The employment situation in Latin America and the Caribbean: Countercyclical policies for a sustained recovery in employment

Latin America and the Caribbean experienced an unexpectedly vigorous economic recovery in 2010 after the output contraction of 2009. This upturn was reflected in the region’s employment and unemployment rates, which resumed the positive trends that had been broken by the crisis,
and formal wages rose slightly. The strength of the recovery and labour-market performance varied markedly across subregions and countries, however. The first part of this joint ECLAC/ILO publication on the employment situation in Latin America and the Caribbean
looks at how labour markets have responded to the rapid economic upswing in 2010 and early 2011, highlighting both the significant advances achieved in the post-crisis period and the sharp differences evident across subregions and countries.
As well as tapping into the improved external conditions which followed upon the Asianled global economic upturn, several Latin American countries were also able to contain the
impacts of the crisis and underpin their own recovery with countercyclical policies, thanks to the leeway gained by their macroeconomic management during the run of growth from 2003 to 2008. These countries were in a position to implement expansionary fiscal and monetary policies, some of which channelled higher fiscal spending through labour-market policies or softened the impact of the crisis on employment and income, as discussed in previous ECLAC/ILO bulletins. Since the region is fairly new to the use of countercyclical policies,
the second part of this document reviews the experiences arising from those policies and considers lessons for institutionalizing them.
Economic growth in the Latin American and Caribbean region has historically been
marked by the volatility of its economic cycles, with high-growth periods being succeeded by deep crises. Volatility has conspired against the use of production resources over extended periods and short growth horizons have impeded investment in capital and labour. In the
recent international crisis, the deployment of countercyclical macroeconomic policy helped to reduce the depth and duration of the impact and to leverage a more rapid recovery. It is therefore worth looking at the fundamentals of a long-term countercyclical macroeconomic policy which would provide the tools needed to deal with future crises and pave the way for economic growth that may be sustained over time.
A special factor during this crisis was that a greater effort was made to support employment and income. Several of the labour-market policy measures taken acted as vehicles for conveying increased fiscal spending to individuals, reflecting greater consideration for equality concerns. Indeed, these measures were aimed not only at stabilizing andstrengthening domestic demand per se, but also at preventing the crisis from hitting lowest-income households the hardest, as
had occurred in previous episodes. And —again unlike the pattern seen in previous episodes— inflation actually fell during the
crisis as the high food and fuel prices seen in the run-up to it eased as a result of both existing macroeconomic policies and
global conditions. This averted the surge in inequality so often seen in previous crises.
Two caveats must be added, however. First, not all the countries were in a position to deploy strong countercyclical policies.
Many simply lacked the fiscal space to do so. Second, some countries took this sort of measure more as an ad hoc response
to the crisis than as part of a clearly established countercyclical policy strategy. The challenge, then, is to institutionalize a
countercyclical approach throughout the economic cycle.
Taking up this challenge is part of making economic growth more sustainable. This year —2011— was ushered in by
rapid economic growth and substantial improvements in labour indicators. With the region’s GDP projected to grow well over
4% this year, ECLAC and ILO estimate that the regional unemployment rate will fall substantially again, from 7.3% in 2010
to between 6.7% and 7.0% in 2011.