In Honduras and Nicaragua the cost a company has to pay to formalize a worker equals 70% of what it shall produce, while in Costa Rica and El Salvador it is a little lower than 40%.

According to a research developed by the IADB, formalizing a worker in Latin America costs a company about 39% of what it produces.

Costs, including wages and other expenses, in relation to productivity are 50% higher in Latin America than the average of OECD countries. High labour costs and low levels of investment on human capital favour the development of informal work. Promoting formal work and a successful working life for every worker is key to achieve growth.

The Inter-American Development Bank (IADB) has introduced Jobs to Grow, a detailed diagnosis of the Latin American and Caribbean labour markets, which offers recommendations on labour policies to fight informality and enhance productivity in the region.

The report states that the costs to formalize a worker are too high when compared to the workers productivity. Formalizing a worker in the region represents 39% of what he/she shall produce in average. This fact, together with the high turnover -75% of workers keep their jobs for over a year, compared to 85% of workers in OECD countries-, reduces wellbeing and lowers the region’s productivity.

A low quality education and high turnover enables fragile labour relationships, where companies do not invest enough on continuous training for their employees. Therefore, a vicious circle of bad quality jobs and low productivity endures.

In Latin America and the Caribbean, labour productivity has only grow 26.6% since 1990, a small progress when compared to Asia (85.2%), North America (37%) or Western Europe (31.2%).

The study concludes that policies must focus on achieving more labour productivity. In order to do that, it recommends adopting policies focused on two areas: 1) promoting formal jobs, through more and better investment on public employment services, better training programs for young people and for people who have difficulties in entering the labour market, more protection during unemployment and appropriate audits; and 2) more labour and productive stability that results from larger investments to train workers and proper regulation of dismissals.
This integrated package of measures would boost a “successful labour trajectory” for workers, which should guarantee a good ingress into the labour market for young people. If a workers loses a job involuntarily, he/she shall have the protection and necessary resources to quickly go back to work.

It is rather strange that successful cases from other countries due to the articulation of public and private employment services are not mentioned. Moreover, there is no mention of the contributions that private employment services make to formal employment, particularly among young and vulnerable people by providing training during transitions.