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Authors: Paarth Agarwal, Yong Hwee Shi Region Head: Tan Chok Geow
Editor: Akshat Daga
Illustration by Yen Ting
Abstract
This paper explores the untapped potential of youths and females in boosting Latin America’s economy after the past decade of slow growth. However, low employability, social stereotypes and informal economies prevent Latin American ninis[1] from fully integrating into the workforce. Latin America should therefore invest in job creation, improving the quality of their human capital, and removing social barriers to prevent youth and female employment.
Latin America’s lacklustre growth in the past decade
In the 2000s, Latin America enjoyed economic growth due to high commodity prices, except in the 2008 Financial Crisis. The 2010s, however, saw the region descend into a phase of lacklustre growth. From 2015 to 2019, GDP growth was consistently less than 2%, even slipping into negative levels in 2016. Commodity prices and exports were hurt by external factors such as the escalation of US-China trade tensions and tighter global financial conditions. Domestic production downturns and instability persisted - from Argentina’s economic crisis, to Mexico’s labour strikes and fuel shortages. Poor growth prospects are forecasted due to policy uncertainties and reform reversals (Werner, 2019).
To top it off, the COVID-19 pandemic is expected to contract Latin America’s 2020 GDP growth by over 9.0% (OECD, 2020). Beyond measures to bring a cyclical recovery, the consistent sluggish growth in Latin America also suggests that an expansion in the economy’s potential is imperative. We explore the potential of the labour force as an engine to drive growth, tapping into youth and female employment as well as improving the quality of Latin America’s human capital.
The Female and Youth labour force as an engine of growth for Latin America
An expansion of employment in the non-agricultural sector is a common remedial policy for economic growth (Pickett, 1973). Labour force size and efficiency are contingent on job opportunities available, and the government’s investment into skills upgrading. These factors make for a productive labour force that can serve as a powerful engine for potential growth (Pologeorgis, 2019).
Latin America has a large young workforce of about 163 million youths. This presents an economic opportunity, because with more workers, aggregate disposable income and spending rises, leading to massive growth in markets. However, 18 million young people are out of school and work, with 21% of young people being ninis in Latin America (OECD Observer, 2018). Brazil, Columbia and Mexico with larger populations, are found to have the highest number of ninis, with nearly 50% of them having no secondary education (Hoyos et al, 2016). Employing ninis can help reduce inequality, crime and violence - to which Latin America has lost a large share of their youth population to, when these youths could have been contributing dynamically to the future of the country (Jones, 2016).
The other demographic group that could be made use of is the female workforce. In 1990, only 44% of women participated in the labour force. By 2014, this ratio increased to 50.3%. Caribbean countries have had high female participation rates since 2005. Central America and the five largest South American economies were almost on par in the early 1990s, at just below 40%, but since then countries in South America have made the largest gains, when compared to any other region since 1990. Female participation in Latin America is now higher than what could be assumed by their per capita income.
Figure 2: Labour force participation rate, female (% of female population ages 15+) (Source: World Bank)
Potential gains from higher female participation can be huge. Illustrative predictions show that, all else equal, if Latin American countries were to raise their female labour force participation to the Nordic countries average (61%), their GDP per capita could rise by 10% depending on the country and the existing level of female participation. The direct positive impact of women entering the labour force is only the beginning. By enforcing policies that support women employment, such as policies that guarantee equal pay for similar work, women’s power to make decisions in their household is strengthened. Given that women spend more resources on children’s education and healthcare, this would benefit the entire family, increase labour productivity and boost the economy.
Challenges: What is preventing females and youths from being employed?
For the labour force to drive economic growth, there are two criteria: increasing the employment opportunities for, and the employability of the workforce. Beyond the lack of investments in job creation and infrastructure, insufficient educational opportunities for youths and women are severe impediments to developing the labour force’s potential.
In Latin America, 50% of formal firms report difficulties in filling jobs, whereas this figure is 36% in OECD countries. This is not surprising, with two out of three young people not trained to meet labour market demands for technical, professional and management skills. Tertiary education in Latin America heavily focuses on social sciences, business and law rather than sciences (OECD Observer, 2018). The low employability of the youth workforce in Latin America means that youth unemployment is more structural in nature, and investments into education are not targeted into areas that have growth potential for the economy.
Stereotypes also hinder the rise of the youth workforce. Ninis are portrayed to be good-for-nothings with no ability to contribute to the workforce, and are often viewed with derision, even fear. The terms most linked with ninis in the Mexican media found that the top 10 included violence, lazy, drugs, and insecurity (Hoyos et al, 2016). Similarly, gender roles in Latin America are shaped by cultural beliefs that obstruct female workforce growth. Gender expectations reinforce sexual divisions of labour, as women are relegated to the private sphere of family duties. (Zimmerman, n.d.) In 2014, Latin America’s gender gap in labour force participation remained large at 25%, nearly double that of the USA (Novta et al., 2016). Such stereotypes prevent youths and women from integrating into the labourforce and unleashing their potential.
Figure 3: Gender Gaps in Latin America and the Caribbean
Additionally, there is a strong association between the number of ninis and the rate of homicides in Latin America in high-crime contexts. In contrast, this association is non-existent in lower-crime contexts (Hoyos et al, 2016). Many ninis are deeply integrated in informal or underground economies, such as the notorious illicit drug trade, thus contributing to unstable conditions that deter incoming investments. There is a vicious cycle in which ninis are drawn into such alternative jobs, precisely because of the lack of job opportunities in the market. The presence of these jobs would mean that there are ninis who are not officially contributing to the economy.
Conclusion: Latin America’s next step
Latin America has to boost economic activity and capacity to rejuvenate their GDP. Recognizing the potential of the youth and female workforce is the first step; the next would be to invest in job and educational opportunities. Youth entrepreneurship training and enhancing the STEM landscape, are possible ways to increase the employability of the workforce. More importantly, eliminating social stereotypes would remove a significant entry barrier, and strengthening efforts to clamp down on informal economies and illicit trading would also help to integrate ninis more fully into the labour force, and divert them into more productive economic activity.
[1] ninis: “ni estudian ni trabajan”, the Spanish phrase for people who "neither study nor work.”
Reference
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