This Is How Uruguay Reduced Informality. An example for Latin America

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Employment is one of the main bases for economic stability, which leads to improving the quality of individual and collective life. However, a large part of Latin American society is in the informal sector, which has remained stable and on the rise in several countries, except for a few atypical cases such as Uruguay.

informal employment

Photo: The Opinion

LatinAmerican Post | David García Pedraza

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Leer en español: Así fue como Uruguay redujo la informalidad. Un ejemplo para América Latina

Employability, formal and informal, is the economic engine of countries to increase their wealth. However, a job with all benefits seems to be a privilege in Latin American societies, which very few can obtain. Individuals face problems to be accepted for a vacancy, be it due to age, lack of professional studies, lack of experience or corrupt recruitment methods. Due to these drawbacks, the only option is to resort to informality.

Also read: The Megaprojects that Will Change the Face of Latin America in 2023

During electoral times, labor policies become a common denominator. The promises of the candidates sound attractive until they reach the presidency, and the issue of employment is complex to handle. In the region, the phenomenon of informality is added to that of unemployment, and with these two phenomena, the population lacks social security, education and economic stability, which increases the levels of violence and inequality in nations.

Informality as a Model of Life in Latin America

The countries of Latin America have bad indicators in terms of informality worldwide. In the case of Colombia, according to the National Administrative Department of Statistics (DANE   for its Spanish acronym), informality represents 58.2% of the country's workers. This is more than half of the population able to work, as in Mexico, where it reaches 55.2%, according to the National Institute of Statistics and Geography (INEGI for its Spanish acronym). In Brazil, the most populous country in Latin America, 38.8 million people are working informally, which represents 38.9% of the people who work, and in Argentina the figure is 27.3%, according to the National Institute of Statistics.

Having a large part of the population in the informal sector means that, in the future, these individuals do not receive a pension that ensures old age with the minimum living conditions, nor do they have savings, such as layoffs, when they lose their job, and neither access a good health system. This creates social problems that can affect the poverty of the older population and greater subsidized spending to pay for public health, for example.

COVID-19 Effect or Old Issue?

According to the comparisons between the previous figures and those of 2019, in pre-pandemic, Colombia had an informality of 47.6%, Mexico of 56.2%, Brazil of 41.6% and Argentina of 49.3%. Despite the fact that the population able to work increases with the passing of the days, it is notorious that in Mexico, Brazil, and Argentina informality decreased, while in Colombia it increased.

Even, according to a report from the International Labor Organization, from 2015 to 2019 informality was reduced in Paraguay, Peru, and Guatemala; it remained in Colombia, Mexico, and Uruguay; and increased in Brazil, Argentina, Ecuador, and Panama. This shows that COVID-19 was not the main cause of the informality that the Latin region currently has.

It should be noted that in countries such as Peru, Argentina, and Mexico, more than 70% of the jobs created at the most critical point of the pandemic in 2020 were informal, and just over 50% of them were generated in Chile and Costa Rica. In conclusion, the ILO argues that informal work is the labor model that has recovered the most after confinement.

The Privilege of Social Security

Contributions to pension and health are largely achieved through formal employment, a labor model that ensures economic stability and improvement of quality of life. Despite the fact that there is a par of the population that is employed in this way, they are a minority in Latin America.

In Colombia, according to DANE, close to 10 million people make their contributions for health and pension, compared to the close 13 million people who are in the informal sector. In Mexico, according to the IMSS, 21.3 million people have formal employment, only in 2022 752 thousand jobs were created with this modality. For their part, the figures for Brazil estimate that 43.1 million people have stable employment, it is noted that in this country there is more formality than informality, and in Argentina almost 13 million have stable employment against 7.8 million that don't have it, another case where formality prevails.

The figures are discouraging for the region. However, a country in the southern cone is in the crosshairs of others due to its labor development between the formal and the informal.

The Exceptional Case: Uruguay

The cases that have an informality between 40% and 60% in Latin America are usually presented as “the usual”, but Uruguay has only 22% of this employability model. Even before the pandemic, there were fewer people employed than there are today in that country.

According to a report presented by the Ministry of Labor and Social Security, this pleasing figure is due to two situations in particular: the increase in medium-sized companies and the aid sponsored by public policies such as "Jornales solidarios." The last one is about temporary jobs for people between 18 and 65 years of age who do not have stable resources at the time of requesting the aid. Although this model ended on December 31, 2022, it will return in May 2023 due to public pressure.

Pablo Mieres, Uruguayan labor minister, ended a meeting about this issue saying that unemployment in that nation, linked to informality, exists more because of the individual's desire to retire than because there are no offers that link him to the labor market.

In general, the reality of informality affects Latin American society. The figures of the countries are currently fairly similar to those that were evident before the pandemic, which causes widespread discomfort in the population. Likewise, it has an effect on individual and social stagnation that increases violence and inequality in the midst of communities.