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Weekly Chart: Latin America's Informal Economy

April 02, 2015

Slowly but surely, Latin America is reducing the size of its informal economy. The rate of informal employment fell from 50.1 percent of all employment in 2009 to 46.8 percent in 2013. Still, 130 million Latin Americans have informal jobs, limiting countries’ productivity and economic development, while excluding workers from social and labor protections.

An International Labour Organization (ILO) report looked at the portion of the workforce across Latin America and the Caribbean with informal jobs, which is defined as work without workers’ rights established by national labor regulations, such as social security and overtime compensation. The 2014 report found that just three of the 14 countries surveyed saw rising informal employment from 2011 to 2013: Honduras, Panama, and the Dominican Republic. On the other hand, countries such as Costa Rica, Ecuador, and Peru decreased their rate of informal jobs by approximately 3 percent.

While some degree of informality may be inevitable, experts argue there are too many incentives to keeping workers in informal employment. Part of the problem is weak legal frameworks, such as overly complicated tax systems and red tape for entrepreneurs starting businesses.

The report also depicts a clear trend between the level of education of workers and the probability of their involvement in the unofficial market. Among laborers with only a primary education or none at all, two out of three have informal jobs. Similarly, higher-wage earners are significantly more likely to hold occupations in the official economy. Nonetheless, informal employment among the top-earning 20 percent of the population in countries such as Mexico and Peru is as high as 37.2 percent and 36.9 percent, respectively.