PUBLIC DOCUMENT OF THE INTER-AMERICAN DEVELOPMENT BANK
SECTOR FRAMEWORK DOCUMENT LABOR
LABOR MARKETS UNIT DECEMBER 2013
This document was prepared by the Labor Markets Unit (SCL/LMK) of the Social Sector, under the coordination of Carmen Pagés, Unit Chief. The authors are grateful for the valuable comments received at the various stages of preparation of this document. In particular, they acknowledge the contributions of Nathalie Alvarado (IFD/ICS), Carmen Alvarez-Basso (VPC/VPC), Kelle Bevine (SCF/SMU), Bettina Boekle-Giuffrida (SCF/SMU), Juan Pablo Bonilla (EVP/EVP), Marina Bassi (SCL/EDU), Matias Busso (RES/RES), Monserrat Bustelo (SCL/GDI), Martin Chrisney (VPP/VPP), Kristin Dacey (SCF/SMU), Suzanne Duryea (SCL/SCL), Luca Flabbi (RES/RES), Edwin Goñi Pacchioni (CAN/CAN), Monika Huppi (OVE/OVE), Pablo Ibarrarán (SCL/SPH), Julie Katzman (EVP/EVP), Santiago Levy (VPS/VPS), Elba Luna (KNL/KNL), Mirna Lievano (SEC/SEC), Mercedes Mateo (VPS/VPS), Francisco Mejia (SPD/SDV), Andrew Morrison (SCL/GDI), Laura Profeta (LEG/SGO), Ferdinando Regalia (SCL/SPH), Jose J. Ruiz Gomez (RES/RES), Mariel Sabra (MIF/CAR), Maria Elena Nawar (MIF/MIF), Hector Salazar (SCL/SCL), Marco Stampini (SCL/SPH), Peter Stevenson (SMU/CNI), Jaime Vargas (EVP/EVP), and Emiliana Vegas (SCL/EDU), as well as the comments received from CID/CID, SPD/SDV, and members of the Policy and Evaluation Committee of the Board.
Under the Access to Information Policy, this document is subject to public disclosure.
CONTENTS I.
LABOR MARKETS IN THE CONTEXT OF THE BANK’S SECTOR STRATEGIES ................................ 1 A. B.
II.
INTERNATIONAL EVIDENCE ON THE EFFECTIVENESS OF POLICIES TO ACHIEVE BETTER JOBS .. 3 A.
B. C.
III.
B. C. D.
Low employability and limited access to work for young people, women, people with a low or medium level of education, indigenous and rural populations ................................................................................................................... 20 Limited labor force readiness and ineffective labor force training systems ............... 22 Unequal access to social insurance against illness, poverty in old age, or unemployment, and problems of incentives for informality ....................................... 23 Low institutional capacity............................................................................................ 27
LESSONS LEARNED FROM EXPERIENCE WITH THE IDB’S OPERATIONS .................................... 28 A. B. C.
V.
Ensuring the employability of school leavers, the unemployed, and other people facing barriers to workforce integration requires the involvement of the productive sector and interventions that are matched to beneficiaries’ needs .............4 Promoting the productivity of active workers requires more emphasis on quality and results and greater employer engagement .............................................................9 Achieving better working conditions and better social insurance against illness, disability, poverty in old age, or unemployment requires institutional changes and innovations in policy design ................................................................................11
THE REGION’S LABOR CHALLENGES ........................................................................................ 19 A.
IV.
The Labor SFD in the context of the sector strategies in force ..................................... 1 The Labor SFD as part of the Strategy on Social Policy for Equity and Productivity .................................................................................................................... 1
Results of project completion reports (PCRs) and disbursement parameters ............. 28 Results of the Development Effectiveness Matrix (DEM) ......................................... 31 The Bank’s comparative advantages in the sector ...................................................... 32
GOALS, PRINCIPLES, DIMENSIONS OF SUCCESS AND LINES OF ACTION TO GUIDE THE BANK’S OPERATIONAL AND RESEARCH ACTIVITIES .............................................................................. 34 A.
B. C. D.
Dimension 1: The region’s young people, the unemployed, underemployed or hard-to-employ make the transition to work faster, more effectively, and with better earning prospects. .............................................................................................. 35 Dimension 2: Workers and companies have access to relevant and costeffective workforce training mechanisms ................................................................... 37 Dimension 3: Workers have greater access to sustainable social insurance systems that foster formal employment ....................................................................... 37 Dimension 4: Institution-strengthening ....................................................................... 38
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ANNEXES ANNEX I
ANNEX II
FIGURES Figure 1.
Labor markets in the Social Strategy for Equity and Productivity
Figure 2.
Factors contributing to the creation of better jobs
GRAPHS Graph 1.
Labor productivity growth, 1989 = 100
Graph 2.
Inequality, LAC and rest of world, 2010
Graph 3.
Unemployment rates: young people vs. adults
Graph 4.
Percentage of young population neither in education nor in employment or seeking jobs, or unemployed
Graph 5.
Percentage of young population neither in education nor in employment or seeking jobs, or unemployed by household socioeconomic level (excluding young people’s income)
Graph 6.
Population age distribution in LAC
Graph 7.
Labor force participation rate, by gender
Graph 8.
Adult labor force participation rate, by level of education
Graph 9.
Adult unemployment rate, by level of education
Graph 10.
Employed adult informality rate, by level of education
Graph 11.
Formality rate among the employed
Graph 12.
Formality rate among the employed by earnings decile in LAC
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ABBREVIATIONS
CAF CIMO CSO DEM EU-12 GCI-9 ICAS ILO LIS LAC MIF MoU MSE NCB NCP NEO NGO OAS OECD OVE PCR PISA PMR PPP SFD SMEs TEP
Development Bank of Latin America Programa de Calidad Integral y Modernizaci贸n [Integral Quality and Modernization Program] Civil society organization Development Effectiveness Matrix European Union (Member States prior to enlargement in 1994) Ninth General Capital Increase, or Ninth General Increase in the Resources of the IDB Institutional Capacity Assessment System International Labour Organization Labor intermediation services Latin America and the Caribbean Multilateral Investment Fund Memorandum of understanding Micro and small enterprises Noncontributory benefits Noncontributory pensions New employment opportunities Nongovernmental organization Organization of American States Organisation for Economic Co-operation and Development Office of Evaluation and Oversight Project completion report Program for International Student Assessments Performance monitoring report Public-private partnerships Sector Framework Document Small and medium-sized enterprises Temporary employment programs
I. LABOR MARKETS IN THE CONTEXT OF THE
BANK’S SECTOR STRATEGIES A.
The Labor SFD in the context of the sector strategies in force
1.1
This Sector Framework Document (SFD) presents the Bank’s priorities for the labor sector, setting guidelines for the Bank’s action through its financial and nonfinancial instruments, including loans with and without sovereign guarantee. The Labor SFD proposes a guide for the Bank’s dialogue with borrowing member countries in the sector, defines the main themes of analytical and operational work to promote the creation of better jobs (productive and formal, i.e., with access to social insurance and protection under labor laws), as an essential part of a strategy to achieve greater growth with equity.
1.2
The content of this Labor SFD has been prepared in accordance with the document, “Strategies, policies, sector frameworks, and guidelines at the IDB” (document GN-2670-1), which assigns responsibility for the labor sector to the social sector and calls for sector regulatory instruments to be revamped, in order to enhance the Bank’s effectiveness, consistent with the mandates of the IDB’s Ninth General Capital Increase (GCI-9). Once approved, this SFD will be updated every three years.
B.
The Labor SFD as part of the Strategy on Social Policy for Equity and Productivity
1.3
This SFD fits into the Strategy on Social Policy for Equity and Productivity (document GN-2588-4) (hereinafter the “Social Strategy”), which aims to improve the effectiveness of the Bank in promoting social policies that enhance equity and productivity in the region. The Social Strategy focuses on investments in people that build human capital throughout the life cycle, facilitate access to the labor market, help them manage risk, including risks of ill health, poverty in old age, loss of employment, and destitution, and support them to attain a certain level of consumption. Thus, interventions geared toward improving the functioning of labor markets and extending the coverage of social security constitute one of the seven priority areas established in the Social Strategy.
1.4
Thus, in keeping with the Social Strategy’s life cycle approach, this SFD gives priority to labor-market interventions with the following aims: (i) the region’s young people, the unemployed, underemployed or hard-to-employ make the transition to work faster, more effectively, and with better earning prospects; (ii) workers and companies have access to relevant and cost-effective workforce training mechanisms; (iii) workers have greater access to sustainable social insurance systems that foster formal employment, regardless of occupational category (self-employed, wage earner or other) (Figure 1). These dimensions respond to the challenges faced by the region, and consequently to country demand (see Section III) and the areas where the Bank has a comparative advantage (see Section IV). Additionally, drawing on lessons learned (see Section V), investment in the institutional strengthening of the sector is proposed. Implementing these
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priorities means giving less priority to other areas of labor policy, such as interventions in occupational health and safety and prevention of job-related injury, migration, creation of green jobs, ratification of labor standards, eradication of child labor and forced labor, strengthening of unions, wage negotiations, or promotion of social dialogue, where the Bank will coordinate with other institutions (see Section IV) that have comparative advantages. 1.5
In the implementation of this SFD, the Bank will strive to adapt interventions to each country’s specific needs, characteristics, and demands, recognizing the heterogeneity of the countries of the region and the fact that there are no cookiecutter approaches; rather, the policy options depended on the size, economic structure, development models, and degree of institutional development of each country, among other factors. Thus, this SFD serves as an input for country dialogue, and as such is strategic and indicative, rather than restrictive. The specific features of interventions, prioritization of activities in each country, and integral approach of actions to create better jobs will be based on the sector notes, which will serve as input for the respective country strategies, based on dialogue with the countries and geared to their demands. Given that this is the Bank’s first sector framework document for labor, it does not replace any existing policy.
1.6
Creating better jobs is the driver of sustainable and equitable development. This document recognizes that, given the complexity and many different factors involved in creating better jobs, the proposed dimensions are just part of the solution to the challenges of job creation in the region, and significant coordination will be required with other sectors of the Bank that influence economic activity and employment. Thus, an important part of this agenda calls for the promotion of economic stability and the creation and growth of new businesses through effective fiscal policies, access to lending, adoption of improved technologies, and other productive development policies (ECLAC, 2012; Almeida et al., 2012a; World Bank, 2012). It also requires educational and social protection policies that contribute to the quality of job offerings. Figure 2 lists the factors contributing to the creation of better jobs, highlighting those proposed in this SFD, which stand apart from the rest because the workers are the direct beneficiaries. As a result, this Labor SFD will be complemented with the Social Protection SFD in terms of projects linking social program beneficiaries with employment services and job market access programs; with the Health and Nutrition SFD in terms of financing social security in health; with the Education and Early Childhood Development SFD in terms of school-to-work transition projects; with the Gender and Diversity SFD in terms of job market access projects for women, indigenous, and Afrodescendant persons; with the Justice and Citizen Security SFD in terms of labor market access and work reintegration for young people at risk of violence, and return-to-work schemes for prison inmates; with the SME Support and Financial Access and Supervision SFD in terms of actions to support the productivity of small and medium-sized enterprises (SMEs) through training for business managers and workers; and with the Fiscal Management SFD in terms of promoting policies to fund social security and pro-employment taxation policies.
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1.7
The starting point for the interventions proposed in this SFD is the fact that, for the vast majority of the population, their labor is their main asset. The aim, therefore, to strengthen this asset by promoting and improving workforce integration of young people, the unemployed and the hard-to-employ; improving active workers’ skills; and ensuring access to social insurance, in particular among the most disadvantaged, thereby promoting equity. The proposed interventions will also promote the growth of aggregate productivity, which is the main driver of longterm growth, through their direct impact on the productivity of workers and the companies where they work; support improvements in the labor market institutions that promote the creation of formal jobs (where productivity is higher than in informal jobs); and, more broadly, encourage the reallocation of workers to more productive jobs.
1.8
This SFD has five sections. This section describes the relationship between the SFD and the existing legislative framework. Section II sets out the international empirical evidence on the effectiveness of labor interventions (institutions, policies, programs). Section III describes the sector’s main challenges in Latin America and the Caribbean. Section IV summarizes the lessons learned from the Bank’s experience in this sector and its areas of comparative advantage. Lastly, Section V presents the goals, principles, dimensions of success, lines of action, and specific activities that will be given priority in the Bank’s work in the sector. II. INTERNATIONAL EVIDENCE ON THE EFFECTIVENESS OF
POLICIES TO ACHIEVE BETTER JOBS 2.1
1
This section describes the international evidence on the effectiveness of labor policies, programs, and institutions at achieving better jobs, differentiating among those with the following aims: (i) young people, the unemployed, or hard-toemploy make the transition to work faster, more effectively, and with better earning prospects; (ii) workers and companies have access to relevant and cost-effective workforce training mechanisms; (iii) workers have greater access to sustainable social insurance systems that foster formal employment, regardless of occupational category (self-employed, wage earner or other). The first two aims are to enable workers to get better jobs by ensuring they are properly informed and by helping them acquire the skills and experience1 the labor market values; the third aim is to ensure that the jobs created have a series of protective mechanisms ensuring workers’ welfare, while allowing economic activity to flourish. These interventions
Skills: ability or motivation to carry out a series of actions. These may be: (i) job-specific skills, defined as the techniques necessary to carry out a particular job which are not readily applicable to other occupations or industries (for example, training in the use of a particular type of loom in the textile industry); (ii) knowledge skills, defined as areas of basic knowledge that form the curriculum in the formal education system: reading, writing, mathematics, reasoning and critical thought; and (iii) behavioral or soft skills, which refer to responsibility, degree of commitment, team-working skills, persistence, and self-control.
