IDRC-funded researchers in Latin America recently completed a two-year study investigating why decent work is still so difficult to find in Bolivia, Paraguay, and Peru. They found that none of these countries have strong employment policies, but that informal workers in Peru are making significant productivity gains.
Albert Berry, one of Canada’s leading experts in Latin American economics and a long-time collaborator with IDRC, was part of the research team. He recently visited the Centre to discuss the group’s findings with Tim Brown, a summer student with IDRC's Communications Division.
IDRC — So what exactly is the problem?
AB — Latin America’s golden age was between 1945 and 1980 when the regional economy was growing at 5.5% — the fastest the continent has ever achieved. This stalled during the debt crisis of the 1980s. By 1990, most of the countries had moved significantly toward free trade, free capital movements, and privatization. Since then, regional growth has averaged less than 3% per year. A recent poll indicated that 85% of Latin Americans are “concerned” or “very concerned’ about their employment situation. Yet overall unemployment is only around 8 to 10%. So it’s not as if they aren’t working; it’s simply that people don’t have reliable work that pays a good, steady income.
IDRC — Can government policy play a role in providing citizens with decent work?
AB — Yes. But few countries have a serious employment policy in the same way that they have serious monetary, fiscal, or trade policies. This is because employment policy is complicated. You need a group of people, each of whom understand the employment impact of what he or she is doing — whether they’re on the trade side, the macro side, or the agricultural side. You need high-level dialogue to figure out the best combination of policies. My prediction is that things will not get better fast.
IDRC — Could you describe the typical Latin American worker?
AB — There are three main groups:
* 20% work on small farms. Their income is unstable, dependent on crop yields and product prices.
* Another 40-50% per cent work in the informal urban sector. These people are self-employed in commerce, transportation, services, manufacturing, and other industries. Earnings are usually low due to lack of capital, use of traditional technologies, a high level of competition, and (sometimes) depressed economies.
* Roughly 30-35% work in the formal sector. They are employed in medium to large private firms or the public sector and usually enjoy decent wages and job stability.
IDRC — In recent years huge mineral deposits have been discovered in Bolivia and Peru. Will these discoveries eventually translate into better jobs?
AB — It’s not always true that economic growth in one corner of the economy is good. When you’re exporting natural resources like gas or oil you get a lot of dollars which you can use to import goods. These imports compete with domestic production. There’s a problem if the sectors that get squeezed by the imports created a lot of jobs and the sectors that export create few. You get growth, but few new jobs.
Listen to Berry describe the pitfalls of a resource-dependent economy
IDRC — Did you encounter any positive economic developments?
AB — Yes, we did. We detected a rise in the productivity of informal sector workers in Peru. We also found poverty falling where growth was good, and in Peru we even found inequality falling — which is a stronger result than poverty falling because as long as growth is decent, poverty tends to fall even if the income distribution stays the same.
IDRC — Why the increase in informal sector productivity?
AB — We don’t know exactly. What we do know is that Peru has the densest coverage of microfinance institutions in Latin America. One thing economists wonder about is whether — when you look at the whole economy — the total benefits from microfinance are as great as one might assume. Sometimes the borrower gets better off and the non-borrower becomes worse off because the first takes market share from the second. If it turns out that this productivity increase in the informal sector as a whole is linked to microfinance, that would be a very positive and reassuring conclusion.
IDRC — You’ve been studying Latin American economies for more than 40 years. Overall are you optimistic?
AB — I would not phrase it as “has Latin America finally turned the corner?” I think it turned the corner in 1945, then lost its dynamism during the debt crisis. But is it growing adequately and is it growing at a level where you don’t have to worry the way you did in 1945? I think the answer is yes.
Tim Brown is an Ottawa-based writer.