Despite decade-long reforms,
social progress risks stalling in Latin America, Caribbean,
warns ILO in new report
Monday 23 August 1999
Simultaneously released in Lima and Geneva
( ILO/99/26 )

LIMA (ILO News) - Unemployment in Latin America and the Caribbean is rising fast and is expected to affect as many as 9.5% 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) in a new report on Latin American/Caribbean labour markets.

The report, Decent Work and Protection for All: Priority of theAmericas,* 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 bottom line, says the ILO report: "Economic growth and price stability have not produced a significant improvement of the employment situation or of wages."

"The outlook for 1999 is not encouraging," the report notes, forecasting a negative growth rate in the region of around -0.4% this year. "The less dynamic world economy will thwart growth in the region even further."

The ILO report, which provides an extensive overview of Latin America's labour 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. Delegates from 35 countries will attend the meeting.

Throughout the past decade, employment growth in modern, organized sectors has been generally stagnant, with upwards of 85% 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.

"In 1998, nearly all new jobs were created in the informal sector, where employment expanded by 4.6% 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% and 60% higher than men's rates.

For example, 1998 figures in Venezuela showed 9.7% of males unemployed, versus 14.1% of women; in Panama, 12.4% of males versus 20.1% of females; in Colombia, 12.8% of males versus 19.5% of females; and Peru, 5.5% of males versus 11.2% 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 labour, which affects roughly 15-19% 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 America 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 labour-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 casualisation of labour 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 labour market problems require 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 are 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

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

Relative wage reductions and productivity declines

In addition to slower growth in the global economy, other the factors fuelling the region's labour-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% 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% per year during the 1990s, the present average minimum wage in Latin America stands 27% lower than at the beginning of the 1980s.

Real minimum wages fell 7.2% in Uruguay between 1990 and 1997, 4.6% in Mexico, 4.5% in Venezuela, 4.1% in Guatemala and 3% in Venezuela. Over the same period, real minimum wages rose 10.4% in Bolivia, 9.9% in Argentina and 5.9% 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 proportionally higher demand for the goods or services produced. Thus, the average income of informal workers shrank by 1% 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% 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 labour 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%), while in Southeast Asia the gains fluctuated between a minimum of 20% in Thailand and 60% in Malaysia." In other large Latin American economies, relative competitive gains were 3.7% in Argentina, 4.3% in Brazil and 6% in Colombia.

Productivity improvements overall were only 0.4% 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.

Uncertain 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 labour 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 labour 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% to 7% - 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% in 1990 to 12.9% 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% in 1990 of 28% in 1998 and only generated 11 out of 100 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 thrust 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:

Among the proposals for administrative and legislative change, the ILO report points to harmonizing labour legislation of the countries, especially with reference to labour migration; regulation of labour relations through collective bargaining at different levels; modernizing the informal sector and ensuring that labour 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 labour standards.
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* Decent Work and Protection for All: Priority of the Americas. Report of the Director-General, International Labour Office, Geneva, 1999. ISBN 92-2-111564-X.

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