In Latin America, formal labor costs account for 39% of workers’ productivity

Washington, September 22, 2015.- In a ceremony held in Mexico City, the Inter-American Development Bank (IDB) presented Jobs for Growth, a detailed report on labor markets in Latin America and the Caribbean that offers recommendations on labor policies to address informality and boost productivity in the region.

The study highlights the costs associated with hiring workers in the formal labor market are too high in relation to their productivity. On average, companies spend $4 dollars on labor costs for every $10 dollars the worker produces. This factor, together with a high turnover of workers -only two-thirds of employees in the region remain more than a year in the same job, versus 85 percent in the OECD countries- hinders the productivity of the region.

The publication also concludes that low quality education and a high turnover of workers are conducive to fragile labor relations, in which companies do not invest enough in the on-the-job training of its employees. Thus, the region experiences a vicious circle of low quality jobs and low productivity. In Latin America and the Caribbean, productivity has only grown by 26.6 percent since 1990, compared to areas such as Asia (85.2 percent), North America (37 percent) and Western Europe (31.2 percent).

In order to increase labor productivity, the study recommends adopting labor policies focused on two areas: 1) promoting formal employment through more and better investments in public employment services, protection during unemployment, adequate oversight and increasing employment opportunities, especially for young people seeking their first job; and 2) higher labor and production stability, including more investments in on-the-job training and simplified regulation of layoffs.

This integrated package of measures would boost a "career path for success”, which would guarantee access of young people to formal jobs, on-the-job training and, if the worker becomes unemployed involuntarily, protection and resources to reintegrate quickly and effectively to the labor market.