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are complementary, and the best results are obtained when a life cycle approach is taken and they are properly sequenced over the course of workers’ lives (IDB Social Strategy, 2011). 2.2
Programs aimed at boosting workforce integration and improving employment are possibly among the most intensively evaluated of all government-funded social programs. Indeed, many impact evaluation techniques were developed based on evaluations of job opportunities programs. Nevertheless, there are still many aspects of the effectiveness of labor market interventions about which knowledge is limited. This summary draws on what is known from the results of the most rigorous evaluations and measurements. Continuing efforts to expand the stock of quality evaluations is essential in order to achieve impact.
A.
Ensuring the employability of school leavers, the unemployed, and other people facing barriers to workforce integration requires the involvement of the productive sector and interventions that are matched to beneficiaries’ needs
2.3
An efficiently operating labor market is one in which a large proportion of working age people are able to find work rapidly and efficiently (in the sense that workers’ characteristics match employers’ requirements). This implies achieving a rapid and efficient transition into work for young people leaving the educational system and other job seekers. This also entails the need to “activate” groups of people who have been inactive for a long time, such as young people who are neither in the labor force nor in education or employment, so they join the labor force.
2.4
To achieve an effective school-to-work transition, links need to be built between education and employment. Generally speaking, countries with education systems linked to the labor market, where there is more emphasis on technical education, show better results in terms of youth employment (Ryan, 2001; Hanushek et al., 2011; Eichhorst et al., 2012) than those counties whose education is more general and/or disconnected from the labor market. The links with the labor market are particularly important for people who have not taken postsecondary education. These links can exist in the context of education with a marked vocational emphasis, as well as general education. The evaluation of the Career Academies program in the United States (Kemple, 1996, 2001, 2008) highlights the positive effect on youth employment of combining vocational components, linked to the labor market, with general secondary education, supplemented with the provision of vocational orientation and the establishment of strong links between training institutions and the productive sector.
2.5
These links are particularly important in the case of technical education.2 Technical education yields better results when it focuses on skills demanded by the market,
2
Technical education is defined as education oriented primarily toward training in operational and instrumental activities, without detriment to humanistic subjects.
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curricula are continuously updated, and priority is given to growing sectors and/or occupations. The studies available indicate that, when differences in students’ skills and characteristics are controlled for, technical education yields average returns similar to those of academic or general education. However, returns vary widely. In Latin America and the Caribbean, for example, a study in Chile found that, depending on the branch of study, returns to technical education may be more or less than those of humanistic education (Bucarey and Urzúa, 2013). The evidence shows that the effectiveness of technical education depends very directly on linking training to labor demand, and the returns largely depend on the ability of vocational completers or academic graduates to find work in the occupation for which they trained (Neuman and Ziderman, 1999; Eichhorst et al., 2012). 2.6
Employers’ active participation is needed to achieve an effective link between education and work. In particular, it requires: (i) ensuring the active participation and a clear assignment of responsibilities by government, employers, social actors, and educational establishments; (ii) setting up permanent feedback mechanisms between employers and the educational sector, such as agreements between companies and training centers and including businesspeople on centers’ boards of governors; or (iii) establishing programs in which students combine classroom teaching with onthe-job training, according to predefined curricula. To this end it is essential to develop incentives and an institutional framework that stimulates this employer participation effectively. Linking school and work also requires that technical education be aligned with, and part of, sector policies to stimulate productivity, and that there be effective systems to anticipate skills demand.
2.7
Young people (and their families) need information and guidance about their options and labor-market returns in order to make the best decisions (ILO, 2012a). Deciding what occupation to pursue is complex and often based on very limited information. This can lead to sub-optimal decisions, such as choosing courses or occupations with low returns or having false expectations. The preliminary findings of certain studies suggest that interventions geared towards informing young people and their families about returns to different educational options (for example, technical or general education, or which field to choose within technical education), providing vocational orientation, and providing information about earnings and employment rates per occupation, could be a cost-effective way of improving decision-making (Goux, Gurgand and Maurin, 2013; Jensen, 2010).
2.8
Certain groups require more effort to integrate them into the workforce. The group of policies seeking to achieve the rapid and efficient workforce integration or reintegration of unemployed workers or hard-to-employ vulnerable persons are termed Active Labor Market Policies. Those in the latter category include young people who are at a disadvantage because they dropped out of the educational system or left without having acquired the skills employers’ need, women who have spent a long time out of the labor market, the poor, and in some cases, beneficiaries of social protection programs, older adults, people with disabilities, ex-convicts seeking to rejoin the labor market, people living in areas in which
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violence is rife, or who suffer job discrimination on account of their gender, race, ethnicity or other personal characteristics. Active Labor Market Policies include labor intermediation services, training policies aimed at people outside the labor market, subsidized hiring policies aimed at particular groups, policies to support work creation through self-employment, etc. 2.9
Achieving more rapid and efficient workforce integration calls for interventions to be adapted to meet beneficiaries’ needs. Different individuals face different obstacles to joining the workforce. These obstacles may derive from a lack of information about the location of vacancies, discrimination, or a lack of the knowledge (mathematics or language), occupational, or soft skills (see footnote 1) demanded by companies. Thus, it is essential to correctly diagnose the obstacles to workforce integration people face, develop a flexible range of interventions, and guide beneficiaries towards the most appropriate interventions. This is especially important in groups that face special barriers. For example, lack of child care is often an important barrier for women, preventing them from developing skills, joining the labor market, or entering the formal sector (Todd, 2013).
2.10
Labor intermediation services (LISs) represent a cost-effective policy for promoting better workforce integration when the problem is a lack of information. LISs aim to bring job-seekers and vacancies together through employment offices, job search assistance, vacancy advice and placements, and by helping companies select candidates. In more developed countries, LIS can include running and/or linking up with training programs, unemployment insurance, and social programs (Mazza, 2011). LISs need to be understood as a system including public employment services, private employment services (such as private employment exchanges or temporary placement agencies), and civil society organizations (CSOs) enabling linkages (ILO, 2012b). In this system, an important role of public policy is to articulate the various different suppliers, although it is still a matter of debate who should pay for the labor intermediation provided by the State and whether the activity of the public sector should concentrate on direct service provision, or conversely, subcontract to private suppliers and CSOs. In future, interventions should consider these issues in the design, and evaluate the relative advantages of the various modalities. The empirical evidence, most of which comes from developed countries, shows labor intermediation to be a cost-effective way of bringing job-seekers and jobs together (Card, et al. 2011). In Latin America, one study shows Mexico’s public Employment Service to help the unemployed find jobs with higher incomes than those using other search mechanisms, although this impact was only found in the case of men (Flores Lima, 2010). LISs are also cost-effective relative to other Active Labor Market Policies (Kluve, 2006, 2010). The evidence suggests that LISs are most effective in: (i) periods and areas where
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most vacancies arise (Crépon et al., 2010; Flores Lima, 2013b);3 and (ii) when they are more focused on companies, designating specialized personnel to work with them and identify vacancies (Behncke et al., 2007). 2.11
Active Labor Market Policies emphasizing intermediation are more effective at promoting workforce integration than those emphasizing only classroom training. International evidence shows that programs seeking to improve the workforce integration of vulnerable people based on short classroom-based training programs teaching transversal or occupational skills have limited impact in terms of promoting more effective workforce integration. By contrast, interventions placing more emphasis on labor intermediation, including guidance and placements in vacancies, combined with short classroom-based training programs and in-company vocational training, have obtained better results in terms of increasing employment rates and earnings among vulnerable groups (Urzúa and Puentes, 2010; González, Ripani and Rosas, 2012; Hotz et al., 2000; MIF 2012). However, it should be noted that the returns on classroom-based training programs tend to increase with the time elapsed since taking part in the program (Card et al., 2010; Hotz et al., 2000) and that it is therefore necessary to invest in measuring the effects of the two types of programs over time to determine their relative cost-effectiveness.
2.12
Training programs for the unemployed or vulnerable workers have more impact for women and older adults than for young people, but there is a wide variation between regions. Training programs to improve the skills of the unemployed or vulnerable groups tend to give better results in terms of employment and earnings for the adult population than young people, and among adults, better results for women than for men (Dar and Tzannatos, 1999; Betcherman, Olivas and Dar, 2004; Kluve, 2006; Card et al., 2010). As regards young people, the bulk of the international literature shows youth training programs outside of school to have negligible or insignificant impact. The literature is also ambiguous on the subject of the impact of these programs on the incidence of crime among the young. In some cases, programs had no significant impact on the incidence of criminal activities (Miller et al., 2005; Kemple and Snipes, 2008; and Schochet et al., 2008); in others, participation in a program with a training component, such as Jobstart, Service and Conservation Corps, and National Job Corps, was associated with a reduction in criminal behavior (Cave et al., 1993; Jastrzab et al., 1996; and Schochet et al., 2008). In Latin America impact evaluations show more promising results for workforce integration of young people, perhaps because the majority of programs in the region have incorporated some of the elements considered successful in the literature: participation of private suppliers, demand driver mechanisms, a significant labor intermediation component,
3
Crépon et al. (2010) show that in recessions and in areas where vacancies are scarce, strong emphasis on intermediation may result in displacement effects, i.e. lead to companies hiring people served by LISs rather than those who are not. The authors therefore recommend bolstering unemployment insurance in recessions rather than promoting more search efforts. Nevertheless, LISs still play a role in periods of low economic activity, linking and directing individuals to the offer of interventions specifically designed to alleviate the situation of low job creation during economic crises (Finn, 2011).
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and a strong emphasis on on-the-job training (González, Ripani and Rosas, 2012; Urzúa and Puentes, 2010).4 Other elements the literature suggests are necessary to enhance the effectiveness of these programs include: (i) ensuring the quality of both classroom and on-the-job training, for example, through periodic accreditation processes for training institutions and on-the-job instructors, and/or monitoring the performance of graduates in the labor market; (ii) incorporating modules for the development of soft skills, such as self-esteem, perseverance, self-control, motivation, responsibility, and commitment;5 and (iii) integrating training programs for vulnerable groups in the lifelong training system (see Section II.B). As yet, little is known about whether these programs are effective at reducing crime among young people in the region. 2.13
Apprenticeship programs may be a good passport to better jobs for young people outside the school system. For example, an evaluation of the German Apprenticeship Training program, aimed at young people who have left the educational system, found returns similar to those estimated for general education. Moreover, evidence was found that apprenticeship program graduates are transferable to a broad range of occupations (Clark and Farh, 2001). Similarly, an evaluation of the Registered Apprenticeships system in the United States, which is aimed at young people who have graduated from the school system, found that program participants obtained relatively high returns, with a powerful effect on both incomes and likelihood of being in work, even nine years after graduating from the program (Reed et al., 2012). The program’s cost-benefit analysis is broadly positive, even in the most pessimistic scenarios (Lerman, 2013). The major challenges for these initiatives in the region are the high level of informality, the possibility of them being used as a means of obtaining cheap labor (ILO, 2012a), making sure that businesses are involved, in order to have a sufficient supply of formal vacancies for apprentices, and ensuring instruction at quality firms. As with training programs, these initiatives need to be integrated within a broad system of lifelong training.
2.14
Relatively little is yet known about how to improve workforce integration and the income generating capacity of the poorest adult population, with limited human and physical capital (Almeida et al., 2012b). Various types of program have been experimented with, both in the region and elsewhere, including: training programs, employment subsidies for certain types of workers, and support to micro-
4 5
There are as yet no rigorous evaluations of the effect of these programs on crime rates in the region. The importance of programs that aim to strengthen young people’s soft skills is increasingly being recognized (González, Ripani and Rosas Shady, 2012). Various studies have found the noncognitive skills associated with self-esteem, perseverance, and self-control (Cuhna and Heckman, 2010; Carneiro and Heckman, 2003; Heckman et al., 2006), and those relating to motivation, responsibility, and commitment (Bassi et al., 2011, and World Bank, 2011) to have a significant impact on employment, educational, and social outcomes. Unlike cognitive skills, which are established at an early age, soft skills are still malleable at more advanced ages, which suggests a greater return on investments in noncognitive skills among young people (Carneiro and Heckman, 2003; Heckman, 2000). Despite their importance, relatively little is yet known about the best way of transmitting them.
