Alberto González Pandiella
OECD
OECD Economic Surveys: Costa Rica 2025
Abstract
Enhancing women’s participation in the labour market and reducing informality are crucial for addressing income inequality and poverty in Costa Rica. Despite notable achievements, including a low pay gender gap and strong political representation, female labour force participation remains significantly lower than that of men and has recently declined. Increasing women’s labour force participation would not only strengthen growth but also promote a more equitable distribution of income and opportunities. To achieve this, Costa Rica needs to expand the availability of early education and care and extend school hours or after school programmes. Furthermore, a comprehensive strategy is needed to reduce informality, including reducing the costs of formal employment and reducing the administrative costs of establishing formal businesses.
Reducing income inequality and poverty are pending challenges for Costa Rica. After increasing during the pandemic, both inequality and poverty rates have recently fallen (Figure 2.1). Poverty levels have remained broadly stable at around 20% and extreme poverty at around 6% since the mid-nineties. This Chapter discusses the critical challenges of reducing the gender gap in labour participation and informality, which are key to continue alleviating poverty and inequalities in Costa Rica (Figure 2.2). Enhancing women’s access to labour market opportunities would boost households’ disposable incomes, reduce poverty risks and expand economic opportunities. Reducing informality is an essential step to provide workers with better wages and high-quality jobs. Since 2020, informality rates among women have aligned more closely with those of men, but historically they have been higher (Figure 2.3). Reducing informality would therefore significantly improve women’s access to higher-quality jobs and better employment opportunities. Besides addressing these challenges, improving the delivery of social programmes is another pending challenge, as discussed in Chapter 1 of this Survey and in the 2023 Economic Survey. Reducing the institutional fragmentation of social assistance policies and defining social programmes beneficiaries based on the national registry of social programmes (SINIRUBE), will be key to improve the coverage and reach of social protection and its effectiveness in reducing inequality and poverty (see Chapter 1).
Note: Panel A: Poverty measures are based on national poverty lines. Panel B: Gini index measures the extent to which the distribution of income after taxes and transfers among individuals or households within an economy deviates from a perfectly equal distribution. LAC is a simple average of Chile, Colombia, Mexico, Argentina, Brazil, and Peru. The OECD average refers to 28 OECD member countries with available data.
Source: INEC (2024), Encuesta Nacional de Hogares (ENAHO) and Encuesta de Hogares de Propósitos Múltiples (EHPM); and World Bank WDI (database).
Note: In Panel A, poverty is defined by the national poverty line. In Panel B, "low income" = 1 minimum salary, "middle income" = 1 to less than 2 minimum salaries, and "high income" = 2 or more minimum salaries.
Source: INEC (2024), Encuesta Nacional de Hogares (ENAHO); and INEC (2024), Encuesta Continua de Empleo (ECE).
Informality rate, % of total employment by gender
Source: INEC (2024), Encuesta Continua de Empleo (ECE).
A fundamental human right, equal opportunities for women and men also strengthen economic efficiency through better allocation of talent and bring major economic benefits (OECD, 2024[1]). Costa Rica performs well across several gender equality dimensions in comparison with OECD and Latin American peers. This includes educational attainment, with women achieving equal or higher levels of education than men (OECD, 2024[2]), healthcare access and outcomes, with comprehensive maternal health services (WEF, 2023[3]), political representation, with women holding significant seats in parliament and government positions (OECD, 2023[4]), and the gender pay gap, which is relatively low (Figure 2.6). Costa Rica is also promoting women participation in trade, including by Costa Rica’s adhesion to the Global Trade and Gender Arrangement (chapter 4). However, female labour force participation (Figure 2.4) is notably lower than that of men, also compared to other OECD countries, including regional peers such as Chile, Colombia or Peru, and has recently declined (see Figure 1.3 in Chapter 1). The potential gains from increasing Costa Rican women's integration into the labour market are substantial (Figure 2.5). Fully closing gender gaps in labour force participation and hours worked by 2060 would increase Costa Rica’s potential GDP per capita by 0.5 percentage points annually, a more substantial improvement than in the average OECD economy. Moreover, boosting female labour force participation could mitigate the fiscal impact of population aging, helping to buttress the sustainability of Costa Rica’s pension and healthcare systems.
Working-age (15-64 years) labour force participation rate, %, 2023
Source: OECD Labour Force Statistics (database).
