Informality in the time of COVID-19 in Latin America: Implications and policy options

• Published in: PloS one Vol. 16; no. 12; p. e0261277
• Main Authors: Acevedo, Ivonne, Castellani, Francesca, Lotti, Giulia, Székely, Miguel
• Format: Journal Article
• Language: English
• Published: United States Public Library of Science 16.12.2021; Public Library of Science (PLoS)
• Subjects: Adolescent; Adult; Coronaviruses; Costs; COVID-19; COVID-19 - epidemiology; Development banks; Dynamic tests; Economic aspects; Economic conditions; Economic growth; Employment; Employment - statistics & numerical data; Employment - trends; Epidemics; Family Characteristics; Female; GDP; Gross Domestic Product; Humans; Income taxes; Informal economy; Information systems; Labor; Labor market; Latin America; Latin America - epidemiology; Male; Medicine and Health Sciences; Middle Aged; Occupations; Pandemics; People and places; Population; Public Policy; Public services; Salaries and Fringe Benefits; Social Class; Social Sciences; Social security; Social studies; Socioeconomic Factors; Statistics; Strategic planning; Trends; Underground economy; Unemployment; Young Adult; Latin America; Washington DC; Mexico; United States > US
• ISSN: 1932-6203; 1932-6203
• DOI: 10.1371/journal.pone.0261277

This paper analyzes the dynamics of the labor market in Latin America during the COVID-19 pandemic. After a decade of a virtuous circle of growth with the creation of formal jobs, the pandemic has had an considerable impact on the region’s labor market, generating an unparalleled increase in the proportion of the inactive population, considerable reductions in informality, and, in contrast, smaller fluctuations in formal jobs. In this context, the formal sector, given its lower flexibility, became a "social safety net" that preserved the stability of employment and wages. Based on the findings presented in this paper, it is projected that, starting in 2021, informality will grow to levels higher than those of the pre-COVID-19 era–with 7.56 million additional informal jobs–as a result of the population returning to the labor market to compensate for the declines in incomes. According to the simulations presented, postponing or forgiving income tax payments and social security contributions conditional on the generation of formal jobs could reduce the growth of informality by 50 to 75 percent. Achieving educational improvements has the potential to reduce it by 50 percent.