Country Report Sint Maarten 1st Quarter 2015

Update Country Report Sint Maarten 30 Jan 2015

Unemployment and informality remain huge regional challenges

Two recent studies by the International Labour Organisation (ILO) highlight that unemployment in Latin America is set to increase in the next few years. They also point out that unemployment is overwhelmingly affecting women and young people. These trends threaten to increase poverty and inequality, two areas in which the region has made considerable progress in the past decade. They also have the potential to lead to a rise in social conflict, given that youth unemployment in particular is a factor behind social unrest. This makes it imperative that governments across the region adopt policies to create better-quality jobs, which are essential for an effective fight against poverty and inequality, and to achieve inclusive growth.

The ILO's recently published World Employment and Social Outlook - Trends 2015 report highlights that the number of people with no jobs globally is likely to reach over 212m by 2019, up from 201m currently. In 2015 alone, 3m people are expected to join the unemployed, which overwhelmingly comprise women and young people between 15 and 24 years of age. Although the report points out that the gap in unemployment levels between men and women has declined since the beginning of the decade, unemployment among men reached 5.3% in 2013, considerably lower than the rate for women (7.7%). Youth unemployment in particular has increased in all regions, despite improving education levels.

Regional trends

The report shows that, following an initial period of recovery after the financial downturn of 2008, Latin America has seen economic growth weaken, leading to an increase in unemployment, which has particularly affected countries that rely on commodities exports.

The ILO's Panorama Laboral Latinoamérica y el Caribe 2014 study, published in December, similarly indicates that 2014 marked a turning point after a decade of strong growth across the region that saw an increase in the number and quality of jobs. The report notes that there are 15m unemployed people in urban areas across the region, which may increase by half a million in 2015 alone, from its current level of 6.1%. However, the most worrying development highlighted by the report is that unemployment during 2014 actually recorded a slight fall, which goes against the typical effects that a decline in economic growth-and job creation- produces. Ultimately, for every tenth of a percentage point that economic growth declines, about 100,000 jobs are prevented from being created. But unemployment fell because of a reduction in the labour-participation rate, which means that the size of the labour pool shrunk enough to offset the growth in unemployment (this result was largely influenced by Brazil's weight within in the region, where both unemployment and participation rates fell significantly). The majority of those that left the workforce and remained unemployed were women and young people.

While this may be the result of people entering full-time education, it may also be a result of frustration due to lack of opportunities. Moreover, this is likely to be temporary, and these women and young people are likely to seek to be reinserted into the labour force during 2015, thus pushing unemployment rates back up. Thus the initial reduction in unemployment recorded during 2014 is not entirely positive.

Informality a big challenge

The Panorama Laboral Latinoamérica y el Caribe 2014 study also highlights problems with the quality of employment throughout Latin America, as there are 130m people who belong to the informal economy, which typically implies poor working conditions, labour instability, and lack of protection and rights, in addition to lower productivity rates and salaries.

The report also points out that there are huge differences between the quality of jobs in urban areas vis-à-vis rural areas. A particular problem in rural areas is the lack of social protection and defective application of minimum wages. The ILO found that in 10 out of the 14 countries analysed, only half of the population employed in the rural sector earned a salary. This is not only because rural salary levels tend to be lower than in urban areas, but also because enforcement of minimum pay is uneven.

Productivity issues

Beyond the fall in commodity prices and weak global demand, the decline in economic growth in Latin America is also a reflection of low productivity growth, which itself stems from several structural issues that include high rates of informal employment. This source points out that youths are more likely be in informal employment than adults (56%, as opposed to 46% of adult workers globally, are informally employed). Across the region in 2013, 46.8% of workers were informally employed. However Peru, Mexico and Ecuador recorded informal employment rates higher than the average (64%, 53.8% and 49.3% respectively). In contrast, informality was relatively low in Costa Rica, Uruguay and Brazil (with rates of 30.7%, 33.1% and 36.5% respectively).

A separate ILO document on policies for the formalisation of micro- and small-enterprises in Latin America, which was produced in 2014, shows that 60% of these firms belong to the informal economy, as they are not registered with tax authorities. Moreover, the fact that the informality rate among the fifth poorest section of the population has reached 72% (more than double the rate of the wealthiest fifth, at 31%), shows a clear link between informality and income inequality. However, even within the formal economy, there are people who work informally-informal employment in the region's formal sector reached 11.4% in 2013.

Implications for stability

The last decade saw inequality decrease significantly, with notable growth in the proportion of middle classes, reaching just over 30% of the employed population. However, during the past two years the reduction of inequality-which remains higher in Latin America than in other parts of the world-has slowed. Similarly, social unrest fell globally during the 1990s and the 2000s-alongside global unemployment rates-but shot up with the crisis in 2009, and currently remains 10% above pre-crisis levels.

Although, compared with other parts of the world, the increase in social unrest in the region has been relatively moderate, high levels of inequality have certainly undermined trust in governments across the region. The trends portrayed in the ILO reports thus send worrying signs that inequality may increase, with the concomitant risk that such outcome could contribute to fuelling social unrest. This is particularly bad news for the region, as the World Economic Forum (WEF) Global Risks 2015 report published in January points out that social instability is one of the three global risks that Latin America is least prepared for. To compound matters, any increase in social instability impacts negatively on equality and employment creation, which means that the region could be heading towards a vicious cycle that could take years to break.

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