Difference relative to the baseline in projected average annual rate of growth in potential GDP per capita, percentage points
Note: These model-based quantifications are based on the assumption that both gender gaps in labour force participation and hours worked are closed by 2060. Caution should be exercised when interpreting these projections for countries like Costa Rica, where average hours worked are already high, as the assumptions would result in such countries exhibiting significantly higher average hours worked per person by 2060 compared to the OECD average. LAC is a simple average of Chile, Colombia, and Costa Rica.
Source: (OECD, 2023[5]).
Costa Rica exhibits a relatively small gender gap in median gross earnings for full-time employees, (Figure 2.6). This reflects that women in full-time formal employment earn similar incomes to men. However, overall, women’s average income levels are lower due to lower labour force participation and fewer paid working hours. There is a notable disparity in paid work hours, with women working on average eight hours less per week than men. Domestic and care responsibilities disproportionately burden women, who spend almost three times as much time on these activities than men (OECD, 2024[2]). This limits their opportunities to participate in the labour force (Figure 2.7) or to work full-time. This affects women across all income brackets but particularly low-income ones, where 80% cite caregiving responsibilities as a barrier to accessing the labour market. It also particularly impacts mothers, whose employment rate, at 48%, is notably lower than in the OECD (72%).
Expanding access to good quality affordable early childhood education and care should be a top priority, as it offers dual benefits by enhancing women’s participation in the labour market and improving educational outcomes and equity (OECD, 2023[6]). Costa Rica needs to increase enrolment rates in early childhood education for both 3-5-year-olds and younger children (Figure 2.8). Currently, the early education network reaches only about 40% of households in poverty (both extreme and moderate poverty). Achieving full coverage for these households would require doubling the current budget, which is approximately 0.23% of GDP. The organization and delivery of early education and care is fragmented, with the Education Ministry responsible for policy design and three other public agencies handling service provision. This institutional arrangement leads to unclear roles and responsibilities among these entities including by the interinstitutional committee established for coordination, (CGR, 2023[7]), hampering service delivery. Plans to expand coverage by 15% from 2018 to 2022 fell short, achieving only a 1.6% increase. Despite significant demand and necessity for care, many centres operate below capacity, offering fewer places than they have the potential to accommodate. The fragmentation also results in difficulties to achieve homogenous levels of quality. This underscores the need for institutional reforms in the early education and childcare sector.
Gender wage gap, % of median earnings of men
Note: LAC is a simple average of Chile, Colombia, Mexico, Argentina, and Brazil.
Source: OECD Gender Wage Gap Statistics (database).
Source: INEC (2024), Encuesta Nacional de Hogares (ENAHO).
Efforts are currently underway to create a new institutional framework where responsibility and governance would be centralized under a single entity, a new Ministry of Social Affairs (see also Chapter 1 of this Survey). This initiative has the potential to improve governance in the early education sector, reduce fragmentation and expand coverage. It can also help to provide stronger oversight in the early education sector and ensure coordination with other social programmes. Ensuring access for low-income households should be prioritised, as recommended in the 2023 Economic Survey (Table 2.1), with financing coming from the general budget. As a next step, access should become available to higher-income households. Implementing co-payments mechanisms for these households can help expand coverage in a constrained fiscal environment. Moreover, there is a pressing need to establish and enforce quality standards across early education and childcare centres. Recent evaluations have identified gaps in these standards, resulting in varying levels of education and care quality depending on the administering institution (CGR, 2023[7]).
% of children enrolled in education services, 2020 or latest
Note: LAC is a simple average of Chile, Colombia, and Mexico.
Source: (OECD, 2023[5]).
Beyond early education, elementary school schedules also have an important bearing on women employment. Reforms in several OECD countries (Box 2.1) attest that extending primary schools’ hours can significantly foster mother's labour force participation, leading to increased employment and working hours. Extending Costa Rica’s current four-hour school day for children aged three to five years would greatly enhance women’s access to the labour market and to work full-time, enabling more flexible work schedules and higher employment rates among mothers. It would also offer the double dividend of improving education outcomes, as analysed in the 2023 OECD Economic Survey of Costa Rica. Only 8.5% of Costa Rican primary schools offer a full-day curriculum, with the remaining schools operating on half-day schedules. This prevents many Costa Rica women from working full-time or be available to work. Increasing the number of primary schools offering full-time schedules would facilitate that more Costa Rica women can take paid jobs and work full-time.
