Labour force expansion
The expanding labour force has been an important driver of economic growth in Latin America more than the last decades . According to the IMF , over the last two decades more than 40 per cent of GDP growth can be attributed to expanding labour input . However , as population growth decelerates and population ages , the contribution from demographics to growth will diminish . Increasing labour force participation can mitigate these demographic headwinds .
“ Latin America experienced a significant increase of more than ten percentage points in labour force participation — and nearly 25 percentage points among the prime working-age population ( 25 – 54 years old )— between the 1950s and 2010 , driven by women joining the labour force . However , participation rates have plateaued since then at uneven levels across gender and age groups ,” commented the IMF .
Using microdata from several Latin-American household surveys , an IMF paper documents key patterns in labour market participation and identifies demographic groups with the potential to boost the labour force going forward .
“ There is significant scope to offset the demographic shift by increasing female participation , although household responsibilities remain a crucial obstacle . Implementing policies that improve the availability and affordability of childcare , eliminate asymmetries in parental benefits and make work schedules more flexible can relax constraints to women ’ s labour force participation . Incentivising the elderly to remain active longer and more effectively integrating the youth into the workforce can provide an additional boost to the labour force ,” said the paper .
Additionally , a significant share of youth ( ranging from 17 to 27 per cent in the region ) is neither employed nor enrolled in education or training ( NEETs ). Reducing the share of young people who are neither employed , in school or in training by half could boost the employment rate and increase real GDP growth .
There is significant scope to offset the demographic shift by increasing female participation , although household responsibilities remain a crucial obstacle
Image : Shutterstock . com .
Image : Shutterstock . com .
Productivity in focus
“ Since 1980 , income levels in Latin America and the Caribbean ( LAC ) have shown no convergence with those in the United States , in stark contrast to emerging Asia and emerging Europe , which have seen rapid convergence . A key factor contributing to this divergence has been sluggish productivity growth in LAC . Low productivity growth has been broad-based across industries and firms in the formal sector , with limited diffusion of technology being an important contributing factor ,” commented an IMF Working
Paper on 11 October 2024 . Part of the productivity problem has been the existence of a large informal sector that consists of small and unproductive firms . By its nature , productivity growth in the informal economy is likely to be low . In LAC countries , the size of the informal sector has not been declining over time , in contrast to Asia , where the fast-growing formal sector has absorbed a large part of the informal sector . More important may have been the weak growth of productivity in the formal sector . Stagnant productivity in the LAC formal sector has led to limited output increases that were not sufficient to attract workers away from the informal sector . The limited diffusion of technology has probably been one of the key reasons for low productivity and output growth in the formal sector in LAC . Over the long term , output growth differences are the result of productivity growth differences .
According to the Working Paper , key factors for the low diffusion of technology include weak competition , poor governance , the proliferation of small firms , low R & D investment and inadequate human capital . However , it highlights that digital technologies and artificial intelligence ( AI ) may hold significant potential to enhance productivity in the formal sector , foster its expansion , reduce informality and facilitate LAC ’ s convergence with advanced economies .
AI , it said , is likely to enhance productivity with its adoption lag potentially being even shorter than that of the Internet due to lower capital and infrastructure requirements for widespread adoption . AI could further accelerate productivity growth by enabling countries to leapfrog technologies and reach a technological frontier , it added .
“ To harness the transformative power of AI , policy measures in LAC should focus on promoting technological diffusion and facilitating transitions within the job market , thereby unlocking the potential for economic growth and productivity improvement across the region ,” said the Working Paper .
“ However , there is also a risk that the region will fall behind advanced countries and frontier emerging markets in AI adoption . To capitalise on the benefits of AI , policies should aim to facilitate technological diffusion and job transition ,” it suggested .
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