Bolivia and Mexico, the countries with the highest rate of labor informality in Latin America
According to the International Labor Organization (ILO), at the end of 2018, there were 130 million Latin American workers in the informal sector. While governments have made progress in terms of social guarantees and reducing unemployment, there is still a long way to reduce the rate of labor informality, which in some countries covers more than half of the labor force and represents a tributary flight.
Labor informality in the main economies prevents the growth of industries since there is no symmetry between the costs involved in having a formal worker compared to the others. It is pertinent to formalize the economies.
How nations fight against the scourge of labor informality
According to a report by the International Monetary Fund (IMF) entitled "Shadow Economies Around the World: What Did We Learn Over the Last 20 Years", Bolivia has the largest informal market in the world with a rate of 80%. This reflects the little intervention the government has had to reduce those workers who may have two characteristics: they work on their own and do not have social security or they work in companies with fewer than five employees.
Mexico, positioned as the main market of Latin America, also fights against labor informality. According to the most recent quarterly figures from the National Institute of Statistics and Geography (Inegi), 57 out of every 100 workers in the country are not affiliated with a formal employer and do not duly contribute to Afores, their pension system.
Only 26 out of 100 Mexicans who joined the working-age population on an annual basis during the last decade found formal employment. This represents a big problem for the country because it slows down economic growth. People are not attracted to the legal minimum wage, which is currently the US $ 97 per month and seeks better income.
The Mexico economy also struggles against unemployment, which last month stood at 3.6% and registered the highest level since 2016. The ILO highlights that in the region 84% of the self-employed are informal and that 60% of the dependent on micro-enterprises are underemployed.
In Colombia, the figure for labor informality reached 45.9% during the first quarter of 2019. According to calculations, this represents about 5.5 million workers who probably do not contribute to a pension system or access the system of health. This is a problem for the country since almost more than half of the workers belong to this sector. This means that they do not have the mechanisms to file complaints in case their rights as employees are violated.
In addition to the lack of guarantees for the employee, this condition also translates into lower revenues for governments, as there is less control over the accruals. The total tax revenue for the percentage of GDP was 19.8% in 2016, well below the average of 34.3% of the members of the organization and 22.7% in Latin America.
If a top five of the countries in the region had the lowest rate of labor informality, Colombia would be in fourth place, only above Brazil, which has a 46% share. The three countries with the lowest labor informality rate are Ecuador (27.20%), Panama (40%) and Chile (40.5%).