In 1997, Chile began to implement a national education reform in the public school system that increased weekly hours of instruction without extending the number of school days. For most primary schools, the policy meant changing from a system of half-day shifts to continuous full-day schedules. Impact evaluation of the reform signals an important positive causal effects on mother’s labour force participation, employment, weekly hours worked, and months worked during the year (Berthelon, Kruger and Oyarzún, 2023[8]). According to the evaluation, increasing the share of full-time schools by 30 percentage points would boost mothers’ employment and participation by around 9% during a one-year period. Lower-educated and married mothers benefit the most from the reform. Other positive experiences include Mexico, with full-day schedules in some elementary schools (Cabrera-Hernández, Padilla-Romo and Peluffo, 2023[9]), and Switzerland, with after-school programmes (Felfe, Lechner and Thiemann, 2016[10]).
Promoting the uptake of paternity leave entitlements for fathers would also be beneficial. In Costa Rica, mothers are entitled to 17 weeks of paid maternity leave following childbirth, which is closed to the OECD average. Public sector employees receive 4 weeks of paternity leave and private sector employees 1.6 weeks. Across OECD countries, there is a trend towards a more balanced distribution of parental leave, gradually approaching a 50/50 split in some countries like Iceland. Gradually expanding fathers' leave entitlements could encourage greater involvement in caregiving and other unpaid work, which could enhance mothers' labour market outcomes both during and after the leave period (OECD, 2024[1]). To increase the take-up of parental leaves by men, Costa Rica could consider gradually introducing reserved leave weeks for fathers, as done by Canada, Denmark, and the Netherlands. The extension of paternity leave entitlements should be financed via the Social Security system, as done for mothers, to facilitate take-up and avoid creating stigmas.
Women also disproportionately bear the responsibility of caring for elderly relatives, highlighting the critical need to expand access to elder care services. The availability of formal elderly care services, where paid workers assist individuals with daily activities, significantly enhances women’s participation in the labour force (OECD, 2024[1]). Whether community-based or home-based, these services also contribute to cost savings in healthcare by promoting preventive care and reducing hospitalizations. In Costa Rica, access to elder-care community services is limited, currently serving only about 1600 people nationwide. Initiatives have begun to establish home care services, including a recent pilot programme with the Inter-American Development Bank aimed at supporting caregivers and developing a standardized methodology for assessing the cost of essential care services. Gradually expanding elderly formal care services, including both home-based and community-based care, would also contribute to higher female labour market participation. Prioritizing access for low-income households and implementing co-payment mechanisms for higher-income households holds potential for expanding these services in a fiscally sustainable manner.
In addition to expanding the child and elderly care network, Costa Rican women would benefit from a greater representation in career fields with better job prospects. Although women in Costa Rica are more frequently enrolled in upper secondary education and earn more tertiary degrees than men, they remain underrepresented in science, technology, engineering, and mathematics (STEM) fields. The share of male STEM graduates exceeds female graduates by about 19 percentage points, though this gap is smaller than the OECD average of 25 percentage points. Encouraging young girls and women to pursue STEM studies, including through mentorship programmes as recommended in the 2023 Economic Survey, would improve their chances of gaining quality jobs and support Costa Rica’s competitiveness (Chapter 4).
Informality, at around 40% of total employment, remains high (Figure 2.9) and is a key driver of inequality and poverty. It is also a cause and a consequence of low productivity. Informality is particularly prevalent among low-income individuals, workers with less than secondary education, the self-employed, and those working in the agriculture sector. Earlier OECD Economic Surveys of Costa Rica ( (OECD, 2023[6]), (OECD, 2020[11]), (OECD, 2016[12])), have emphasized that reducing informality requires coordinated actions across multiple policy fronts (Figure 2.10). These include lowering non-wage labour costs, reducing barriers to the creation of formal firms, simplifying the minimum wage system, helping Costa Ricans to acquire the skills needed to access formal jobs (as discussed in Chapter 4 and in the previous Economic Survey), simplifying taxes (as discussed in Chapter 1) and strengthening enforcement of labour and tax regulations. This section reviews recent progress achieved in some of these policy areas and highlights pending challenges.
Note: In Panel A, informality is defined as the percentage of workers in employment meeting one of these conditions: 1) salaried workers not contributing to the social security system; 2) salaried workers who receive their wage on cash or who only get paid once and who due to the nature of their contract are not deemed eligible for social security registration; 3) unpaid workers; 4) self-employed workers and employers who have companies that are not registered in the National Property Registry and do not keep a formal accounting; and 5) self-employed workers with occasional work (working for less than one month) who due to the nature of the work are not likely to be registered or have formal accounting. Data are quarterly data. Panel B shows the ILO definition of informal employment as self-employment in informal enterprises (small, unregistered enterprises) and wage employment in unprotected jobs, meaning jobs with no social contributions, in both formal and informal enterprises. The ILO definition of informality might differ from that of INEC. LAC is the simple average of Chile, Colombia, Mexico, Argentina, Brazil, and Peru.
