Employment in Crisis: The Path to Better Jobs in a Post-COVID-19 Latin America
Joana Silva, Liliana D. Sousa, Truman G. Packard, Raymond Robertson
Abstract
A region known for its volatility, Latin America and the Caribbean (LAC) has \nsuffered severe economic and social setbacks from crises—including the \nCOVID-19 pandemic. These crises have taken their toll on careers, wage \ngrowth, and productivity. Employment in Crisis: The Path to Better Jobs \nin a Post-COVID-19 Latin America provides new evidence on the effects \nof crises on the region’s workers and firms and suggests several policy \nresponses that can bolster long-term and inclusive economic growth. \nThis report has three key findings. First, crises lead to persistent employment \nlosses and accelerate structural changes away from the formal \nsector. This change occurs more through reductions in the creation of \nformal jobs than through job destruction. Second, some workers recover from crises, while others are permanently \nscarred by them. Low-skilled workers can suffer up to a decade of lower \nearnings caused by crises, while high-skilled workers rebound fast, exacerbating \nthe LAC region’s high level of inequality. Formal workers suffer \nsmaller employment and wage losses in localities with higher rates of \ninformality. And the reduced job flows caused by crises decrease welfare, \nbut workers in localities with more job opportunities, whether formal or \ninformal, bounce back better. Third, crises’ cleansing effects can increase efficiency and productivity, \nbut these effects are dampened by the LAC region’s less competitive \nmarket structure. Rather than becoming more agile and productive during \neconomic downturns, protected sectors and firms gain market share and \ncrowd out others, trapping valuable resources. \nThis report proposes a three-pronged mix of policies to improve the LAC \nregion’s responses to crises: • Create a more stable macroeconomic environment to smooth the \nimpacts of crises, including automatic stabilizers such as unemployment \ninsurance and short-term compensation programs; • Increase the capacity of social protection and labor programs to \nrespond to crises and coalesce these programs into systems that complement \nincome support with reemployment assistance and reskilling \nopportunities; and • Tackle structural issues, including the lack of product market competition \nand the spatial dimension behind poor labor market adjustment—a \n“good jobs and good firms” agenda.