The Future of Work in Latin America

By Daniel Payares-Montoya

Covid-19 amplified the economic and political distress that Latin America was already experiencing prior to the pandemic. While governments in the short run are desperately prioritizing vaccination efforts to avoid a permanent setback and a second lost decade, they should not lose sight of the fact that the crisis might also be an opportunity to shape the future of work in their countries.

Car assembled by robots. (Photo by Lenny Kuhne.)

The pandemic brought massive disruption to labor markets in Latin America. According to the Economic Commission for Latin America and the Caribbean, the unemployment rate increased in 2020 by 2.6 points, to 10.7 percent. If the labor participation rate had been like that of 2019, unemployment would have been 18.5 percent. Non-tradable economic sectors like tourism and retail, which absorb a huge amount of low- and middle-skilled workers, have been among the most affected. Although governments in the region expanded social protections to reduce the impact of the pandemic among the poorest, fiscal challenges are on the horizon.

Additionally, the Fourth Industrial Revolution’s (4IR) technological trends that were already shaping the workspace before the pandemic hit, such as automation, artificial intelligence, remote work, the Internet of things, and e-commerce, are going to persist and accelerate as businesses, out of necessity, continue to adapt to new ways of work. Companies are learning how to integrate novel technologies while moving labor out in the process. This means that millions of pre-pandemic jobs may be lost permanently.

For decades, Latin America has waited for a second wave of industrialization that fosters structural change, creates millions of jobs for low-skill workers, increases productivity, and consolidates a robust middle class. However, Latin American economies were, in many cases, bypassed by previous industrial revolutions, as the region was trapped between the high levels of productivity fostered by advanced technologies in rich countries and the low labor costs of hyper-specialized emerging economies in Asia. With few exceptions — like Mexico’s auto sector — Latin American countries have failed to promote world-class industries able to compete in international markets. On the contrary, most countries have been affected by premature deindustrialization and remain dependent on the revenues produced by commodities like oil and copper, their economies characterized by low levels of productivity, high labor informality, and a very vulnerable middle class.  

To seize the benefits of the 4IR, and achieve sustainable economic development, countries need to focus foremost on providing present and future workers with the necessary skills to complement and adapt to new technologies. Without proper education and workforce development, other policies and institutional arrangements may be in vain. This means expanding early childhood education, designing flexible school curricula fit for the 21st century, and preparing children from school for a lifetime of adapting and developing new skills. It is also important to implement active-labor market policies focused on re-skilling current and future workers, technical and vocational education training for youth, and retraining programs that enable lifelong learning for those already in the workforce.

A better prepared workforce for the 4IR can not only help to boost productivity, but also foster the creation of new, innovative businesses, and attract investors eager to hire skilled human capital. In a globalized economy connected through the Internet, employers can hire a person located in another country to work remotely, thus providing incomes to marginalized places and improving workers’ well-being. And if people can access formal, good-paying jobs, positive outcomes in health, security, and democratic values, among others, can be expected. This could speed the recovery in Latin America in the coming years and lay the foundations of long-term prosperity.

However, this is easier said than done.

According to the World Bank, 170 million students throughout the region have been affected by the closure of schools and remote learning. At least 15 percent of students may never go back to school, and learning losses have disproportionately affected those in the lower income quintile. Three out of five children who lost a school year during the pandemic live in Latin America and the Caribbean. The pandemic has also increased the share of out-of–school, out-of-work youth in Latin America, which was already high; youth unemployment in the region has ballooned. Latin America is the region of the world with the largest concentration of young people who are not in employment, education, or training among households in the bottom 40 percent of the income distribution.

“Latin American and the Caribbean (33 Countries): Rates of cancelled classes and impacted students, by date, 2020”
Source: Comisión Económica para América Latina y el Caribe (sobre la base de Organización de las Naciones Unidas para la Educación, la Ciencia y la Cultura (UNESCO).

Source: OECD (2021), Youth not in employment, education or training (NEET) indicator. (Accessed on 05/14/21.)

As countries in the region face the challenges of safe, effective school reopening, and finding alternatives for out-of–school, out-of-work youth, they cannot lose sight of the opportunities that the future of work may bring to the region.

Rethinking education and workforce development must be part of the post Covid-19 agenda, as going back to the previous “normal” is not an option. If the region does not want to be bypassed yet again by another industrial revolution, shaping the future of work should be also a priority.

Daniel Payares-Montoya, from Medellín, Colombia, is a Consultant at the World Bank and Distinguished Research Fellow at Solutions Lab. He has a master’s degree in public policy from Universidad de Chile and a master’s degree in development practice from UC Berkeley.

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