Source: INEC (2024) Encuesta Continua de Empleo (ECE); and ILOSTAT (database).
Informality drivers, 2023 or latest
Note: The figure covers some of the policy areas typically related to informality, but its coverage is not comprehensive. OECD refers to an unweighted average of OECD countries with available data. Higher values denote policy settings conducive to higher informality.
Source: OECD Taxing Wages (database); OECD Education at a Glance (database); OECD 2023-2024 PMR (database); OECD Labour Force Statistics (database); and OECD calculations based on ILOSTAT (database).
Employer payroll charges are high in comparison with the OECD average (Figure 2.11), which hampers formalisation. Given the low levels of labour productivity, one of the main impediments to formal job creation is this relatively high mandatory social contributions and other payroll taxes (Arnold et al., 2024[13]). Experience in countries like Colombia (OECD, 2024[14]) suggests that reducing these non-wage costs can decrease labour informality.
Currently, payroll charges represent 37% of the wage bill in Costa Rica with employers paying 72% of them. A significant portion of these charges—about 35%—is not financing the Social Security. Instead they are allocated to finance other institutions such as the vocational training unit (INA), a state-owned bank, or the Social Protection Fund (FODESAF). This is a regressive and inefficient way to finance these institutions, as it hinders formalization and erodes tax bases. It particularly hinders low-skilled workers' chances of accessing formal jobs by widening the gap between their productivity and the cost of labour. Financial contributions to the state-owned bank, established in 1969 and now a mature financial institution integrated into financial markets, could be phased out. The vocational training unit and the social fund could be gradually financed through the general budget.
The payroll changes imply that employer charges could be reduced by 7.25 percentage points, without compromising the financing of the social security system. The changes could even be positive for the social security system, as more workers would potentially become formal workers and contributors. Financing the vocational training unit and the social fund fully from the budget would require increasing revenues by broadening the personal income and VAT tax bases or phasing out some tax expenditures, as discussed in Chapter 1 of this Survey. Given the fiscal situation, the change could be implemented gradually and the reduction in employer’s payroll charges could be initially targeted at low-income workers.
Employer social security contributions, % of labour costs, 2023
Source: OECD Taxing Wages (database).
A relatively high minimum wage and a complex minimum wage systems can also foster informality. Costa Rica has simplified its minimum wage system over the last five years, reducing the number of minimum wages from 26 to 16 and plans to further reduce them to 11. In relative terms, Costa Rica’s average minimum wage, at nearly 90% of the median mean wage of full-time formal employees, is high in comparison with other OECD countries (Figure 2.12). For emerging economies, often characterised by the co-existence of formal and informal employment, minimum wages that are too high and not effectively enforced may shift workers from formal to informal employment (Del Carpio and Pabon, 2017[15]). Future minimum wage increases should be approached with caution and aligned with labour productivity growth, as they could potentially lower formal employment prospects, especially for low-skilled workers. Undertaking a thorough evaluation of how the level of the minimum wage impacts the likelihood of youth and low-skilled workers accessing formal employment could inform future’s discussions and decisions by the committee in charge of advising about the minimum wage. The committee includes representatives from the government, employers, and workers. Its analysis could be strengthened by including labour market experts from academia, bringing in technical expertise and enabling evidence-based recommendations.
Informality is particularly high among part-time workers (Figure 2.13), a situation more common among women. Currently, there is no social contribution regime for part-time workers, who face a minimum contribution base which is fixed regardless of working hours. Consequently, part-time workers often shoulder disproportionately high contribution burdens relative to their income. In addition to high social contribution rates, the fixed minimum contribution base discourages the formalisation of small enterprises, as well as for women and youth, who are more likely to work part time (OECD, 2017[16]). Recognizing these challenges, the Costa Rican Social Security Fund has recently begun implementing a lower minimum contribution base for low-wage and part-time workers. This policy initially applies to workers under 35 years old as of 2023, to workers aged 35 to 50 as of 2024, and will encompass all age groups by 2025. Evaluating the impact of these reductions on formalization rates among low-wage workers will be crucial. The impact of introducing an income threshold should be carefully assessed, particularly regarding potential disincentives for working longer hours and the resulting loss of eligibility for the lower minimum base. Enabling part-time workers to contribute proportionally to their part-time incomes remains a valuable option to facilitate higher formality among part-time workers.
