Posted: Friday, June 18, 2021. 9:46 am CST.
By Aaron Humes: A new World Bank report, EMPLOYMENT IN CRISIS: The Path to Better Jobs in a Post Covid-19 Latin America, warns that the current economic crisis in Latin America and Caribbean may be like previous ones in that jobs for lower-skilled workers will not return as fast as for those with higher skills.
The pandemic is exacerbating already high inequality, with lower-skilled workers seeing their earnings reduced for at least a decade. The Bank calls on governments to formulate labour policies focusing on providing social safety nets and retraining, as well as improving the macroeconomic and business environment to ensure long-term and inclusive economic growth.
The report finds on examination of previous economic crises in the region such as the Brazilian debt crisis, the effects of the Asian financial crisis in Chile, and the impact of the 2008-2009 global crisis in Mexico that the employment curve deviated and has not reversed since.
On average, after three years, major crises cause a net loss of 1.5 million jobs, with a 3 percent contraction of formal work and an expansion of the informal. The current crisis could be even worse and cause a contraction in formal employment of up to 4 percent.
Low skilled workers tend to suffer the most, exacerbating persistent inequities in the region. For them, the scars of the crises can remain for up to a decade, with loss of income and greater vulnerability. In addition, two thirds of the countries in the region do not have national assistance or unemployment insurance programs. To minimize this long-term scarring, governments should adopt policies to support a sustainable recovery of economies and facilitate the recovery of employment.
The key initial step is to put strong, prudent macroeconomic frameworks and automatic stabilizers in place to shield labour markets from potential crises. Sound fiscal and monetary policies can preserve macroeconomic stability and avert system-wide financial strain in the face of a shock. Fiscal reforms, including less distortive taxation, more efficient public spending, financially sustainable pension programs and clear fiscal rules are the first line of defense against crises.
Countercyclical income support programs, such as unemployment insurance and other transfers to households during downturns, limit the damage caused by contractions and help economies recover. One of the region’s challenges, though, is that large segments of the workforce are informal and thus cannot be reached through traditional unemployment insurance.
Also, it is crucial to increase the capacity of the region´s social protection and labor policies, blending these policies into systems that provide income support and prepare workers for new jobs through reskilling and reemployment assistance. Governments’ quick reaction to expand some social protection and labour programs in the wake of the pandemic can lead to progress in building better and more integrated social registries. This is feasible in the short run and can make a difference in the reach of these programs.
But stronger macroeconomic stabilizers and reforms to social protection and labour systems are not enough. Jump-starting job recovery by supporting vigorous job creation is also needed. This effort will require tackling structural issues. Competition policies, regional policies and labour regulations are key areas. If countries don’t address these fundamental issues, recoveries will remain characterized by sluggish job creation.
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