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entrepreneurship. At present relatively little is known about whether these programs manage to offer a better standard of living to these individuals on a lasting basis. For example, evaluations of subsidies (Gallaso et al., 2001; Groh et al., 2011; PD&R, 2004; Centro de Microdatos, 2012) suggest that these interventions may be effective at increasing beneficiaries’ employment rates, but that the cost of employing the target group needs to be altered permanently in order for the effect to continue over time. Moreover, there is evidence that programs to stimulate selfemployment may boost income and increase the likelihood of being employed for highly vulnerable workers who, prior to the intervention were unemployed or inactive, but to date, the existing evaluations suggest this type of intervention to be of limited effectiveness in achieving an increase in profits and/or earnings for existing micro-business owners (de Melo et al., 2012; Martínez et al., 2013). It is therefore necessary to continue investing in evaluating the impact and costeffectiveness of interventions in these areas. B.
Promoting the productivity of active workers requires more emphasis on quality and results and greater employer engagement
2.15
A labor force with continually updated knowledge is essential to ensure equitable growth in a context of rapid technological change. The labor force’s stock of skills and competencies has a significant impact on economic growth and welfare (OECD, 1994, 2001; Hanushek and Woessmann, 2008). The bigger the effort a country makes to accumulate human capital, the closer the technological frontier will be, and the higher the level of labor productivity. The skills (education and/or training) people acquire while in work (Bassi, Rucci and Urzúa, 2013) are also important, as well as the education they receive before entering the labor market. A lifelong training strategy envisages the depreciation of human capital, promoting people’s employability over their working life and ensuring effective use of new technologies.
2.16
Economic theory suggests that in the absence of public intervention there is likely to be underinvestment in training. This underinvestment may be the result of workers’ lack of access to credit or funds to pay for their training, and/or the inability of businesses to appropriate investments in human capital. In this latter case, the problem derives from employers’ lack of incentives to invest in their workers, due to the risk of losing the investment if the worker leaves the company.6 Insufficient information about returns on training, both for companies and workers, can also lead to underinvestment. In practice, however, it is difficult to measure the degree of underinvestment and this is a pending issue in the literature (Bassanini, Booth, Brunello, de Paola and Leuven, 2005).
6
The fact that employers cannot recoup the cost of the investment by paying lower salaries also compounds the problem, and this is a particular issue in the case of general education, which is recognized and valued by other employers.
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2.17
The evidence also suggests that company-funded training mainly benefits the most qualified workers. There is abundant evidence that on-the-job training favors workers with higher levels of formal education (Bassanini et al., 2005; Hunneus et al., 2010) and that workers with higher educational levels receive more training (Hunneus et al., 2012). Thus, training widens rather than narrows the skills gaps existing when workers join the labor market.
2.18
To address these problems, most countries have put in place incentives to encourage training of active workers. These incentives have been aimed at workers and/or companies. In the case of incentives for workers, interventions center on making training more affordable by subsidizing all or part of the cost of training offered, or by giving workers vouchers they can use to obtain a discount on the cost of training at the center of their choice. In the case of companies, the incentives are aimed at promoting investments in workers’ training, via tax exemptions, subsidies, systems by which companies have to demonstrate that they have spent a certain amount on training or pay this amount to the State (“train or pay”), or as in most Latin America and Caribbean countries, by charging a mandatory contribution on payroll to finance national training institutes.
2.19
Despite the popularity of this kind of incentive, little is known about its effectiveness. For example, the literature generally finds employer-financed training (whether classroom-based or in the workplace) to increase workers’ productivity and earnings (Bassanini et al., 2005). However, there have as yet been relatively few studies analyzing whether public interventions to incentivize more investment in training by companies lead to more training, increased productivity, or higher earnings. Similarly, the literature finds that worker training has positive effects on earnings, tenure, and quality of employment, but few incentive programs aimed at promoting workers’ acquisition of skills over the course of their working life have been evaluated. Going forward, it would be desirable to design interventions in this area in such a way that their effectiveness in promoting higher levels of training and their impact on labor productivity and wages can be rigorously evaluated.
2.20
Conditions for enhanced effectiveness. Although the knowledge deriving from impact evaluations on this point is still limited, certain conclusions can be extrapolated. To boost skills development in the active labor force it is necessary to: (i) establish rigorous quality standards for training institutions; (ii) ensure the relevance of the training content by establishing strong linkage mechanisms between training sector institutions and the productive sector, and by actively promoting public-private partnerships (PPP) to achieve shared objectives; (iii) target interventions to those workers or businesses that would not otherwise invest but would benefit from the investment, and lay down well defined targeting criteria, particularly when the aim of the interventions is to alleviate workers’ liquidity constraints; (iv) diagnose individuals’ skills before providing training; (v) foster certification of skills, to make them portable, recognized and valued by more than
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one company;7 (vi) generate information on results and impacts, publish this information so it is available to all stakeholders, and develop bodies with the task of generating evidence on the impact of the vocational training system; (vii) finance results-based training processes;8 and (viii) coordinate and articulate training systems for active workers with education systems, training systems for the unemployed, taking a lifelong learning approach. 2.21
Education and training policies can also play an important role in addressing failures of coordination in the development of strategic sectors or territorial development by linking training policies to development strategies. The experience of the Southeast Asian countries shows how the development of technical education and training strategies driven by demand but led by the government has been effective in better matching worker skills to development strategies and objectives (Almeida et al., 2012b).
2.22
Training programs for managers and workers based on a comprehensive diagnostic assessment of how to improve firm productivity can bring about improvements in firm productivity. An evaluation of Mexico’s Integral Quality and Modernization Program (CIMO), which provided cofinancing for technical assistance, training for managers and workers of micro and small enterprises (MSEs) based on a comprehensive assessment of the firm’s needs, and opportunities to serve/associate groups of companies, significantly boosted the impact on the incidence of training for employees, adoption of quality systems, and firm productivity (Tan and López Acevedo, 2005). A recent study that analyzed the effect of providing management training and consulting to business managers in India found very significant effects on firm productivity (Bloom et al., 2013).
C.
Achieving better working conditions and better social insurance against illness, disability, poverty in old age, or unemployment requires institutional changes and innovations in policy design
2.23
Labor laws and social security systems aim to promote worker welfare. In most countries labor laws exist that establish the terms of a relationship of employment, and, among other things, stipulate the conditions of hiring, dismissal, working hours, forms of payment, and benefits workers are entitled to, as part of this employment relationship. Moreover, almost all countries have social security programs that aim to protect workers, and in some instances the general population,
7
This is facilitated when there are standards for what people should know in order to be competent at performing a certain task or activity, and frameworks of qualifications in which these standards can be situated, allowing the individual to follow an educational path.
8
The State may finance or cofinance companies (for them to train their workers) or workers (for them to train themselves) or training centers directly. Good systems are evolving from a situation in which they demanded and measured results based on achieving certification to one in which they demand results related to performance in the labor market. They also promote the generation and dissemination of information on results, and withdraw funding from suppliers (public or private) that do not achieve the agreed results.
- 12 -
against risks of illness and maternity, old-age poverty, disability, death or unemployment. In the vast majority of countries these programs are part of a package of benefits financed from social-security contributions, although in some cases these services are paid for with general resources. Labor and social security laws tend to be studied separately, yet the fact that these two bodies of law contain complementary provisions and should be enforced simultaneously makes it advisable to study them together. 2.24
The limited coverage of labor and social security laws, and their scant enforcement, represent significant challenges for the design and operation of these systems. One of the most important challenges facing the region’s labor markets is the high percentage of workers in many countries who work under conditions that evade the provisions of labor law and/or do not contribute to the social security system, known in the region as informal workers.9 The low coverage and high evasion rates generate inequity and large gaps in coverage (ECLAC, 2012; Bosch, Melguizo and Pagés, 2013). Achieving quality universal coverage, regardless of type of employment, will require rethinking systems to provide effective protection and mitigate vulnerability to risks of illness, old-age poverty, and loss of employment and/or income caused by economic crises or structural change. How social insurance systems and working conditions are improved will vary from country to country, depending on productive structure, level of institutional development, fiscal position, and other factors. These improvements can be made by establishing a set of policies seeking or promoting expansion of the noncontributory pillars— funded with public resources—and increased coverage of existing contributory systems (Bosch, Melguizo and Pagés, 2012) or redesign of the systems so as to provide universal coverage (Levy, 2008; Antón et al., 2012).10
2.25
The noncontributory pillars have promoted rapid and in some cases very sizable expansions in coverage, but it is essential to design them so as to be financially sustainable and not to compete with the contributory pillars. Delivering benefits not associated with contributions is the only way, in the short term, to ensure a minimum income in old age for generations that did not participate in the labor market or did so as informal workers (Bosch, Melguizo and Pagés, 2012). It is also a way to deliver health benefits for workers in the informal sector. Extending these mechanisms to those who did not participate in the contributory pillars has enabled
9
According to the Seventeenth International Conference on Labor Statistics, informal workers include the self-employed and employers or owners of unregistered businesses, auxiliary family workers, members of unregistered producer cooperatives, and wage workers not enrolled in social security or subject to labor laws.
10
The ILO and World Bank, among other institutions, have also emphasized the importance of poverty alleviation and enhancement of equity and social inclusion through redistributive or solidarity mechanisms. The World Bank emphasizes the failures of efficiency and effectiveness in the granting of pensions (Holzmann and Hinz, 2005). The ILO emphasizes the high degree of social exclusion to which the most vulnerable groups are subject. They therefore advocate a noncontributory pillar for the most vulnerable, or “zero pillar” (World Bank) or social protection floor (ILO, 2012c).
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a very significant expansion of coverage in the region (see Section 3), with positive effects on beneficiary consumption and on the reduction of poverty and inequality (Attanasio, Meguir and Otero, forthcoming; Galiani and Gertler, 2009; Gasparini et al., 2007). It is important, however to ensure that their design does not reduce the incentives to participate in the contributory systems. Thus, whereas universal noncontributory programs—i.e., those in which the benefits are obtained by all workers regardless of employment status, funded from general resources (such as Bolivia's universal pension)—should not alter worker decisions to contribute, this cannot be the case for programs in which the benefit is granted only if the worker does not participate in the contributory systems or does not reach pensionable age. The literature shows evidence that these effects are large enough for these factors to merit specific attention in the design of social security programs (Levy, 2008; Kaplan et al., 2013; Bosch, Melguizo and Pagés, 2013). The evidence suggests that the coexistence of contributory and noncontributory programs, where workers in the contributory programs must contribute based on their earnings, and those outside the contributory system receive benefits at no cost, can reduce the incentives to contribute and thereby favor informality (Levy, 2008; Bosch, Cobacho and Pagés, 2013; Camacho et al, 2012; Garganta and Gasparini, 2012). In addition, a simulation study for Chile carried out in the context of the pensions system reform in 2008, which expanded and reformed the noncontributory pillar, suggests that this can have a significant impact, increasing informality (Attanasio, Meguir and Otero, 2011).11 Another adverse effect of programs that segment protection according to whether the workers are formal or informal, particularly in the case of health benefits, is that efficiency is reduced because, given the large transitions between the two types of employment (see Section III), people receive different degrees of coverage from different systems at different points in time.12 For all these reasons, establishing universal noncontributory benefits may achieve better results from the standpoint of equity, resource allocation, and efficiency in service delivery than establishing systems that only grant free-ride benefits to noncontributors. 2.26
11
12
Ensuring the sustainability of noncontributory systems, and pensions in particular, means factoring in the cost of population aging. Strategies that can help guarantee sustainability include indexing pensions to inflation, including the cost of NCPs in fiscal rules, setting up independent fiscal boards, or tying pension payments to
The studies also show that another effect of noncontributory pension or health programs is that they can reduce intrafamilial transfers. In Mexico, for example, Juarez and Pfutze (2012) show that for each public peso spent on the new solidarity pillar, private transfers from family members to the elderly person concerned decline by 0.87 cents of a peso. This suggests that part of the benefit of noncontributory programs extends to family members who were supporting the elderly person financially. In terms of access to health care, this means being covered by various different types of insurance at different times, with the portability problems, possible lack of coverage for preexisting risks, or moral hazard that this entails. In terms of pensions, this may mean that many people do not obtain a pension even when they pay contributions for some period of time because they do not complete the minimum contribution period.
