The Labor Market Story Behind Latin America’s Transformation

The unemployment rate of Latin America and Caribbean (LAC) reached a historic low of 6.5% in 2011 and "Latin America witnessed tremendous social progress during the last decade", says the October 2012 report of the World Bank entitled " The Labor Market Story Behind Latin America’s Transformation". The report has analyzed the evolution of the labour market in the last decade.

Other highlights of the report:

- the robust growth that the region experienced was remarkably pro-poor, with more than 70 million Latin Americans lifted out of moderate poverty between 2003 and 2010

- More than 35 million additional jobs were created while informality, one of the Latin American trademarks, fell in seven out of the nine countries where it could be measured consistently throughout the decade.

- Strong employment creation during the 2000s was coupled with a sharp decline in the inequality of labor earnings, a fact that stands in sharp contrast with both international trends and the stagnation that characterized the region in the previous decade. 

- Another set of momentous transformations in the labor field concern the changes in the patterns of cyclical labor market adjustments that occurred as LAC entered in the 2000s into an environment of low and stable inflation, finally breaking with its traditional history of home-grown macroeconomic instability. The dramatic decline of inflation in the region led to rising downward wage rigidities, which translated into lower fluctuations of earnings, especially during downturns. 

- During the last two decades Latin America has gone through a major transformation in the educational attainment (measured by years of schooling) of its labor force, a process that is still ongoing. The set of skills brought by Latin American workers to the labor market improved rapidly. In parallel to the steady increase in the supply of more educated workers, the inequality in educational attainment between the rich and the poor population has fallen.

- many LAC countries experienced during the 2000s a steady decline in income inequality, which stands in sharp contrast with rising inequality in virtually everywhere else.  

- Inequality of (labor and non-labor) income fell substantially, by 5 Gini points on average for 15 LAC countries

-The services sector continued to employ an increasing number of workers: its relative share in total employment increased by 2 percentage points;

- In spite of going through the worst international crisis since the Great Depression, real wages did not fall significantly during 2007-2009. While the real wages fell on average by less than one percent in Colombia, Ecuador and Mexico,  they actually increased in Argentina, Brazil, Chile, Peru and Uruguay. 

- Even in the midst of the current slowdown, labor markets in LAC have continued to perform remarkably well. The unemployment rate for the region as a whole closed at nearly 6.5 percent in 2011, the lowest since the peak of 11 percent in 2002-2003. This is not an isolated fact, it is rather a reflection of deep changes in Latin American labor markets that took place in the 2000s and which have, in turn, been part of a broader set of fundamental transformations (including the decline in household income inequality, the consolidation of sounder macro-financial frameworks and associated restoration of counter-cyclical policy capacity, the stunning reduction in poverty and the swelling of the middle classes ) that jointly constitute what the World Bank has labeled the “new face” of LAC.