The Economic Survey of Latin America and the Caribbean, 2026 identifies labour informality as a structural constraint that limits the region’s capacity to translate growth into sustained increases in productivity, investment and high-quality employment. Informality stems from weak growth and is one of the reasons why the region remains caught in a trap of low capacity for growth. The greatest progress in formalization of employment was made between 2000 and 2013, amid stronger growth, investment and labour productivity, though from 2014 onward, its momentum weakened. The evidence-based analysis shows that growth boosts productivity in both the formal and informal sectors, albeit with stronger, quicker and longer-lasting effects in the former. This publication includes a proposal to advance productive formalization strategies that go beyond regulatory reforms and enhance the productive capacity of workers and businesses. This will require coordination of labour, fiscal, financial and productive development policies focused on broadening access to financing, incorporating technology and fostering integration into production chains that generate more value to increase productivity, improve employment and sustain higher growth rates.