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LIMA, Peru CMC – The World Bank says four years of an economic downturn are beginning to have adverse effects on jobs and household incomes in Latin America and the Caribbean.
It said that after a commodity boom brought significant gains, a drop in labour force participation is causing families to feel the pinch.
The latest World Bank semi-annual regional report points out that the expectation is that the region will see zero per cent growth for 2015 with a slight improvement to one per cent in 2016, although uncertainty around that projection is high.
The report titled “ Jobs, Wages and the Latin American Slowdown” notes that would be the fifth year in a row the region has underperformed initial expectations, a sign that new factors, mainly internal, are prolonging the effects of worsening external conditions, particularly the sharp deceleration in China and fall of commodity prices.
“Even with the slowdown, labour markets in the region had managed to remain strong,” said Augusto de la Torre, World Bank Chief Economist for Latin America and the Caribbean.
“More recently, however, we are seeing employment quality deteriorate, as salaried workers become self-employed, and workers shift from larger to smaller companies.
“Most notable, however, is the fact that workers are exiting the labour market altogether, a propensity that is particularly marked among less educated, young males. As they go back home, or back to school, without a salary, the income of poorer households may suffer more,” he added.
The report, issued ahead of the World Bank Group and the International Monetary Fund (IMF) annual meetings in Lima, finds that the region’s weighted average growth will stagnate in 2015. But the heterogeneity within the region remains and has shifted significantly.
Mexico, Central America and the Caribbean, more directly linked to the United States, grew less during the commodity boom and after the 2008-2009 global financial crises, but are now recovering faster.
“Most countries in the region are still in the midst of adjusting to the new reality of diminished export revenue,” said De la Torre.
“The key will be to make the adjustment as smooth as possible to avoid excessive loses in economic activity and employment. From a policy perspective, the key question is whether and how labour market conditions and income distribution will be affected in the months and years to come.”