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specific funding sources. Depending on countries’ preferences, NCPs can cover the whole population, constituting an antipoverty pillar, for all workers or for the poorest. Each of these options has pros and cons. Targeting lowers the cost of the NCP, since it is concentrated on the poorest of the poor. A universal-type pension, whether for all workers or all citizens, is easier to execute because no targeting system is required. Moreover, the accumulation of targeted programs (social assistance, social security) may lead to poverty traps. 2.27
Another main route to expand the coverage of social security systems is to promote job creation in the formal sector. However, the causes of high levels of informality are multidimensional and far from being well understood. In addition, the countries of the region are grappling with disparate levels of informality, so the causes of this phenomenon, as well as the solutions, are diverse. Some authors emphasize an “exclusion” model for workers employed in the informal sector, which is also characterized by low productivity and a lack of opportunities or job creation in high productivity formal sectors (ECLAC, 2010; ECLAC, 2012). Others emphasize a “selection” model with employers and workers choosing their optimal level of adherence to government mandates, where the incentives align in such a way that firms and/or workers prefer informality. These two approaches complement one another, rather than conflict, since the mechanisms giving rise to the informal sector may vary significantly from country to country (Gomez Sabaini and Morán, 2012; Perry et al., 2006). Among the factors affecting the choices made by individuals, those reducing benefits or increasing the perceived costs of formality stand out. The literature has empathized the following, interdependent factors: (i) low value placed on the benefits delivered by social security in relation to the contribution amount; (ii) high costs associated with compliance with labor laws and tax regulations; (iii) insufficient capacity to absorb these costs by low-productivity firms and lowincome individuals; (iv) insufficient government enforcement capacity; and (v) a high proportion of nonwage employment subject to seasonality and inertia problems, which behavioral economics has emphasized as obstacles to nonwage workers contributing to social security, when faced with the need to make their own contributions without automatic withholding by their employers. Each of these reasons has given rise to different policies to expand system coverage.13 Economic theory and the few evaluations there have been of such policies yield the following lessons on how to expand coverage and reduce informality.
2.28
Informality is intimately related to the low productivity of firms. Increased productivity needs to be promoted at the least productive businesses, along with the reallocation of workers from less productive to more productive activities. Since productive businesses tend to have greater incentives to operate in the formal sector and higher costs associated with operating in the informal sector, a reallocation of labor to more productive firms and sectors would tend to be associated with a
13
The literature also has emphasized an excessive tax burden or excessive regulations on starting a business as two other factors that can favor informality (De Soto, 1989; Gomez Sabaini and Morán, 2012).
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reduction in informality (ECLAC, 2012). However, the evidence also suggests that in some cases the design of the social security system itself—particularly different rules governing wage earners and nonwage workers—may create incentives for firms and workers to continue operating in the informal sector in low productivity activities (Hsieh and Klenow, 2007; Pagés, 2010; Busso, Fazio and Levy, 2012). 2.29
It is desirable to align the value of benefits with social security contributions. Economic theory suggests that an increase in labor costs translates into less formal employment. However, an increase in social security contributions does not necessarily mean an increase in labor costs. It depends on whether workers value the benefit in relation to the contribution amount. Thus, more than the contributions themselves, the difference between the value people place on the benefits they obtain from these programs and the contribution amount may be what determines the effect on informality. If individuals perceive little value in the benefits of formalization in relation to its costs, economic theory predicts that individuals and/or firms will seek to evade, giving rise to informality. The evidence also suggests that these effects may differ from country to country. Two studies in Chile and Argentina indicate that in these countries decreases in social security contributions are passed on to workers in full as higher wages, without any effect on formal employment (Gruber, 1997 and Cruces et al., 2010). Two more studies in Turkey and Colombia found discounts on social security contributions to lead to more formal employment (Betcherman et al., 2010 and Kugler and Kugler, 2003). Similarly, a study in Uruguay found that improving the social security benefits for certain groups of workers led to an increase in formal employment among the beneficiary group, even when contribution rates increased (Bergolo and Cruces, 2012). The evidence also suggests that the more workers value the benefit, the less impact social security contributions have on formal employment. Therefore, measures to raise awareness of the system and improve individuals’ pension saving habits, can also increase formality.
2.30
The fact that financing social security with employee-employer payroll contributions may affect job creation in the formal sector suggests that, in order to add more workers to social security systems, it may be necessary to subsidize contributions, particularly those of low-income workers (Bosch, Melguizo and Pagés, 2013) from general resources, or to completely uncouple the financing of social security from employment taxes, as has been done for health insurance in some countries; Levy, 2008; Antón et al., 2012). This is the argument that has prompted sizable reductions in employee-employer payroll contributions under Colombia’s recent tax reform or transfers of employer social contributions from payroll to other taxes, such as the SIMPLES program for small businesses and the recent “unburdening” of certain sectors in Brazil. This is due to the likelihood that, for low-income workers, their earnings may be insufficient to buy essential consumer goods while also absorbing the cost of the benefits associated with social security and labor law, which tends to be the case when the benefits package as a whole costs more than 50% of wages (Pagés, 2010). Workers’ inability to absorb this cost would transfer it to the firm, which, as a result of weak enforcement and/or
- 16 -
low productivity, may opt to hire workers informally. The fact that: (i) a large majority of individuals report insufficient income as the main reason for not contributing to the social security system; and that (ii) in Latin America and the Caribbean low-income and low-educated workers are much less likely to be contributing to the social security system, irrespective of the size of the company they work for, is consistent with this hypothesis. 2.31
The extent and features of labor legislation must be weighed carefully, country by country, to balance the objectives of protection, income distribution, and job creation in the formal sector. Differences in productive structure, enforcement capacity, or the degree of open trade practices may cause the same legislation to have very different impacts from country to country on income redistribution and job creation in the formal sector. Labor legislation that is too permissive may lead to job uncertainty or have no impact at all on wage levels or job quality; labor legislation that is too burdensome on firms may reduce job creation in the formal sector and concentrate the labor force in the informal sector (World Bank, 2013; ILO, 2013).14 The adverse effects may be associated with the uncertainty deriving from legal proceedings for dismissal, and the fact that the lawsuits can take years to resolve and/or entail ruinous outlays for firms (Kaplan and Sadka, 2011). They can also be attributed to the fact that such regulations can hinder the reallocation of workers to more productive jobs.
2.32
The enforcement capacity of the State needs to be improved. The lack of monitoring and enforcement capacity to a large extent allows workers and firms to operate in the informal economy. However, in many cases there is ambiguity over the preferences of the State in relation to the existence of informal work. On the one hand, the law stipulates large fines for companies failing to comply with the regulations. And on the other, oversight mainly targets large companies, ignoring small businesses and the self-employed, who are often not even obliged to pay contributions, partly because of enforcement difficulties. Part of this ambivalence also derives from the State’s recognizing the informal sector as a major source of job creation. A less permissive approach to informal work may result in more formal employment, but possibly also in higher unemployment (Andrade, Bruhn and McKenzie, 2012, Almeida and Carneiro, 2012). To minimize this adverse effect, it is important to enhance
14
The effect of labor regulations on employment levels is still being debated in the literature, despite numerous studies, in part because of the econometric difficulties of estimating the effect of regulations that change very infrequently and in principle apply to the entire population, making it hard to find control groups. A series of studies seeking to estimate the impact of legislation using differences in the law from state to state within a single country, such as Besley and Burguess, 2004 (India) Ahsan and PagĂŠs, 2009 (India), and Autor, Donohue and Schwab, 2006 (U.S.), or using the impact on different industries (Micco and PagĂŠs, 2006), found that legislation that is highly burdensome for firms has adverse impacts on the level of formal employment or on employment in the industries most affected by the legislation (more labor intensive or more volatile demand). Other studies, however, particularly those based on aggregate data for a sample of countries, did not find a significant impact on employment (see World Bank, 2013, for a recent analysis of the evidence).
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enforcement capacity at the same time as other pro-formalization measures are implemented. 2.33
Automatic contribution mechanisms are needed for self-employed workers. A large proportion of workers do not have an employment relationship allowing them to pay social security contributions automatically. These groups (the self-employed, commission agents, unpaid family workers, domestic workers), on top of the problems of the lack of alignment between contributions and benefits, and the scant enforcement of the labor market regulations already mentioned, face additional challenges to achieving full integration in the social security system. Behavioral economics literature (Choi et al., 2004; Madrian and Shea, 2001) shows that the nonexistence of these automatic mechanisms may be one of the main causes of these groups’ low coverage and lack of pension savings. Innovations are needed to automate payments to social security by these collectives (such as direct debit or via payment of water or electricity bills).
2.34
Poverty-reduction interventions need to be designed carefully, to avoid disincentives to formal work. Studies to date suggest that poverty-reduction policies such as conditional cash transfers have not impacted the labor participation rate (Fiszbein and Schady, 2009). Similar studies in Brazil (Fogel and Paes de Barros, 2010) and Mexico (Bosch, Stampini and Bedoya, 2012) found no effect on formal employment or on the labor participation rate, respectively, for beneficiaries of the Bolsa FamĂlia and Oportunidades conditional cash transfer programs. However, two recent studies suggest that, in some cases, such policies may reduce the incentives for beneficiaries to seek formal work (Amarante, Manacorda, Vigorito and Zerpa, 2011 for Uruguay, and Bosch, Maldonado and Shady, 2013 for Ecuador). This type of behavior may be motivated by fear of losing the cash transfer after obtaining a formal job. The evidence from these studies should not be interpreted as an argument against such programs, but as an argument for adjusting them so as to prevent such effects where they are found, continue, or intensify over time. It also points to the great diversity of impacts that policies of this kind have from country to country, and therefore highlights the importance of examining the impact of social protection policies on a country-by-country basis.
2.35
It is necessary to improve protections for the unemployed. Unemployment causes a loss of income in the short term that can have long-term consequences. To mitigate this loss, the evidence suggests the need for policies to smooth consumption for workers and their families (Gruber, 1997; Jacobson, Lalonde and Sullivan, 1993), and for instruments that enable a more effective job search. At the macroeconomic level, income support to the unemployed is a key factor in containing the decline in demand during crises (ILO, 2013).
2.36
All unemployment protection instruments need to be considered together in an integrated manner. There are at least three mechanisms for protecting worker incomes during unemployment: (i) severance pay; (ii) unemployment insurance; and (iii) temporary work programs. The first two cover formal workers; temporary work programs are usually aimed at poor and vulnerable unemployed workers in
- 18 -
times of economic crisis, who in most cases have lost informal jobs. In general these mechanisms are analyzed and adjusted separately, but well-designed unemployment protection needs to consider them together in an integrated manner (Blanchard and Tirole, 2008). Historically, severance pay is partly a response to the State’s inability to administer unemployment insurance. As States improve their management and administration capabilities, countries can consider creating unemployment insurance mechanisms, adjusting the legislation on severance pay at the same time.15 2.37
Unemployment insurance should be designed to be properly linked to active employment policies to ensure it does not deter people from seeking work. The evidence suggests that high replacement rates and, above all, long unemployment insurance benefit periods, can reduce incentives to look for work and thus raise unemployment rates (Lalive et al., 2006; Caliendo et al., 2009; Filges et al., 2013, et al., for developed countries and Amarante et al., 2011; Gonzalez-Rosada et al., 2011; Huneeus et al., 2012 for Latin America and the Caribbean). The literature indicates that unemployment insurance works better when linked to an employment promotion system that includes job search assistance and lower barriers to employment, with more rigorous job-search demands after a certain period has expired, and when they are accompanied by institutional reforms to improve the execution capacity of active employment policies (ILO, 2013; OECD, 2013). The theory and empirical evidence also suggests that disincentives to looking for work may be curbed if a system of decreasing unemployment payments is implemented and payment duration is limited (Hopenhayn and Nicolini, 1997). Finally, although it has been emphasized that unemployment insurance allows a more selective search and better post-unemployment return to the labor market, to date, the available studies have not found evidence of this effect for the region (Amarante et al., 2011; Gerard and Gonzaga, 2012; Medina et al., 2013), perhaps due to the short duration of benefits and the lack of linkages with job search support policies.
2.38
Temporary employment programs (TEP) can also provide income support for the unemployed, particularly the most vulnerable. TEP are usually aimed at informal workers who often find it difficult to provide (documentary) evidence of unemployment and they operate based on a self-selection mechanism, by paying rates below the minimum wage, and being conditional upon the worker’s contributing work during the benefit payment period, which usually lasts from three to six months. The evidence suggests that these programs are effective at supporting income, but do not improve workers’ employability at the end of the intervention. In some cases negative impacts have been reported, associated with the stigma of being on the program, meaning that they work better as a consumption smoothing
15
Thus, Article 22 of the Employment Promotion and Protection Against Unemployment Convention, 1988 (No. 168) provides for severance pay to be adjusted when the worker is covered by unemployment insurance, and vice versa (ILO, 1988. Employment Promotion and Protection Against Unemployment Convention, ILO, Geneva).
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mechanism than a workforce integration mechanism (Gasparini et al., 2007; Hernani et al., 2011; Kluve, 2006; Ninno et al., 2009).16 2.39
More design and analytical work is needed to determine what combination of tools is most appropriate to protect the unemployed in economies with high levels of informality and high worker turnover rates. Adopting protection mechanisms established in developed countries without adapting them to the characteristics of developing economies and the specific features of each country may leave a large portion of the population without coverage. New instruments and/or combinations or adaptations of existing ones need to be analyzed to adapt protection to the specific features of the region’s countries. III. THE REGION’S LABOR CHALLENGES
3.1
Despite recent growth, serious labor-related challenges still persist in Latin America and the Caribbean. The growth the region experienced between 2000 and 2010 translated into improvements in the employment rate (from 62.9% to 64.6%) and a drop in unemployment (from 8.2% to 7.0%), accompanied by growth in the participation rate of almost a percentage point.17 However, serious challenges persist in the region in the labor sphere.
