LABOUR-LATIN AMERICA: Informal Work Sector Dominates Business

By Estrella Gutiérrez Reprint | | Print |

Estrella Gutierrez

CARACAS, Aug 3 1997 (IPS) - The number of workers in “informal” jobs throughout Latin America is now more half the total work force and its time governments did something about easing the legal obligations of employers, says the World Labor Organisation (WLO).

At a Caracas meeting of the 27 nations in the Latin American Economic System (LAES) Daniel Martinez, a WLO official, said: “The challenge is to formalize this huge mass of Latin Americans so they can achieve full economic citizenship”.

Currently, underground employment absorbs 57 per cent of the region’s workforce and Martinez says it has become necessary to “re-think” how to engage a problem that has increased dramatically during the current period of economic growth. He notes that existing legislation “has created very demanding parameters for the whole marketplace”.

The WLO believes the last seven years have been bad for Latin America’s employment picture since the politics of economic stabilization voided many of the benefits that might otherwise have arisen from a flexibilized labor force.

A WLO study in Chile, Colombia, Jamaica and Peru showed that only half of all micro-enterprises could comply with legal demands placed on employers and that if they all were forced to heed every legal requirement, only 15 percent would survive.

The World Labor Organization, headquartered in Lima, says that in 1980 only 40 per cent of Latin America’s workers belonged to the underground economy but in the 1990s, 83 percent of all newly created jobs have been in the informal sector. During the same period, the percentage of the labor force employed by the formal economy has declined from 51 per cent to 43 percent.

On average, informal employment “seldom reaches the minimum wage. It also has little productive value, and, in the current environment, serves to spread stable demand over a larger pool of workers”.

Joseph Ramos, an official with the Latin American Economic Commission (LEAC), has assisted Martinez in evaluating the impact of economic growth on Latin American employment. Ramos says: “Where there used to be two tomato salesmen, now there are three vendors who work to satisfy the same demand”.

In 1990, regional unemployment measured 5.7 percent. Today, the level exceeds eight percent. Jobs are being created at annual rate of 2.9 percent while population growth registers 3.3 percent.

Martinez and Ramos, however, both point to a positive factor in the generally unfavorable labor climate. Women have increased their presence in the work force – although mainly because it now requires two incomes to support a family.

The WLO says that any growth strategy that does not include mechanisms for achieving full economic “citizenship” cannot be considered an authentic growth strategy since ultimately it only increases the precariousness of a work force that is already highly volatile.

However, it is hard to rectify this situation when existing legislation makes so many demands on employers. In addition to rising taxes, the business sector also shoulder increasing administrative costs and expensive employee obligations.

Martinez notes that a “vicious circle” has been created in which national governments have reduced their budgetary allotments to cities, which, in turn, have been forced to create a number of local taxes that have increased overall tax burdens.

As an example of rising tax burdens, Martinez points to a seven percent income tax recently levied in Peru. Although the money is formally destined to build houses, Peru’s President Alberto Fujimori admits he doesn’t know where the money will actually end up.

Martinez says that the WLO has concluded that in the context of Latin America’s tenuous labor situation, measures to expand micro-enterprises, along with increased credit and training for underground workers, will never amount to more than a drop in the bucket.

The best thing to do is to lessen administrative demands, lower taxes and reduce worker fringe benefit in order “to shrink the official hurdles that bar the path of underground workers,” he says.

If such measures are taken, Martinez says, underground workers “will be encouraged to exert themselves to formalize their business activities, thus investing them with full economic ‘citizenship’. Only then will these informal workers be able to access the full range of development promotion tools.”