The Economic Commission for Latin America and the Caribbean (ECLAC) and the International Labour Organization (ILO) released a new joint report today indicating that, in a context in which the region’s economies grew 6.6% in 2021, the region’s main labor indicators also improved, most notably with growth in employment and in the labor force participation rate and a decline in the unemployment rate. However, the recovery in employment has been slow, partial and uneven.
In No. 26 of their joint report, entitled Employment Situation in Latin America and the Caribbean. Real wages during the pandemic: trends and challenges, the two United Nations organizations underline that the recovery of employment to pre-pandemic levels lags in comparison with the recovery in countries’ economic activity. By the end of 2021, most countries had regained their pre-crisis GDP levels, while employment levels remained lower in many cases.
As seen in other crisis situations, the dynamics between employment and economic activity play a critical role for implementing better and more timely labor policies, which means that possible lags in employment suggest the need to strengthen the instruments to facilitate people’s reincorporation into the labor market, the document states.
According to the report, after the number of employed in the region suffered a historic contraction in 2020 (8.2%), there was a significant rebound in that indicator in 2021, notching 6.8% growth in the fourth quarter of that year versus the same period of 2020. However, despite the considerable increase in employment throughout the year, the number of employed people in the region did not return to the level seen at the end of 2019 until the fourth quarter of 2021.
On another note, the labor gaps between men and women widened in 2021. ECLAC and the ILO reveal that the labor market recovery has also been unequal, to the detriment of women. Although employment and labor force participation have improved for both men and women, the former have benefited more than the latter. The crisis prompted by the coronavirus disease (COVID-19) pandemic affected female employment more significantly, marking a setback equivalent to more than 18 years in the levels of women’s labor force participation. The slow recovery in the activities that account for a larger share of female employment and the larger burden that women shoulder in caring for the sick, children and older people help explain this notable difference in the dynamics of total participation rates.
In the second part of the report Employment Situation in Latin America and the Caribbean No. 26, ECLAC and the ILO sustain that the health crisis stemming from COVID-19 has had important effects on wage trends in the region. The impact of the recent evolution of inflation has been most clearly reflected in real minimum wages, the purchasing power of which declined in 2021. In addition, average real wages in the region in 2021 were 6.8% below pre-pandemic levels, lagging more than economic activity and employment vis-à-vis that marker. This could worsen in 2022, when even steeper rises in inflation are expected.
“It is vital to deploy institutional instruments, such as collective bargaining and minimum wages, to enable discussion of wage adjustments at the level of productive units and branches of activity, to meet the needs of both workers and companies,” Mario Cimoli, ECLAC’s Acting Executive Secretary, and Claudia Coenjaerts, the ILO’s Regional Director a.i. for Latin America and the Caribbean, state in the document’s foreword.
They add that policies to facilitate the insertion of wage earners – such as hiring subsidies – that are focused on the most vulnerable groups will not only contribute to a faster recovery in their employment levels, but will also prevent wage conditions from becoming more precarious than before the pandemic.
According to the report, in 2022 the pace of job creation is expected to decelerate, and it is foreseen that progress in the vaccination process, fewer restrictions on movement and the reopening of schools will fuel a recovery in participation levels, especially among women. However, the combined effect of greater labor force participation and a slow pace of job creation could prompt a rise in the unemployment rate over the year.
According to ECLAC and the ILO, in a context in which there is still room for employment to recover to its pre-pandemic levels, making nominal adjustments to the minimum wage that would compensate for the losses caused by rising inflation is crucial. In that regard, the reactivation of mechanisms for dialogue between governments, workers and employers to set minimum wage increases has great potential as a way of reconciling the needs of labor market stakeholders. This could serve to implement minimum wage increases that enable offsetting higher inflation, while also contemplating their impact both on production costs – especially for Micro, Small and Medium-sized Enterprises (MSMEs) – and on the creation and recovery of employment.
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