labor markets, social protection and the informal economy in latin america
TRANSCRIPT
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Labor Markets, Social
Protection and the
Informal Economy in Latin America
Ángel Melguizo
The Challenge of the Informal Economy for
Latin America
LACEA, Mexico City - November 1, 2013
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Labor Markets, Social Protection and the Informal Economy
in Latin America
Better pensions, better jobs? Bosch, Melguizo and Pagés (2013)
The missing middle: pension savings and the middle class
OECD (2010); Carranza, Melguizo and Tuesta (2012); Daude, De Laiglesia and Melguizo (2014)
Do informal workers save?
Bosch, Melguizo, Peña and Tuesta (2014)
Concluding remarks
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Better pensions, better jobs?
Low pension coverage: 4/10 Pop 65+ don’t get a pension
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Better pensions, better jobs? - 47%-60% of Pop 65+ (up to
83M) will not have an adequate pension; consequences:
Social: Families will need to devote greater effort to the care of the elderly.
Political: Adults 65 + will make up between 20% and 30% of the potential voters.
Fiscal: Lack of coverage represents (also) an implicit fiscal cost.
Economic: How coverage gaps are closed can have an impact on productivity growth.
(IDB projections based on the historical elasticitiy of formality to GDPpc
and national legislation)
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Better pensions, better jobs? - The labor market at the
epicenter of the challenge
130 million informal workers in LAC-19
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Labor Markets, Social Protection and the Informal Economy
in Latin America
Better pensions, better jobs?
The missing middle: pension savings and the middle class
Do informal workers save?
Concluding remarks
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The missing middle - Pension savings are low for non-
wage earners, workers in small firms, or low-income …
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The missing middle - … but also evident for the
emerging middle class
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The missing middle - Low pension savings for the
middle class reflect (and impact) the labor market
Many/most middle-class workers do not have a written contract
(2/3 in Colombia, Mexico and Peru; 1/3 in Chile)
Non-agricultural middle income workers in Chile, Colombia, Mexico and Peru by occupation (Percentage of total non-agricultural workers – 14 to 64 years old)
Source: OECD (2010), Carranza et al. (2012) and Daude et al. (2014)
0.0
0.2
0.4
0.6
0.8
1.0
2009 CHL 2009 COL 2010 MEX 2010 PER
With written contract Self-employed with tertiary education
Non-agricultural informals Non-agricultural self-employed
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20.5 million middle-income workers, with labor income well
above poverty – savings capacity (?)
The missing middle - (Middle-income) Workers without
a written do not contribute to pension schemes
Middle-income workers contributing to the pension system by occupation in Chile, Colombia, Mexico and Peru (Percentage of total
non-agricultural workers – 14 to 64 years old)
-
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
With written contract Self-employed with tertiaryeducation
Non-agricultural informals Non-agricultural self-employed
2009 CHL 2009 COL 2010 MEX 2010 PER
Source: OECD (2010), Carranza et al. (2012) and Daude et al. (2014)
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Labor Markets, Social Protection and the Informal Economy
in Latin America
Better pensions, better jobs?
The missing middle: pension savings and the middle class
Do informal workers save? Preliminary results!
Concluding remarks
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Formal savings: though financial institutions and pension funds,
using the IDB Social Protecion Survey 2008
Do informal workers save? – One third of informal
workers in Mexico DF save informally
Percentage of savers among workers in Mexico City, 2008
0
10
20
30
40
50
60
70
Savings in financialinstitutions
Formal savings Total savings
Informal workers Workers
Source: Bosch et al. (2014)
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Group 1: Male, high-
income (QIV-V), self-
employed workers,
working longer hours
and in the same
business
Group 2: Female, low
educated (primary),
low-income workers,
and dependent worker
in small firm (up to 5)
Cluster analysis using over 20 socio-economic variables
Do informal workers save? – Mexican DF informal
workers are not alike…
Source: Bosch et al. (2014)
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Do informal workers save? – … and their savings
behavior differ
Source: Bosch et al. (2014)
39% of informal
workers in Group 1
save (vs. 14% in
Group 2);
mostly to finance
their retirement or
their business (Group
2 have not thought
about it)
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Do informal workers save? – Barriers to formal savings
do not appear to be income-related (!)
PROBIT analysis – (very) preliminary results
Socio-economic variables affect similarly the probability to save
in Groups 1 and 2.
Labor income is not significant (neither the proxy of total
income).
Labor satisfaction and having friends contributing to pension
schemes boost formal savings among informal workers.
Age and confidence in the future increase savings through
financial institutions among informal workers.
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Labor Markets, Social Protection and the Informal Economy
in Latin America
Better pensions, better jobs?
The (old) new missing middle: pension savings and the middle class
Do informal workers save?
Concluding remarks
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Concluding remarks - Informality is not an incurable disease
It is the outcome of:
Designs: Systems exclude (de jure or de facto) non-wage earners.
Incentives: Provided by the state in labor markets.
Value: Placed by workers and firms on social security.
All this can be changed with adequate policies.
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Concluding remarks - The time is now: financial and
political economy challenges can be overcome
Demography: The region is still young but the window of opportunity will rapidly close.
Improvement in formal employment and productivity: Pension reform is central to achieve both.
Funding: Pension reform requires an increase in resources allocated to these policies, preferably from alternative sources (VAT, commodities).
Political economy: Formal employment is a central aspiration of the middle classes.
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Concluding remarks - Reforms should be bold and
innovative
Traditional financial instruments (e.g. non-contributory pensions, social contributions subsidies).
Engaging the emerging middle class.
Innovation in channels (not just prices/income): Experiment, evaluate and then (re)design.
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Main references
Bosch, M., A. Melguizo, X. Peña and D. Tuesta (2014), The interplay between savings
and the informal economy: an analysis based on Mexico and Peru surveys. Work in
progress.
Bosch, M., A. Melguizo and C. Pagés (2013), Better pensions, better jobs. Towards
universal coverage in Latin America and the Caribbean. InterAmerican Development
Bank, Washington DC.
Carranza, L, A. Melguizo and D. Tuesta (2012), “Matching contributions in Colombia,
Mexico, and Peru: experiences and prospects”, in R. Hinz, R. Holzmann, D. Tuesta and
N. Takayama (eds.), Matching Contributions for Pensions, pp. 193-213. World Bank,
Washington DC.
Daude, C., J. de Laiglesia and A. Melguizo (2014), “Covering the uncovered: Labor
informality, pensions and the emerging middle class in Latin America”. In J. Dayton-
Johnson (ed.) Latin America’s Emerging Middle Classes. Macmillan Publishers Limited,
Hampshire.
OECD (2010), Latin American Economic Outlook 2011: How middle-class is Latin
America, OECD Development Center, Paris.
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