we assess what it takes to build a wealthier Latin America post-pandemic, our series continues with a focus on the world of work. The world’s longest and toughest lockdowns in the first waves destroyed livelihoods. Informal workers were most dramatically impacted while the rise in the gig economy is posing new challenges that will need addressing once the pandemic is over.
The continent has always been highly vulnerable to external shocks. Throughout the twentieth century, Latin America failed to industrialise into stages of manufacturing that could enable productivity gains.
Instead, the region followed a development path that has relied on extraction of natural resources for export markets, making it highly dependent on commodity prices and demand for tourism.
The end of the commodity boom in 2013 meant much slower economic growth, averaging 2.1% or just above the rate of population growth.
So, after years of economic and social progress, living standards stagnated. Instead of closing the gap with the Western world, the region was falling further back. And that’s when Covid hit, depressing further commodity prices and suppressing demand for tourism.
Informal workers most badly hit
Virus containment measures, such as lockdowns had a substantial impact on earnings, especially in the informal economy where earnings contracted by up to 80% and poverty increased by 50%.
The incidence of informality is a long standing, worrying characteristics of all Latin American economies, impacting 140 million workers in the region – one in two. The informal economy refers to “all economic activity by workers or economic units that are, in law or in practice, not covered or insufficiently covered by formal arrangements”.
The informal economy attracts workers in areas with high population growth or where the formal sector cannot provide enough employment opportunities.
Excessive regulation, corruption and weak capability of institutions to provide education, training and infrastructure encourage informal work.
Informality is widespread among young women, black people and young workers living in poverty, with a negative relationship between education levels and informality: 67% of workers with primary education work in the informal sector, but that proportion drops to 39% of those with secondary education and 25% for tertiary education.
Informality is also widespread in agriculture (where 80% of employment is informal) and services (about one in every two jobs), in small companies with fewer than 5 employees, and in areas with high levels of unemployment and poverty.
For most informal workers, informal work is a survival strategy. It is not taxed, nor is it covered by labour legislation or social protection and generates lower levels of income relative to formal work.
Despite working longer hours, workers under informal conditions receive an average remuneration amounting to half of that received by those who have their rights secured.
The Labor Observatory of Latin America points to the fact that informality, poverty and social exclusion “feed off each other in a vicious cycle of inequality and deprivation”. Informal jobs cannot be done from home, especially in urban areas, and so by its very nature informality leaves workers extremely vulnerable to external shocks, such as a pandemic.
With insufficient or non-existent safety nets for informal workers, income losses can quickly lead to poverty, creating powerful incentives to break lockdowns and prioritise economic survival over health. Female domestic workers, as well as migrant workers are particularly vulnerable.
In its Panorama Laboral 2021, the International Labour Organization (ILO, or OLI in Spanish) found that this pandemic had been far more perverse for informal workers than any previous crises Latin America witnessed in the past three decades.
This is because when Covid hit, both formal and informal employment experienced ‘very sharp contractions’, but unusually it is the informal sector that took the brunt of it.
In Argentina, Mexico and Paraguay, 75% of lost jobs in 2020 occurred in the informal sector, 70% in Costa Rica and Peru and 50% in Brazil.
Lockdowns and associated mobility bans led to a decrease in informality in 2020 relative to the previous year: -10.7% in Argentina, -8.1% in Peru.
The ILO/OLI estimates that 80% of domestic workers in Latin America work informally, and around 20% of them lost their livelihoods in the first nine months of 2020. The higher level of informal work in sectors of the economy not deemed ‘essential’ and therefore not allowed to operate during lockdowns helps explains why informal jobs contracted more than formal employment. It is also easier to bring informal wage-earning relationships to an end when businesses cannot operate for extended periods of time.
On the other hand, this pandemic has intensified trends towards greater digitalisation, generating both new opportunities and challenges in the labour markets of the region.
New technologies have made ‘working from home’ easier, enabling companies to continue to operate during lockdowns and the region’s most educated workers (predominantly white) to maintain their employment, safeguarding their income.
But because delivery activities were deemed essential and contributed to preventing the spread of the virus, digital platform workers not only continued to operate but also witnessed increasing demand for their services. This type of work was for many an alternative to unemployment and the consequent loss of income, as evidenced by the case of Venezuelan migrants to Colombia who turned to the gig economy despite being more likely to possess university degrees than the workforce in the recipient country: with Colombia’s unemployment rate peaking at 16% in 2020, employment opportunities for all workers tend to be scarce.
But these platforms pose numerous challenges given that job description, income security and working conditions are all unilaterally set by those platforms.
No social protection nor other benefits are provided, as such work is done outside of the scope of existing labour legislation.
The pandemic has highlighted the significance and the vulnerability in which many platform workers find themselves.
Building a more prosperous continent that provides opportunities for all will require proper regulation of digital platforms to ensure that both old and new types of work relationships respect fundamental rights at work.
* Nicolas Forsans: Professor of Management and MBA Director at the University of Essex, UK. Co-director of the Centre for Latin American & Caribbean Studies and a member of many Latin American societies and think tanks, Nicolas investigates the economic and societal challenges in the region generally, and in Colombia more specifically.
Latin America in a post-Covid world: The cost of inequalities