Working in Latin America’s Shadow Economy

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LabourAmericas-GlobalInformal economy

They are everywhere. You can’t miss them. They are on the streets, on buses, in restaurants, on building sites...

Around 130 million people are working without contracts or social protection in Latin America and the Caribbean. That is 47.7 per cent of the economically active population according to the International Labour Organization’s (ILO) Programme for the Promotion of Formalization in Latin America and the Caribbean (FORLAC).

Informal economy workers form part of a society that has integrated them for want of legal employment.

Twenty-eight-year-old Franklin has been working as a shoe shiner in Lima for eight years. On good days, he earns 30 nuevo soles (US$10). He explains, while cleaning a young man’s shoes, that he no longer even dreams of working for a company or being given an employment contract. “I have no education, no qualifications; no one wants to hire me. In a few years time I’ll find another job on the street.”

It is the poorest people that are most affected by informality, with 72 per cent of the lowest income earners (those earning less than US$2, or 5.83 nuevo soles) working in the informal economy. In comparison, only 31 per cent of Peru’s highest earners – those earning more than US$100 (291.70 nuevo soles) a day – work informally.

“Informality limits the country’s GDP and productivity growth, at the same time as it heightens inequalities and social exclusion. The economic growth seen in the various countries of the region is not benefiting the population as a whole,” Juan Chacaltana, an ILO specialist on jobs and employment policy, told the press at the Organization’s Regional Meeting in October.

Among those left behind by growth is 55-year-old Maxima, who earns between 50 and 60 nuevo soles a day (US$17-20). She tells her story while preparing the fruit juice she sells to passers-by.

“Starting a business of my own has never been possible, it costs too much! I’ve done lots of little jobs but I’ve never managed to have a contract or social protection. Now all I ask is that they let me work!”


“Sometimes, the state is non-existent”

Employers and workers have different perspectives on how to tackle the problem of informality.

“More inclusive social policies and more education and training are needed, so that people can live with dignity. But in many countries it’s complicated because taxes are very low, and sometimes the state is nonexistent,” Laerte Teixeira da Costa, social policy secretary of the Trade Union Confederation of the Americas (TUCA), tells Equal Times.

For employers, the priority is different. “The laws in our region do not make it attractive to take people out of informality. The administrative side needs to be simplified and there needs to be more employment flexibility,” insists Roberto Suárez Santos, deputy secretary-general of the International Organisation of Employers (IOE).

Víctor Báez Mosqueira, general secretary of the TUCA, challenges this argument. “Limits need to be placed on outsourcing, as they have been in Uruguay, which has introduced joint responsibility extending social obligations to the main company. It is a good way of protecting companies and combating informality.”

Between 2001 and 2012, the rate of informal work fell by more than 10 per cent in Uruguay, following a curve identical to that of unemployment.

It is a result obtained thanks to a combination of factors. In addition to the legislation on outsourcing, companies were offered fiscal incentives for providing new jobs and training. But the success of this policy is also thanks to strong economic growth. It would be difficult to apply such measures across the board, given the huge disparities between the countries in the region.

Báez also advocates more sweeping change: “If we keep on being producers of raw materials, we will never get anywhere. We need to industrialise our countries, contribute added value and, by doing so, create jobs.”