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The Pandemic Did Not Reduce Informality In Latin America, It Hid It

Informality in Latin America is a key issue that countries must address to overcome the economic crises left by COVID-19.

Man wearing a mask on a bus

Informality is a concern for the region as it is a growing problem that is increasing inequality, since it means that people do not have access to social security and decent jobs. Photo: Pexels

LatinAmerican Post | María Fernanda Ramirez Ramos

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Leer en español: La pandemia no redujo la informalidad en Latinoamérica, la ocultó

As is customary at the end of the year, the progress and setbacks of the countries are evaluated in various aspects, to find out the challenges they will face in the coming year. The Economic Study of Latin America and the Caribbean 2021, carried out by ECLAC, concludes that the challenges of the region in the labor sphere are to “boost the labor market, recover the jobs lost during the crisis, reduce informality and move towards labor markets. work with decent employment ”.

In this sense, informality is a concern for the region as it is a growing problem that is increasing inequality, since it means that people do not have access to social security and decent jobs. Its main negative effects are the weakening of economic growth, the decrease in the social welfare of the population and the impact on the productivity of workers.

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However, the results of changes in the labor market, which were influenced by the pandemic, were paradoxical, since they were not always reflected in increases in unemployment and informality rates. In this regard, ECLAC has stressed that "indicators of the quality of employment such as the incidence of informality and real wages must be interpreted with caution." An investigation by the Inter-American Development Bank indicates that in 2020, due to confinements and mobility restrictions, many people completely left their jobs, mainly workers in the informal sector. Therefore, not informality rates increased, but inactivity rates.

However, in 2021 the situation was different, with the relaxation of sanitary measures and the reduction of quarantines, people had to take to the streets again to recover income and informality turns out to be the fastest option. Young people and women have been the groups most affected in this situation. The World Labor Organization, ILO, warned that about 70% of the jobs generated from mid-2020 to March 2021 correspond to informality. This poses great challenges for the countries, which must generate quality jobs to boost economic reactivation and overcome the crisis.

The report "Social and Employment Outlook in the World: Trends 2021" of the ILO, indicates that the majority of informal workers have not had the possibility of accessing social benefits to mitigate the loss of income. "According to surveys, a quarter of informal businesses are facing imminent bankruptcy ," he says. Likewise, it points out that women and young people are the population groups that are most affected by this phenomenon.

On the other hand, one of the sectors most affected by informality is domestic work. According to ILO data, of the 14.8 million domestic workers that were counted in the region for 2019, l 72.3 percent were not part of formal employment. The situation caused by COVID-19 made their work even more precarious, because in the midst of sanitary restrictions and fear caused by the disease, many (mainly women work) were unemployed.

Regarding measures to mitigate the negative effects of the crisis on the labor market, the publication “Informality in the times of COVID-19 in Latin America: implications and buffer options” of the IDB, indicates that measures such as the cancellation or postponement of the Payment of income tax and social security contributions, as long as they are conditional on the generation of formal jobs, would help reduce informality by between 50% and 75%.

It is also necessary to analyze the real impact of subsidies. If we start from the fact that many companies and people in the informal sector have not been able to access the subsidies, it is necessary to create strategies that are closer to this population. In this regard, the renowned economist José Eduardo Gómez, in an interview for the Public Reason Foundation, raised that a policy of the State as employer of last resort could be beneficial.