Minimum wage, % of median wage of full-time workers, 2023
Note: OECD refers to an unweighted average of 30 OECD member countries.
Source: OECD Labour Force Statistics (database).
Informality rate, % of total employment
Source: OECD calculations based on INEC (2024), Encuesta Continua de Empleo (ECE).
Burdensome regulations and red tape can also act as a barrier to business formalization. The OECD’s Product Market Regulation indicator for Costa Rica shows that Costa Rica has one of the most stringent regulations among OECD countries, particularly as concerns regulations related to starting up a formal company (Figure 2.14). There remains ample opportunity to decrease the bureaucratic and economic costs associated with starting a formal enterprise. Many OECD countries (e.g. Portugal, New Zealand, Estonia or Denmark) have successfully lowered these costs by implementing virtual one-stop shops, where all administrative requirements can be completed at once and online. Costa Rica has taken steps in this direction with the establishment of an Investment Single Window Facility (OECD, 2024[17]). Initially the window was targeted at free trade zones activities and to San Jose metropolitan area but it is now available to all firms. It has the potential to further streamline firm formalization by incorporating more administrative requirements. This is the case of municipal regulations, such as licenses and permits, which are crucial for new firms’ creation but are not yet included in the window. There is scope to involve more municipalities in this initiative, as currently, only 30 out of 84 municipalities participate. Environmental and construction requirements could also be added to the platform (OECD, 2024[17]). The low take-up of the digital signature among enterprises and households (see the discussions in the 2020 and 2023 Economic Surveys) is a barrier to broader digitalization of administrative requirements covered by the single window. The cost for business and households of obtaining the digital signature is deemed to be onerous (OECD, 2024[17]). Efforts to reduce these costs would unlock the full potential of the Investment Single Window to simplify administrative procedures and promote formal business creation. The Central Bank's ongoing initiatives to implement a mobile phone-based signature mechanism hold promise for reducing the costs associated with obtaining a digital signature and broadening its adoption.
Costa Rica has started to reduce the stock of regulations that are deemed to be bottlenecks to formal economic activity (Box 2.2). This has been done in cooperation with the private sector, which is an effective way to identify the regulations no longer needed. An important next step would be to conduct comprehensive evaluations of these regulatory changes, as such assessments can provide insights for further reforms. A critical challenge that remains is the absence of an updated and comprehensive centralized catalogue or single registry encompassing all administrative procedures, licenses, and permit requirements for businesses. Currently, this information is scattered across various websites, leading to inconsistencies in some cases (OECD, 2024[17]). Establishing such a registry, and conducting evaluations regularly, would be valuable steps to continue eliminating duplications, harmonizing regulations across different public agencies, and enhancing the functionality of the Investment Single Window.
PMR Administrative requirements for limited liability companies (LLCs) and personally-owned enterprises (POEs), from 0 (“more competition friendly”) to 6 (“less competition friendly”)
Note: The majority of the data was collected in 2023. However, in some countries the data collection was completed at a later date. LAC is an unweighted average of Chile, Colombia, Mexico, Brazil, and Peru.
Source: OECD Product Market Regulation (database).
“We Let You Work” (Le Dejamos Trabajar) is a programme by the Ministry of Economy, Industry, and Trade designed to identify and remove bureaucratic hurdles that slow down business operations, hiring, and growth. The Ministry worked with the private sector, chambers of commerce, and 16 public organizations in Costa Rica to pinpoint key obstacles. As a result, they identified 163 bottlenecks, 140 of which were resolved in three phases between August 2022 and September 2023. The remaining 33 will be addressed in 2024.
Most bottlenecks were linked to sector-specific regulations and permit time limits. The second most common issue involved delays in processing permits and licenses. The third issue focused on standardizing application requirements, particularly the technical criteria used by different departments for permit approvals. Other resolved issues included improvements to digital platforms, social insurance enrollment, and service delivery by public institutions.
Multiple ministries, including Environment and Energy, Health, Agriculture and Livestock, Finance, and Public Works and Transportation, helped resolve these challenges. To speed up implementation, the programme prioritized solutions that could be enacted through executive actions, avoiding the need for new laws. Clear deadlines were set for each stage, and specific decrees were published in government reports or in La Gaceta, the official government newspaper.
The second phase of the programme was launched in October 2024 and aims to address barriers that impact citizens when dealing with public institutions, covering issues like water billing or passport processing.
References
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