3.2
Labor productivity has risen very slowly. Latin America and the Caribbean’s performance falls short of that of other emerging regions (Conference Board, 2013). In particular, the region’s labor productivity growth has been well below that observed in countries such as China and India, the European Union (EU-12), and is below the average for emerging and developing countries and the world as a whole (Graph 1). Vigorous productivity growth is the only way of producing sustainable increases in workers’ income and living standards.
3.3
Employment income inequality has decreased but remains extremely high. Although inequality (measured using the Gini coefficient) in Latin America and the Caribbean has declined from 54% in 2000 to 50% in 2010, the region’s countries are still among the world’s most unequal (Graph 2). Only the countries of SubSaharan Africa and a few countries in South-East Asia have inequality levels comparable to those of the region.
3.4
Although problems in the labor market are not solely responsible for changes in productivity and equity, the labor market functions as a nexus where the effects of differences in productivity translate into differences in income, productivity gains are distributed, and workers gain access to social protection, all of which have an impact on equity (ECLAC, 2012). At the same time, policies on training and skills development that impact individual productivity, and labor market institutions that
16
17
For example, Plan Trabajar in Argentina or Plan Nacional de Empleo de Emergencia (PLANE) in Bolivia. The authors’ estimates based on IMF data (2013) and household surveys for 19 countries in Latin America and the Caribbean.
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make it easier or harder to reallocate workers to more productive jobs, have an influence on changes in productivity. Consequently, high inequality and low productivity growth are associated with additional challenges in the labor market: A.
Low employability and limited access to work for young people, women, people with a low or medium level of education, indigenous and rural populations
3.5
High youth unemployment is a worldwide phenomenon to which the region is not immune. Four Caribbean countries (Jamaica, Dominican Republic, the Bahamas and Barbados) face the region’s highest youth unemployment rates (32.5%, 28.3%, 26.1% and 26.1%, respectively) (Graph 3), unemployment being one of the most complex economic problems facing the Caribbean (Downes, 2007). At regional level, the unemployment rate among young people aged 15 to 24 is 14.6% (compared with 4.9% for adults aged 25 to 64 years). Moreover, 15.2 million of the region’s young people are neither in education nor in employment or seeking jobs, which when added to the 7.5 million unemployed young people, makes a total of 23% of the population in this age group. This problem is most severe in El Salvador, Jamaica, Bolivia and Belize, where over 30% of young people are neither in education nor in employment (Graph 4),18 and is significantly more acute among young women than young men (ECLAC, 2012). This situation is worse the more precarious the socioeconomic situation of the households young people belong to (Graph 5), increasing the risk of social problems linked to risky behaviors (such as drug addiction or violence).19 Moreover, the majority of young people in work hold low quality jobs; of the 48 million young people who work, 31 million have jobs in the informal sector. The lack of access to jobs has a lasting impact; people suffering from unemployment and informality in their youth tend to have poorer job performance as adults (Cruces, Ham and Viollaz; 2012). The current demographic stage in which young cohorts are particularly large and will continue to be so over the next 10 years makes the need to offer job opportunities to the young particularly pressing (Graph 6).
3.6
The lack of integration between school and work, in conjunction with low quality education, contributes to young people’s limited employability. The region is characterized by a decoupling between the skills taught in schools and the demands of the labor market. This is particularly so in the case of young people who go directly from secondary education to work (Bassi, Busso, Urzúa and Vargas, 2012). One of the region’s other main challenges is also to improve education quality, measured in terms of the learning young people demonstrate on standardized tests. These and other factors lead to many young people lacking the occupational and
18
19
These numbers are influenced by young women, as the total number of young people neither in education nor in employment or seeking jobs includes women dedicated to household chores. According to a semi-experimental study based on surveys in various countries of the region, dropping out of school was identified as a risk factor for criminal behavior (Rubio, 2008).
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soft skills the market requires, making it difficult for them to make the school-towork transition. 3.7
Women’s low participation, higher unemployment, and underemployment rates. Despite improvements over the past decade, female labor force participation in the region remains low (56.4% versus 83.7% for men). The gap is particularly wide in Guyana, Honduras, Belize and Guatemala, where men’s participation rates are twice those of women (Graph 7). Female unemployment is 1.4 times higher than male unemployment. Only in Mexico and El Salvador is male unemployment higher. Underemployment also tends to affect women more: 10.7% of women in the region work fewer than 30 hours a week, but want to work longer (compared with 5.6% of employed men).
3.8
Lower participation rates and unequal access to formal work for people with lower levels of education. Among adult workers (aged 25-64), the region’s labor-force participation rates rise with educational level: 71%, 79% and 86% for workers with low (0-8 years of education), medium (9-13 years) and high (14 years or more) levels of education. The countries with the lowest participation rates among least-educated adults are Chile, Belize, Mexico and El Salvador (Graph 8). In the case of unemployment, unlike the situation in the countries of the Organisation for Economic Co-operation and Development (OECD) where unemployment is highest among the least educated, in Latin America and the Caribbean, unemployment is highest among adult workers with secondary education (5.8% versus 4.5% and 4.4% for workers with low and high levels of education) (Graph 9). Access to formal work (defined in terms of pension scheme contributors or members) rises with educational level. This is a pattern observed in all the countries of the region. On average, 30%, 55% and 72% of workers in the region with low, medium, and high levels of education hold formal jobs (Graph 10). However, there a big differences between countries: in Bolivia and Peru, 4% of less educated workers have formal jobs, while in Uruguay and Costa Rica the percentage rises to 60% and 64%, respectively, for this same group. Informal work usually pays less than formal work. The ratio of the regional average hourly wage for informal to formal work is 0.87, 0.86, and 0.90 in the case of low, medium, and high levels of education, respectively.
3.9
Rural and indigenous workers also face difficulties accessing formal jobs. Although participation and unemployment rates do not show rural workers to be at a disadvantage, they have more difficulty obtaining formal (20% compared with 59% in rural areas) and/or paid work (8% of rural workers are unpaid compared with 4% in urban areas). In countries for which information is available, a similar situation is observed for indigenous and Afro-descendant populations compared with the general population (ILO, 2007, authors’ calculations for 2010 in Uruguay, Paraguay, and Mexico). For this group there are differences in types of occupation, with a preponderance of work in the agricultural sector, linked to wage differences. Yamada, Lizarzaburu and Samanamud (2011) and Bedoya (2012) estimate a salary gap of 53% and 58% for indigenous people in Peru and Colombia with respect to
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nonindigenous people, explained by the level of educational attainment, and in Peru, also by the degree of rural isolation. 3.10
Public institutions, policies and programs intended to foster better and more equitable access to employment for inactive, unemployment or underemployed people are still in their infancy or are of limited effectiveness. Compared to OECD countries, public expenditure on LIS is very low, coming to less than 0.005% of GDP in Mexico and 0.02% Chile, compared with an OECD average of 0.17% (OECD, 2011). Moreover, while the region has experimented with innovative employment programs, their scope remains limited, and the most effective modalities have yet to be implemented in many countries. On the other hand, there is still space to improve the effectiveness of these initiatives. As a result, more than 70% of the region’s job-seekers use informal methods to find work, such as drawing on networks of relatives and friends, which tends to perpetuate existing inequalities (Mazza, 2011).
B.
Limited labor force readiness and ineffective labor force training systems
3.11
Insufficient human capital in the labor force unmet skills demand among the region’s companies. According to the results of the “Program for International Student Assessments” (PISA) in 2009 from Latin America and the Caribbean countries, 48% of young people joining the labor market are unable to understand a basic text, and 62% cannot perform simple calculations, with significant differences in performance by socio-economic quintile (OECD, 2010a). Similarly, 64% of adults (35-64 years) and 46% of young adults (24-34 years) have less than full secondary education (2009-2010) and, although the means of ascertaining the stock of skills in Latin America are limited, the evidence suggests that decades of low quality education have adversely impacted the quality of the region’s labor force.
3.12
This lack of skills is a bottleneck to growth. A third of companies in Latin America and Caribbean countries (69% in Brazil and 56.6% in Argentina) identify workers’ inadequate training as the biggest obstacle to their operations and a major difficulty for innovation (World Bank, 2010). In many countries in the region, the percentage of employers reporting difficulty hiring workers with the skills they need exceeds the world average (Manpower, 2013). Around 90% of employers in Argentina, Brazil, and Chile report that they cannot find the skills they need to produce competitively (Bassi et al., 2012). Similarly, for the majority of employers in Honduras, the Bahamas, Panama, and Uruguay, skills shortages are the main difficulty faced when selecting staff (Flores et al., 2013a). Development of the skills of the labor force is especially important in the group of countries of the region characterized by small economies, limited natural resources, and high migration, many of them in Central America and Caribbean (Downes, 2007). The experience of the countries of Southeast Asia illustrates the importance of investing in the human capital of the labor force, in conjunction with policies for productive development and promotion of foreign investment to stimulate employment demand (Almeida et al., 2012b; ECLAC, 2012). Initial gaps in skills, far from narrowing, widen over time. The amount of training workers receive over the
- 23 -
course of their working life is markedly less in the case of those with less schooling (Huneeus et al., 2012). Similarly, the evidence shows that companies tend to invest more in training people with a higher initial level of education (Huneeus et al., 2012; Flores Lima et al., 2013a). Moreover, small firms, which account for the vast majority of firms in the region, tend to have less well qualified workers and to invest less in training their workers than medium-sized or large companies (Flores Lima et al., 2013a). The evidence also suggests that many small businesses do not invest in training because they do not use complex or innovative production technologies. 3.13
The majority of companies in the region tend to train their workers in specific rather than general skills. The data from four surveys of firms in Bahamas, Honduras, Panama, and Uruguay concur that between 60 and 70% give priority to job-specific skills, with much less investment in soft or transversal (mathematics or language) skills (Flores Lima et al., 2013a). A study done in The Bahamas shows that a lack of soft skills is a key factor in preventing workers from being hired and in getting them fired (Pinder and Fazio, 2013). This may be associated with the transferability of employed workers’ transversal and soft skills, which reduces the return to employers, thus highlighting the need to finance this type of training from other resources.
3.14
Most countries lack a structured training system with adequate mechanisms to ensure quality and relevance. Latin American and Caribbean countries have public institutions for vocational training that are mainly paid for by a specific tax levied on company payrolls. Despite substantial resources being dedicated to training (US$17 million in Uruguay, almost US$200 million in Chile, US$80 million in Panama, in 2010 current dollars), the effectiveness of these investments is likely to be low, due to factors affecting the quality and relevance of the training given (Huneeus, et al., 2012), and, in particular, the lack of most of the features that characterize vocational training systems in countries where they have proven to be more effective (see paragraph 2.15).
C.
Unequal access to social insurance against illness, poverty in old age, or unemployment, and problems of incentives for informality
3.15
The region has labor laws and social security policies in place to promote social welfare. In all the countries of the region there are labor laws and social security policies and programs aiming to promote workers’ welfare, and in particular that of especially vulnerable groups such as the elderly, sick or unemployed. These benefits are generally accessible as a package offered to workers and in the case of social security are mainly financed from payroll taxes paid by workers and firms.
3.16
Insurance systems with limited coverage. In the region an average of 6 out 10 workers are not contributing to any of these systems, despite the fact that, particularly in the case of social security, many countries aim to cover the whole labor force, and in some cases, the whole population. This implies that around 130 million workers are not saving towards a pension and have no access to health
- 24 -
insurance.20 This situation is of particular concern in many Andean and Central American countries, where this lack of protection affects more than seven out of ten workers, while in the Southern Cone and Caribbean countries the ratio is below five out of every ten (Graph 11). This low coverage can be explained by design problems, as some of the region’s social security systems exempt self-employed workers, who account for over 40% of employment in the region (rising to 60% in Nicaragua, Peru, and Bolivia), from scheme membership or contributions, and as a result of problems in labor market function that lead to a large number of workers employed by micro, small, and medium-sized enterprises evading legally mandatory social security system membership. Just 17% of self-employed workers and 18% of workers at firms with fewer than five employees pay social security contributions, whereas this percentage rises to 65% at large firms (over 50 employees). 3.17
Lack of coverage is particularly serious among the poorest, but the middle classes also often lack cover. Using Easterly’s approach (2001) identifying the middle class as the population between deciles III and VIII, it is noted that barely half of middle class workers pay contributions (compared with 11% of the poor and 72% of those on higher incomes). Of these, only 15% of self-employed people in the region’s middle class pay contributions (compared with 64% of middle class salaried workers) (Graph 12). In other words, the region’s poor and middle class is highly vulnerable to risks to health, loss of employment, and old age (Bosch, Melguizo and Pagés, 2013; OECD, 2010b).
3.18
On average, across the region only four out of ten elderly currently receive a contributory pension. This proportion rises to six out of ten when noncontributory pensions are taken into account. However, there is a wide range of pension situations in the region. In countries such as El Salvador, Honduras or the Dominican Republic less than 15% of the elderly receive a pension. In another group of countries (Colombia, Ecuador, Nicaragua, Peru, and Venezuela) between 20% and 40% of the elderly population receives a pension. Only countries such as Brazil, Argentina, Chile, and Uruguay have contributory coverage for over 60% of the elderly population (Bosch, Melguizo and Pagés, 2013; OECD, 2010b).
