Labour informality and fragmented social protection systems are a key challenge for Latin America. 48% of workers are in informal employment across the four Latin American OECD countries (Chile, Colombia, Costa Rica and Mexico) and the three Latin American OECD accession candidate countries (Argentina, Brazil and Peru). For a broader set of 27 Latin American and Caribbean countries, this share of informal workers is 55%. Informality keeps workers in low-productivity activities, with few social protection and labour rights, and limits their access to training. Policy action that unlocks greater formal job creation can boost economic growth and equality of opportunity in Latin America and make a significant improvement to people’s lives and well-being.
This book demonstrates the opportunities for ambitious reform to shift towards universal, fiscally sustainable social protection models that insure also informal workers against macroeconomic shocks, like the economic impacts of the COVID-19 pandemic, and individual shocks due to, for example, job loss or sickness. The analysis offers tailored policy options, provides country-specific estimates of the fiscal implications, and explores how to fund the expansion in social protection, presenting in-depth studies for Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico and Peru. It argues for combining universal access to basic social protection with efficiency savings in public spending and progressive social security contribution rates, to preserve incentives for formalisation and avoid additional fiscal spending pressures.
With the right mix of reforms to social security, public spending, taxes, and incentives for firms to formalise, countries can tackle labour informality, support skills development, boost worker productivity, and safeguard fiscal sustainability. We estimate that the extension of social protection recommended in this book would involve fiscal costs of between 1% and 4% of GDP, depending on the country. Ensuring fiscal sustainability will require optimising public spending, with spending inefficiencies in the seven Latin American countries covered estimated at 4.2% of GDP, and mobilising some additional government revenues, which average 24% of GDP across these countries compared with 34% of GDP in OECD countries.
This report aims to support policy design and dialogue in Latin America, providing rigorous analysis and practical guidance. I trust that it will serve as a valuable tool for policy makers in unlocking higher-quality jobs and better living standards for more workers across the region.
Mathias Cormann
OECD Secretary-General