Informality has have serious consequences in the economy of Latin American labor markets.  

According to the Development Bank of Latin America (CAF), the informal economy reaches 45% of salaried workers. If self-employed workers are considered, then the percentage goes up to almost 60%.

The region faces two key challenges to promote its productivity: reducing the skills gap between what workers provide and the labor market demands; and tackling labor informality.

Besides the impact they have on the economy, these challenges could also have serious consequences on the process of skills’ accumulation among workers.

The report developed by CAF called “More Skills for Labor and Life: the contributions of family, school, the surroundings and the labor world”, the process of skills accumulation starts prior the birth of the person.

The study measured socioemotional, cognitive and physical skills among people aged from 15 to 55 years old in 10 cities located in 10 countries of Latin America. They found that the variables that have a major impact on this process throughout life are family, school, the labor world, initial conditions (health and genetics), and the stock of accumulated skills.

In the labor world, there are three ways to achieve skills accumulation: training programs, learning by doing, and interactions with colleagues and superiors. Almost 90% of the contribution in the variation of workers skills is due to informal learning at work.

Nevertheless, the possibility of accumulating skills at work is way lower in informal jobs because they need fewer and less complex skills than jobs in the formal sector.

The CAF states that in Latin America “while 1 out of 3 jobs in the formal sector demands high levels of complex cognitive skills, only 1 out 6 jobs in the informal sector requires those skills.”

According to the report, to start growing once again as in the last decade, the region must have better trained workers who are capable of successfully performing the jobs that the labor market demands.

However, to achieve this, the region must overcome several obstacles. Latin America is quite laggard in several key aspects when compared to the rest of the world.

For instance, in average, Latin American adults have fewer years of education (8.7) than their peers in other regions of the world (11.3); as regards education quality, the results of the last PISA showed that only 1 out of 3 young Latin Americans have reached the minimum education levels, compared to 4 out of 5 youngsters in OECD countries; besides, 1 out of 10 kids suffer from chronical malnutrition, which has terrible consequences in several aspects of life. Other serious problems include school dropouts, teenage pregnancy, and NEETs.

Nonetheless, the region is going through a period called Demographic Bonus. This means that it has a major chance of improvement if proper focus is set on young people, quality employment paths, education quality, and tackling informality.

On 2017, the region is expected to show economic improvements. However, growth will remain weak (around 2%). “One of the basis of this growth is linked to the strengthening of labor markets, which suffered a significant setback during 2016”, points out CAF.