3.19
The large transition between formal and informal work leads to low pensions and erratic health coverage, even for people who contribute to social security. Workers in the region frequently rotate between formal and informal work, unemployment, and particularly in the case of women, spend spells out of the labor force. On average, for six Latin American and Caribbean countries (Argentina, Colombia, Ecuador, Mexico, Peru, and Venezuela) of the total formal workers at a given time, 21% are no longer formally employed one year later. Of these, 9% switch to informal self-employment, 4% to self-employment, and the remainder become
20
Nevertheless, they have access to health services in countries where it has been made universal, such as in Brazil, or through the region’s Health Ministries or Departments. However, these are often of lower quality and offer more limited services than the social security system.
- 25 -
unemployed or leave the labor force (Goùi, 2013; Flores Lima, Zamora, and Contreras, 2013b). This high level of transition entails erratic health coverage and low contribution densities (defined as the percentage of a person’s total time in work during which they have paid social security contributions), which translates into low pensions, on both unfunded public systems and individually funded private systems.21 Thus, whereas theoretical replacement rates for a formal worker stand at around 60% (in line with the OECD average), given the low contribution frequency it is more likely that pensions represent between 20% and 40% of final salary (World Bank, IDB, and OECD, 2013). 3.20
The lack of pension coverage has a sizeable gender dimension. Women face lower levels of coverage resulting from their looser connection to the labor market during their working lives. Although working women pay contributions at similar rates to men, women have labor-force participation rates between 20 and 40 percentage points lower than those of men, and have larger gaps in their contribution histories. This results in the percentage of men receiving a pension being an average of 5 percentage points higher than that of women (50% vs. 45%).
3.21
Economic growth is insufficient to increase coverage. The evidence indicates that the response to economic growth (elasticity) of the number of contributors to the system is limited. The ratio of contributors to employee grows between 10 and 20 percentage points when a country doubles its GDP per capita, which implies a relatively unfavorable coverage scenario for the next four decades (Bosch, Melguizo et al., 2013). The region needs to embark on reforms in order to increase coverage in a way that is fiscally sustainable and consistent with the creation of formal jobs.
3.22
A significant expansion in noncontributory benefits (NCBs) has allowed pension and health coverage to be raised considerably, along with a reduction in poverty and inequality. In Brazil, for example, it is estimated that in the absence of NCBs the poverty rate among people over age 65 would be 60%, rather than the observed 5% (Ministry of Social Security, 2011). Moreover, the expansion of social security coverage through noncontributory pensions explains around 11% of the total reduction in inequality (Ferreira de Souza, 2011). This increase in noncontributory coverage has taken place in both medium-high income countries, such as Argentina, Brazil, Chile, and Mexico, for vulnerable groups, and in medium-low income countries, such as Ecuador and particularly Bolivia, where near universal coverage has been achieved in a context in which barely 20% of workers pay into the contributory system. This increased coverage is good news but, depending on the design, expansion of the noncontributory pensions and health system could
21
For example, in Chile, which has one of the best established pension systems in the region, 38% of men registered with the social security system pay contributions less than 50% of the time. In Peru and Mexico, around half of all men of working age have never paid social security contributions, and of those registered with the social security system, 45% pay contributions less than six months a year in Mexico and 49% in Peru.
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further reduce the coverage of the contributory systems, as described in paragraph 2.24. 3.23
Despite low coverage levels, many pension systems suffer from sustainability problems. This is due to the effect of population aging in those countries that have not made structural changes but kept traditional unfunded and defined benefit public systems. Sustainability issues also affect countries that have made structural changes, due to the cost of the transition as they move towards individual funding and private management. For example, in Chile this cost is estimated at around four percentage points of GDP a year since the reform undertaken in 1981 (Melguizo, MuĂąoz, Tuesta and Vial, 2009).
3.24
On top of the sustainability problems of contributory systems there is the present and future cost of noncontributory pensions (NCPs). Average spending on NCPs in Latin America and the Caribbean is around 0.4% of GDP annually, rising to close to 1% in Brazil, Bolivia, and Chile. As a share of output, public spending could as much as triple over the coming years due to the progressive aging of the population, depending on changes in coverage and the way pensions are indexed.
3.25
The region is highly vulnerable to job losses. Although the region’s unemployment rate is low (7%) and duration of unemployment short (only 16.2% of the unemployed have been out of work for more than a year), the risk of becoming unemployed is high and is higher among informal workers than formal workers. On average, for the seven countries for which panel data are available, the likelihood of becoming unemployed is twice as high for self-employed informal workers as for formal workers. In light of the lack of mechanisms protecting against unemployment, individuals have to turn to informal employment or self-employment. Therefore, after a spell of unemployment, the likelihood of finding informal work is twice that of finding formal work.
3.26
The region lacks comprehensive unemployment protection systems. Only eight countries in the region have unemployment insurance. In the rest of the countries, the only form of protection against unemployment is severance pay. Severance pay in Latin America is higher than the average for the OECD or Caribbean countries (Downes, 2009; Heckman and PagĂŠs, 2004) but similar to the levels mandated by law in other emerging or developing regions (Holzmann, Pouget, Vodopivec and Weber, 2011). However, these mechanisms only cover formal workers, despite the fact that the risk of unemployment is higher among informal workers. Even for formal workers, there is considerable evidence that in many cases workers who lose their jobs do not receive severance pay (Kaplan and Sadka, 2007). Some countries have instituted temporary employment programs during the crisis. While these programs may help support consumption levels for informal workers, they have high administrative costs, usually arrive late, and tend to be left in operation after the crisis has passed. Another challenge is that passive unemployment protection policies (whether severance pay or unemployment insurance) are often not tied to workforce integration policies.
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D.
Low institutional capacity
3.27
Limited capacity to design and execute labor and social security policies and programs. On top of the problems mentioned above, limited or inadequate progress has been made towards developing the sector’s institutions. There is limited capacity in the region to design, execute, monitor and evaluate labor and social security policies and articulate them into systems.
3.28
Labor ministries find it difficult to perform their tasks effectively. Their institutional structures and frameworks often date back to the 1960s and 70s and were mainly developed to address conflicts in labor relations, a task which absorbs much of their resources. They are not suited to the current context, or the need to diversify their roles and responsibilities in response to the processes of globalization, deregulation, and democratization that have taken place in recent decades (ILO, 1997; Velásquez-Pinto, 2011). They are consequently ill equipped to align their organization and institutional structure to exercise tasks such as stewardship, supervision, service delivery, and policy analysis.22 For example, ministries lack adequate information systems or the monitoring and evaluation systems they need to continuously correct or fine-tune their policies and programs, or close down those that do not work. Thus, although ministries have been given new responsibilities to promote employment and human capital formation policies in partnership with—or co-executed by— the private sector, nongovernmental organizations, and other public sector departments (e.g. education), they are not ready for the task. In general, the coordination between public development entities and implementation of crosscutting policies, programs, and strategies is extremely limited. The possibilities for change are limited by meager budgetary allocations, with almost the whole budget being assigned to salary payments, and where low salary scales make jobs unattractive to the qualified staff needed to improve the formulation, management, monitoring, and evaluation system.
3.29
Limited capacity to address the challenges facing the social security system. Nor have labor ministries adapted to the challenges of low social security coverage and the division of responsibilities between them and social security institutes, supervisory bodies, and finance ministries. Labor ministries’ responsibilities in relation to social security vary considerably from one country to another, with some having primary responsibility for collecting contributions and managing pension systems, and others (the majority) being more in charge of policy, with an independent institution running the social security system.
3.30
Social security institutes have insufficient management capacity. The management of social security institutes is generally characterized by a lack of political and
22
Stewardship refers to sector regulation activities and policy design. Supervision refers to the capacity to monitor, inspect and oversee activities by agents outside the Ministry. Service delivery refers to actions (through line areas or third parties) to generate and deliver services. The analysis function includes studies, research, information production, and prospecting (modeling), together with policy and program monitoring and evaluation activities.
- 28 -
professional independence, combined with a weak institutional framework that often results in high administrative costs and poor financial decision-making. Moreover, in practice, in many social security institutions, the pensions and health systems are not independent from one another but are managed jointly, which has an impact on institutions’ decision-making and financial sustainability. This state of affairs undermines confidence in the system, which constrains employers’ and workers’ participation in the system, and it is also an obstacle to implementation of proposals to increase coverage and guarantee long-term sustainability. 3.31
In short, the low coverage and quality of intermediation services, which leads to job seekers primarily using networks of family and friends, jointly with the inequalities in skills, the product of weak education and vocational training systems, translates into significant inequities, which are also a serious obstacle for productivity. At the same time, inequalities in income generation also translate into inequalities in access to social security. Workforce integration support, vocational training, and social insurance systems are not only unable to reverse these inequalities and promote productivity gains, but are often themselves part of the problem. This situation is perpetuated by the existence of labor ministries that are ill equipped to design and execute policies and programs, with limited articulation with the private sector, constraining their understanding of the labor market. All the foregoing suggests the need to promote major reforms in labor and social security institutions, and at the same time, to promote more (and more equitable) access to employment, a better trained workforce, and more (and more equitable) social insurance. Achieving growth with equity in the region will be difficult to achieve otherwise.
IV. LESSONS LEARNED FROM EXPERIENCE WITH THE IDB’S OPERATIONS A.
Results of project completion reports (PCRs) and disbursement parameters
4.1
The IDB’s operational experience in program and policy support for the labor sector has mainly focused on supporting interventions and institutional strengthening processes with a strong emphasis on labor intermediation, training programs (targeting women and young people in particular), school-to-work transition, and improving labor information systems. In the social security area, operational experience has focused on supporting reform processes aiming to help consolidate macroeconomic and fiscal stability, strengthen the institutional structure of the country’s pensions system, and more recently, reforming the noncontributory pillars of the pensions and unemployment protection systems. This accumulated operational experience has yielded a set of lessons learned that help guide the Bank’s portfolio of new financial operations and technical cooperation in the sector.
4.2
This section does not include information from sector reports of the Office of Evaluation and Oversight (OVE) on labor and social security matters, as they have not yet been completed. The only analysis available from OVE is a thematic analysis covering a review of the Bank’s work in relation to training programs for
- 29 -
young people (Ibarrarán and Rosas Shady, 2009). The learning from this thematic review has been incorporated in this section. 4.3
The lessons learned from a documentary review,23 in-depth interviews with project team leaders, Bank specialists, and executing agencies, and a workshop to validate the results of the exercise, are summarized below. The analysis includes 13 investment loan operations: eight in the active portfolio and five completed operations, together with four budgetary support operations.
School-to-work transition and Workforce integration of unemployed, underemployed, and vulnerable people
23
24
Qualified staff at employment services. Staff qualified in catering for the most vulnerable groups and identifying vacancies are needed in order to improve job-placement rates for vulnerable people. Thinking of quality systems. The participation of private training providers and competition between them is insufficient to ensure quality training; it is essential to establish quality assurance mechanisms. Employment generation policies. It is important to complement job placement programs with policies that promote employment generation and reduce the cost of hiring young people and other vulnerable groups in the labor market. Need for support. Young people, particularly the most vulnerable, need to be given support through mentoring and guidance programs, and they need to be kept motivated to avoid them dropping out. On-the-job training. On-the-job training must be predicated on the entrepreneur’s commitment to hire trainees once they have completed their training. Experience also shows that working with larger firms results in better quality on-the-job training.24 Barriers to participation. For many people, the same factors that prevent them participating in the labor market also prevent them from participating in workforce integration programs. It is important to identify these factors (for example, childcare, looking after other people in the home) and build them into intervention design.
Based on analysis of loan documents, results and risk matrices, IDB and Multilateral Investment Fund (MIF) program impact assessments, Institutional Capacity Assessment System (ICAS) reports, progress monitoring reports (PMR), project completion reports (PCR), MIF sector studies and documents. It also incorporates lessons learned from the analysis of training programs for young people reported in González-Velosa, Ripani and Rosas Shady (2012) and Bassi, M.; Busso, M.; Urzúa, S. and J. Vargas (2012); on labor intermediation programs in Mazza, Jacqueline (2011), and on training programs for the working population in Bassi, Marina, Graciana Rucci and Sergio Urzúa (2013), Cecilia De Mendoza, Cristóbal Huneus and Graciana Rucci (2013), Cecilia De Mendoza, Cristóbal Huneus and Graciana Rucci (2012); Cecilia De Mendoza, Laura di Capua, and Graciana Rucci (2013). This does not mean that SMEs should be left out. However, recognizing this fact makes it necessary to support them by strengthening their planning, monitoring, and training implementation mechanisms.
