IDB Calls for Labour Market Reforms to Boost Growth and Jobs

According to the study, labour policies and social protection systems that discourage formal employment have contributed to weak productivity growth and persistent inequality.

The Inter-American Development Bank (IDB) has called for sweeping labour market reforms across Latin America and the Caribbean, saying better-designed policies can raise productivity, improve wages and reduce inequality without forcing governments to choose between economic growth and worker welfare.

The recommendations are outlined in the bank's latest report, Making Labor Markets Work: Improving Productivity and Workers' Welfare in Latin America and the Caribbean, which examines three decades of labour market data and policy trends across the region.

Report Links Informal Employment to Slower Growth

According to the study, labour policies and social protection systems that discourage formal employment have contributed to weak productivity growth and persistent inequality. The report argues that creating more formal, productive jobs is essential for building stronger economies and improving living standards.

Drawing on extensive research into labour institutions and public policy, the IDB says reforms can support businesses while also delivering better outcomes for workers through higher wages and improved working conditions.

Social Protection and Labour Rules Under Review

One of the report's main recommendations is to separate social protection from employment status. Instead of relying on payroll contributions, the IDB suggests funding healthcare and old-age poverty protection through general taxation, reducing the financial burden associated with formal employment.

The report also calls for labour regulations that reflect today's changing workforce, where flexible work arrangements and less predictable career paths are becoming more common. It recommends stronger and more impartial institutions to oversee collective bargaining and ensure labour rules are applied fairly to both employers and unions.

Skills Development Seen as Key Priority

The reform agenda places strong emphasis on workforce training, greater access to on-the-job learning and employment programmes that improve connections between workers and employers. The IDB believes these measures will help workers adapt to technological change while giving businesses access to better-skilled employees.

The report proposes a gradual and fiscally responsible path for implementing the reforms. It also warns that delaying action will make future challenges more difficult as the region faces an ageing population, rapid technological change and continued slow economic growth.