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Training for employed workers
Separation of functions. Service delivery should be established and separated from supervision, accreditation, and certification. Payment by results. Conditions must be established for all agents and public or private entities receiving public resources regarding the delivery and monitoring of results information. Regulatory frameworks. Effective regulatory frameworks are needed, just as in other markets subject to capture by information asymmetries. Effective public-private partnerships (PPPs). Effective PPPs need to be developed with cofinancing from the public sector, employers, and in some cases, workers. Training at MSEs. Programs geared towards enhancing the productivity of MSE employees should include management training, and comprehensive advice on how to improve the firm’s productivity. Social Insurance
4.4
Social contract and political economy. Social insurance and labor legislation are part of the social contract of the countries, so apart from technical considerations historical, cultural, and political aspects that affect decision-making should be taken into account. In recent years, the Bank and the region have learned that reforms tend to be more successful when consensus is reached, and the Bank and the countries can support consensus-building by assembling data, preparing rigorous diagnostic assessments, promoting avenues to raise awareness of the diagnostics, conducting awareness campaigns, and creating consultation forums for the reforms such as reform commissions (Chile) or citizen consultations (Barbados). Pension literacy. A key factor in carrying out pension reform is incorporating pension literacy programs appropriately to allow all stakeholders to have all the information they need on the design and functioning of the new system.
A number of crosscutting lessons have also been identified: (i) the need to strengthen the institutional structure of the labor ministries, labor training systems, and social security institutes in terms of their policy-setting, supervision, service delivery and/or analysis roles, as appropriate; (ii) the importance of devoting time, resources, and effort to conducting rigorous impact evaluations, as this is the only way of obtaining robust results on program effectiveness. It is also necessary to design evaluations so they offer lessons about the channels along which an impact is obtained, as these lessons offer feedback that can inform the design of new policies and programs; (iii) the need to coordinate efforts in the region in order to provide updated statistical information, including longitudinal data and accessible and structured administrative data allowing the information about labor dynamics to be improved and information on the beneficiaries of the various different interventions to be recorded; (iv) the importance of achieving effective coordination with other multilateral agencies during the preparation stage of a social security or labor reform program; and (v) country focus: it is difficult, and unwise, to export a particular type of reform to other countries in the region in which the political and economic structures and institutions are different. It is therefore advisable to identify each country’s strengths and aim to support reform based on these pillars. It is also essential to understand the characteristics of the context (e.g. high rates of informality versus high rates of youth unemployment or, in the case of the Caribbean countries, significant migratory flows), and modify the emphasis and
- 31 -
approach to address each country’s specific problems. The use of interregional dialogues and exchanges with OECD countries has been an effective mechanism for promoting discussion of how to adapt labor interventions from one country to another, depending on the individual context in each case. B.
Results of the Development Effectiveness Matrix (DEM)
4.5
The Development Effectiveness Matrix (DEM) for the sector’s projects shows significant improvements in all aspects of the design of each operation, and in particular, in terms of evaluability and economic analysis, as well as in the incorporation in 2011 of cost/benefit analysis in all evaluations (Table 1). It is worth highlighting that in 2012 the scores given to operations approved for the sector were above Bank averages on all dimensions. The design and execution of rigorous impact evaluations is a fundamental aspect of all programs in the sector. In mid-2013 there was a portfolio of 17 impact evaluations applying a rigorous evaluation methodology, with confirmed funds, at various stages of progress. These evaluations will be crucial to feedback on the design and execution of Bank operations and, through their dissemination, on interventions by governments in the region. Table 1. Summary of DEMs for sector projects Sector project average Criterion Program logic section Economic analysis section Monitoring and evaluation section Risk management section
4.6
25
2009 N=2 6.8 0.0 5.8 8.7
2010 N=1 8.9 0.0 7.6 7.5
2011 N=3 7.5 9.5 8.9 10.0
2012 N=4 8.6 9.6 9.4 10.0
Bank project average 2012 N=125 8.3 9.4 7.5 9.8
Disbursement parameters. To date, operations in the sector have made up approximately 3.2% of the disbursements against the Bank’s total portfolio.25 The disbursement patterns of sector projects in relation to the countries in which they have been executed have shown similar performance to all the Bank’s sectors taken as a whole. As can been seen in Table 2, 84% of sector projects are within or above the normal disbursement limits, compared with a Bank average of 77%. Just 17% are in the lower band, with an overall Bank average of 23%.
On 31 December 2012.
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Table 2. Projects relative to country averages LMK
IDB
Criterion # Above the upper band Between the bands/limits Below the upper band Total
% 1 4 1 6
# 17 67 17
% 203 168 113 484
42 35 23
Note: Data as of 31 December 2012. SG-INV projects, ineligible projects excluded.
C.
The Bank’s comparative advantages in the sector
4.7
The Bank has a track record of supporting efforts by countries in the region to modernize their employment and vocational training services and reform social security. Since 1994, through the Multilateral Investment Fund (MIF), innovative pilot schemes in labor retraining, intermediation services and vocational training programs have been trialed, focusing particularly on young people, with private sector participation, fostering the development of the Bank’s loan portfolio in these areas.26 The Bank has also led high impact studies in the sector and numerous studies and impact evaluations, in some cases constituting the bulk of the evidence existing in the sector for Latin America.27
4.8
In 2009 the Bank set out to strengthen its strategic positioning in the sector by creating a unit devoted exclusively to these topics so as to allow more countries to be served and a systematic approach taken to labor and social security issues. The Bank therefore differentiates itself from other multilateral agencies, giving a clear signal of the importance it attaches to these topics and its intention to scale up its investments in technical and financial terms. Its cultural proximity and its investment in setting up a team that is highly skilled in the analysis, design, and execution of labor and social security interventions in the region, position it as a strong partner and the institution of first choice when countries are looking for financial and technical support on these topics.
4.9
The foregoing is reflected in the comparison of the Bank’s portfolio with that of the main multilateral agencies providing finance to the region’s countries. The
26 27
See: Mazza, Jacqueline, Angela Paris, Gustavo Márquez and Laura Ripani (2005). See for example the Report on Economic and Social Progress in Latin America 2004 “Se Buscan Buenos Empleos” [Good Jobs Wanted]; the 2010 Development in the Americas report, “The Age of Productivity;” the 2008 book “Good Intentions, Bad Outcomes” by S. Levy; the 2004 book “Law and Employment: Evidence from Latin America and the Caribbean” (co-authored by Nobel laureate J. Heckman and C. Pagés); the report “Disconnected: Skills, Education, and Employment in Latin America” (Bassi, M., M. Busso, S. Urzúa, and J. Vargas), published in 2012; the book “The End of Informality in Mexico? Fiscal Reform for Universal Social Insurance” by Antón, A., F. Hernandez, and S. Levy, published in 2012; the book “Better Pensions, Better Jobs” by Bosch, M., A. Melguizo and C. Pagés; and numerous working documents, technical notes, and articles published in leading journals, which constitute many of the references of this document.
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Development Bank of Latin America (CAF) had a project portfolio for the teaching, social services, and health area worth US$8.8 billion over 2007-2011.28 However, its projects in this area are not focused on the labor market and social security, being grouped into four main thematic areas: water, urban development, improving the quality of education, and other social investment areas. The World Bank had a sector project portfolio in 2009-2013 of US$554 million,29 in a total of seven IDB member countries (Argentina, Brazil, Colombia, El Salvador, Honduras, Mexico, and Peru) and two nonmember countries (Grenada, and Antigua and Barbuda). Over the same period, the IDB devoted a total of US$894 million specifically to the labor markets and social security area,30 in twelve countries in the region (Bolivia, Brazil, Chile, Colombia, El Salvador, Honduras, Haiti, Jamaica, Mexico, Paraguay, Peru, and the Dominican Republic). Additionally, the IDB has labor markets and social security technical cooperation projects in 17 countries in the region. This makes the IDB the region’s leading partner in this sector. 4.10
As regards the exchange of successful experiences, the Bank has the comparative advantage that through its “Technical Support Network to Employment Services,” it can connect the region’s various employment services, allowing good practices to be shared between them, and with employment services in OECD countries. Over the last three years the regional policy dialogue has grown into another valuable tool for the exchange of experience. Finally, the possibility of experimenting with MIF-funded pilot models, particularly in the youth employability area, constitutes another source of comparative advantage. In this regard, the MIF’s New Employment Opportunities (NEO) initiative in collaboration with the Labor Markets Unit represents an important vehicle for scaling up PPPs aiming to boost young people’s employability.
4.11
Additionally, the Bank has set itself the goal of becoming a benchmark for knowledge on labor and social security matters in the region. To do so it is continuing previous research and investing in the search for solutions to low social security coverage,31 analyzing the best options for protecting the region’s workers from the risk of unemployment (to be compiled in a volume due to be published in
28 29 30
31
Source: http://www.caf.com/es/cifras-de-caf/cartera. World Bank website: review of project documents. IDB portfolio data retrieved from OPUS. Includes shared-code loans, where in the case of investment loans the total of the labor component is taken and in policy-based loans (PBL) the total amount is divided by the number of components to determine the amount assigned to the labor components. The same methodology was used to calculate the World Bank portfolio in this sector. These have been brought together in the book Better Pensions, Better Jobs: Towards Universal Coverage in Latin America and the Caribbean, published by the Bank in October of this year, as well as in two additional forthcoming publications (Un Panorama de las Pensiones en América Latina y el Caribe [Overview of Pensions in Latin America], jointly with the OECD and World Bank, and the book Aseguramiento Social y Sector Informal en Economías de Ingreso Medio: Como Proteger a los trabajadores Creando Empleo [Social Insurance and the Informal Sector in Middle-income Economies: How to Protect Workers While Creating Jobs], with the World Bank and Germany’s IZA Institute for Labor).
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2014), and exploring how best to equip the labor force with the skills required to raise productivity. The Bank is also working on a system of labor indicators, which will be available online. Moreover, as mentioned, the Bank is promoting a broad agenda of rigorous impact assessments on labor and social security programs. 4.12
In light of the foregoing, the Bank will place priority on efforts to: (i) smooth the school-to-work transition and workforce integration for vulnerable or hard-toemploy persons; (ii) improve training for the active workforce; (iii) achieve improvements in social insurance for the region’s workers; and (iv) modernize and improve the institutional capacity of labor ministries, social security institutes, and national vocational training systems, given that these have been identified in the evidence and lessons learned as the major bottlenecks to generating more and better jobs in the region. The Bank has a team of professional staff with a high level of expertise and experience in areas (i) and (iii). The team will work to strengthen itself in area (ii) and decentralize more professional staff to the country offices, in order to build country dialogue capacity.32 To address area (iv), the Bank will strengthen coordination within the institution, as well as with other institutions, such as the International Labour Organization (ILO), in the framework of a memorandum of understanding (MoU) recently signed by the two agencies.
4.13
Implementing these priorities means giving less priority to interventions in areas where the ILO, International Organization for Migration (IOM), and the Organization of American States (OAS) have comparative advantages, such as job security and prevention of job-related injury, migration, creation of green jobs, ratification of labor standards, eradication of child labor and forced labor, strengthening of unions, wage negotiations, or promotion of social dialogue.
4.14
The Bank’s current comparative advantages in the aforementioned areas in no way precludes future investments. Indeed, given that the Bank is evolving to meet the new challenges facing the region’s countries, and developments in knowledge at the international level, its comparative advantages are also evolving.
V. GOALS, PRINCIPLES, DIMENSIONS OF SUCCESS AND LINES OF ACTION TO
GUIDE THE BANK’S OPERATIONAL AND RESEARCH ACTIVITIES 5.1
The Bank’s main goal in the labor markets sector is to promote the creation of better jobs (productive and formal, i.e., with access to social insurance and protection under labor laws), as the engine of growth with equity.
5.2
To meet this goal, the Bank’s work will be governed by the following principles: a. An integral approach. Comprehensive and systemic interventions will be promoted, striving to coordinate new and existing policies and programs,
32
Details on how these objectives are to be achieved will be presented during the budget discussions.
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while ensuring consistency of all interventions to ensure better jobs, both at the Bank and in the countries. b. Active participation of employers and worker representatives. Active participation of employers and creation of policy innovations will be fostered through public-private partnerships on employment policies, labor force training, and social security. Worker representatives will be involved in the design and implementation of labor policies. c. Interventions based on knowledge and evaluation. The design of interventions will be evidence-based and draw on existing knowledge; where no prior knowledge is available, the groundwork will be laid for knowledge generation to inform future operations. d. Cooperation and coordination with institutions with a mandate in the area of support for the creation of better jobs, such as the ILO. 5.3
To achieve the proposed goal, the Bank’s activities in the sector will focus on the following four dimensions of success:
A.
Dimension 1: The region’s young people, the unemployed, underemployed or hard-to-employ33 make the transition to work faster, more effectively, and with better earning prospects.
5.4
The following lines of action are proposed in relation to this dimension of success: a. Complement the work proposed in the Education SFD to close the educationto-employment gap by forging links between education and the productive sector and improving the information and guidance given to young people in the school system on returns and opportunities in the labor market. b. Improve the cost-effectiveness of workforce integration programs and policies for unemployed, underemployed or hard-to-employ workers. c. Build the capacity of the institutions in charge of these policies and programs to monitor results, evaluate impacts obtained from interventions, and gather feedback on them to inform intervention design.
5.5
To implement these lines of action, the following activities are proposed: 1. Operational activities a. Strengthening of school-to-work linkages and information and vocational orientation mechanisms for young people: creation of intersectoral and interagency coordination mechanisms; creation and strengthening of institutions whose mission is to link technical education content to productive sector needs, with strong participation of the productive sector; creation or
33
Due to a lack of skills required by the market, lack of information, barriers to access, or discrimination on the basis of gender, race, area of residence, socioeconomic status, sexual orientation, or other factors.
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strengthening of programs and mechanisms that link education to work, such as internships and apprenticeship contracts for structured on-the-job training in accordance with predefined and regulated content; creation of accreditation mechanisms for onsite instructors; creation of information mechanisms on labor market opportunities and returns, by occupation and sector; and linking technical education training entities with national employment services. b. Transformation and strengthening of employment services, with an emphasis on improving employment offices, the attention and services for workers and employers, counselor training, upgrading facilities, standardization of processes, quality standards and services between offices, linkages with providers of training and other social services required to achieve good workforce integration and improve the overall labor intermediation service coordination role of employment services. c. Strengthening of workforce integration programs, emphasizing improvements in the capacity to identify needs and support beneficiaries, in particular the diagnosis of cognitive and soft skills needs; targeting; direct interventions with firms or associations representing them that promote the employability of vulnerable groups and their job opportunities; capacity-building for results monitoring in the labor market; and enhancement of impact evaluation capabilities. d. Collaboration in multisectoral teams for the development of interventions led by other sectors that have consequences in terms of the employability of vulnerable groups and their job opportunities. e. The operational activities described above (a, b, c, and d) will include interventions to address the specific barriers faced by women. For example, vocational information and orientation will be provided on training options in nontraditional occupations, which frequently command higher pay. Childcare services will be incorporated. Efforts will also be made to increase the costeffectiveness of all interventions through greater use of technology, both at employment offices and in the development of virtual training programs. 2. Knowledge activities a. Impact evaluations on school-to-work linkage programs such as internships and apprenticeship contracts, in accordance with predefined and regulated content. b. Impact evaluations on information and guidance programs for young people. c. Impact evaluations in progress on 17 interventions in the training programs, employment services and youth entrepreneurship programs on workforce integration and the incidence of crime and other risk behaviors, distinguishing impacts by gender, degree of vulnerability, age, race, and ethnicity, wherever possible.
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B.
Dimension 2: Workers and companies have access to relevant and costeffective workforce training mechanisms The priority in this dimension is to gear training to demand from the productive sector and improve the regulatory framework to promote cost-effective investments by individuals, companies, and the State. The following line of action is proposed in relation to this dimension of success:
5.6
The line of action proposed in relation to this dimension of success is to improve the quality and relevance of workforce training systems, for which the following activities will be implemented: 1. Operational activities: Productive sector linkage strategies; interventions with firms or associations representing them that promote worker training and certification; development of a qualifications and skills standards framework; development of mechanisms to identify skills gaps; development of targeting mechanisms, incentives to promote investments by workers, employers, and the State enabling underinvestment problems to be overcome; programs to encourage investment in training of MSE managers and workers, as part of a comprehensive strategy to raise firms’ productivity; development of regulatory frameworks defining the responsibilities of the various actors; definition of quality standards for training entities; development of mechanisms to track beneficiaries over time; certification of skills; mechanisms for monitoring and evaluation of labor market outcomes and impacts; and participation in multisector lending activities that impact worker productivity. In these activities, special attention will be paid to the specific barriers faced by women to participation in skills development programs, and efforts will also be made to increase their cost-effectiveness through greater use of technology in the development of virtual training programs. 2. Knowledge activities: Development of mechanisms to identify skills gaps; evaluations of training investment promotion mechanisms; evaluations of skills certification mechanisms; human resource productivity and training surveys to document worker training practices at the region’s firms; and a Bank report on skills needed by the region’s labor force to improve productivity.
C.
Dimension 3: Workers have greater access to sustainable social insurance systems that foster formal employment The priority in this dimension is to expand system coverage in a manner consistent with formal job creation.
5.7
The following lines of action are proposed in relation to this dimension of success: a. Support labor code reforms conducive to an effective improvement in protection and more formal job creation. b. Improve the coverage, sustainability, and institutional framework for pensions systems.
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c. Improve coverage and effective protection against the risk of unemployment, linkage with Active Labor Market Policies, and crisis response capacity. d. Complement the activities proposed in the Health SFD, seeking to reform the financing of social security systems to promote universal coverage. 5.8
To pursue these lines of action, the following activities will be implemented: 1. Operational activities: Support for labor code reforms; improvements to noncontributory pension programs; establishment of incentive systems for enrollment in contributory pension systems and, more generally, changes to health and/or pension financing systems with a larger general resources component; parametric reforms to pensions systems; design of fiscal rules incorporating government obligations in relation to pension systems and, more generally, mechanisms to put pension systems on a sustainable fiscal footing; interventions with firms or associations representing them that promote formalization of workers; design and implementation of new unemployment protection systems, taking into account the instruments already in existence, reforms to them, and linkage and/or coordination with those recently created, and addressing women’s unequal access to contributory social security systems in their design; social protection surveys in at least six countries of the region, as an information system to improve decision-making in the areas of social insurance and social protection. 2. Knowledge activities: Evaluation of mechanisms and interventions to foster formalization; and a Bank report on how to better protect the unemployed.
D.
Dimension 4: Institution-strengthening Strengthening of the capacity of ministries of labor, national training institutes and social security administrations, as well as the regulatory frameworks they establish, in order to implement the above three dimensions of success and enhance the effectiveness of the resources invested in the sector by the various agents (workers, businesses, government, public and private training institutions, and NGOs).
5.9
The following lines of action are proposed in relation to this dimension of success: improve the stewardship role, i.e., the capacity for policy design and sector regulation; improve the supervision role, i.e., the capacity for supervision, inspection or enforcement of actions; improve the service delivery role; improve the analysis role, including research, information generation, and policy and program monitoring and evaluation. To pursue these lines of action, the following activities will be implemented: 1. Operational activities: Support for policy reforms to improve labor sector governance and the stewardship capability of labor ministries, in conjunction with other sector institutions (training institutes, social security administrations); support for the region’s countries in developing analysis tools and labor market data, and in building capacity for better labor market analysis and greater consistency of actions to create better jobs; design and
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support of national competitiveness and human capital initiatives; development of multiministry systems with ministries of education, social development, women’s issues, economy and/or finance; training of personnel to perform new tasks; analysis of processes and proposals for improvement, design and implementation of risk-based management models for targeting scarce resources, reengineering workflows, improving process quality and efficiency support for installation of integrated information technology management systems containing the data for all work processes; introduction of tools allowing utilization of transactional data and the transformation of such data into management indicators for targeting and decision-making. 2. Knowledge activities: Analysis of institutional models for performance of key functions of the labor ministries, studies on international best practices (technical and organizational) for the performance of ministerial roles. Development of an online system of employment indicators for the entire region.
Annex I Page 1 of 1
FIGURES Figure 1 – Labor markets in the Strategy on Social Policy for Equity and Productivity
Pensions
Social insurance against risks of unemployment, illness, disability, and poverty in old age.
Retention and progress in work
Access to work
ECD and Education
Social protection Health AGE
Source: The authors.
Supply of workers
Economic cycle
Integration and Trade
Support to SMEs and financial access/supervision
Fiscal management
Access to credit
Demand for workers
Labor supply and demand matching policies
Source: The authors.
Innovation, science and technology
Labor regulation and social insurance
Labor force training
Labor regulation and social insurance
Labor force training
Education and early childhood development
Social protection
Figure 2 – Factors contributing to the creation of better jobs
Annex II Page 1 of 8
GRAPHS
Graph 1 – Labor productivity growth, 1989 = 100
650 600 550 China
450 400 350 300 India
250 European Union-12
200
World Average
150 100 50
LAC Emerging and developing countries
0 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Labor productivity (Index 1989 = 100)
500
Source: The Conference Board Total Economy Database, January 2013. http://www.conference-board.org/data/economydatabase/
Annex II Page 2 of 8
Graph 2 – Inequality, LAC and rest of world, 2010
SYC HND BOL BRA PRY PAN
GTM CHL CRI
ECU SLV DOM NIC
SLV DOM NIC URY
ARG MWI FJI CHN
LAC Rest of World
SEN
THA VEN LTU TUN IDN SLE IND ETH BGD EGY MNE ROU 0
10
20
30
40
50
60
Gini coefficient (%)
Note: Gini coefficient (%) takes values of 0 (total equality) to 100 (total inequality). Source: Authors’ calculations, based on World Bank data from “World Development Indicators.”
70
Annex II Page 3 of 8
Graph 3 – Unemployment rates: young people vs. adults
Note: Estimated using harmonized methodology. Countries marked with an asterisk (*) were obtained from ILO statistics (ILOSTAT) and figures may not be directly comparable. Source: Authors’ calculations based on household surveys in each country.
Annex II Page 4 of 8
Graph 4 – Percentage of young population neither in education nor in employment or seeking jobs, or unemployed 40% 35% 30% 25% 20% 15% 10% 5%
ES
JA
BO
BL
HO
DR
CO
GU
ME
CH
BR
UR
CR
PA
VE
NI
AR
PR
PE
EC
0%
Neither in education nor in employment or seeking jobs (%) Unemployed (%)
Note: (1) The number of young people neither in education nor in employment equals the sum of those neither in education nor in employment or seeking jobs, and the unemployed; (2) No data available for the Bahamas, Barbados, Guyana, Suriname, and Trinidad and Tobago. Source: Authors’ calculations based on household surveys in each country.
Annex II Page 5 of 8
Graph 5 – Percentage of young people neither in education nor in employment or seeking jobs, or unemployed by household socioeconomic level (excluding young people’s income) Young people (15-24 years) Total household income quintile (excluding young people’s income) 40% 35% 30% 25% 20% 15% 10% 5% 0% 1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
1
2
3
4
5
Central America Caribbean Andean countries Southern Cone Neither in education nor in employment or seeking jobs (%) Unemployed (%) Note: (1) The number of young people neither in education nor in employment equals the sum of those neither in education nor in employment or seeking jobs, and the unemployed; (2) No data available for Bahamas, Barbados, Guyana, Suriname, and Trinidad and Tobago. Source: Authors’ calculations based on household surveys in each country.
Graph 6 – Population age distribution in LAC Total LAC-2020
100 +
100 +
90 - 94
90 - 94
80 - 84
80 - 84
70 - 74
70 - 74
60 - 64
Age range
Age range
LAC-2010
50 - 54 40 - 44
60 - 64 50 - 54 40 - 44
30 - 34
30 - 34
20 - 24
20 - 24
10 - 14
10 - 14
0- 4 40000
0- 4 20000
0
Women
20000 40000 Thousands of people Men
40000
20000
0
Women
20000 40000 Thousands of people Men
Source: Latin American and Caribbean Demographic Centre (CELADE), ECLAC Population Division 2012 revision.
Annex II Page 6 of 8 Graph 7 – Labor force participation rate, by gender Total population aged 15-64 years
Note: Estimated using harmonized methodology. Countries marked with an asterisk (*) were obtained from ILO statistics (ILOSTAT) and figures may not be directly comparable. Source: Authors’ calculations based on household surveys in each country.
Graph 8 – Adult labor force participation rate, by level of education Total population aged 25-64 years
Note: No data available for the Bahamas, Barbados, Guyana, Suriname, and Trinidad and Tobago. Source: Authors’ calculations based on household surveys in each country.
Annex II Page 7 of 8 Graph 9 – Adult unemployment rate, by level of education Total population aged 25-64 years
Note: No data available for the Bahamas, Barbados, Guyana, Suriname, and Trinidad and Tobago. Source: Authors’ calculations based on household surveys in each country.
Graph 10 – Employed adult informality rate, by level of education Total population aged 25-64 years
Note: (1) No data available for the Bahamas, Barbados, Guyana, Suriname, and Trinidad and Tobago; (2) Formality rate: share of employed who contribute to social security (pension) schemes. In Argentina, Ecuador, Dominican Republic, Paraguay, Peru and Venezuela only wage earners are asked about pension scheme membership/contributions, so the information on people in employment is only for the wage earning population.
Source: Authors’ calculations based on household surveys in each country.
Annex II Page 8 of 8
Graph 11 – Formality rate among the employed: 2010 Total population aged 15-64 years
Note: (1) Estimated using standardized methodology. Countries identified with (*) were estimated from World Bank Pensions database data, household surveys, and United Nations population forecasts. No comparable data available for other Caribbean countries; (2) Formality rate: share of employed who contribute to social security (pension) schemes. In Argentina, Ecuador, Dominican Republic, Paraguay, Peru and Venezuela only wage earners are asked about pension scheme membership/contributions, so the information on people in employment is only for the wage earning population. Source: Authors’ calculations based on household surveys in each country.
Graph 12 – Formality rate among the employed by earnings decile in LAC Total population aged 15-64 years Self-employed vs. wage earners
Source: Authors’ calculations based on household surveys in each country.
Size of firm
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