LAC's Labor Paradox: High Job Creation, Low Productivity, and Persistent Inequality

Between 2016 and 2024, Latin America and the Caribbean created millions of new jobs, primarily in urban and low-productivity sectors, but struggled with informality, stagnant wages, and persistent inequality. Despite educational gains and rising female participation, job quality and labor productivity remain key challenges for inclusive growth.

The World Bank’s Regional Jobs Update: Insights from Labor Force Surveys – Latin America and the Caribbean (May 2025), developed in collaboration with the Poverty and Equity Global Practice, the Center for Distributive, Labor and Social Studies (CEDLAS), and supported by real-time hiring insights from the LinkedIn Economic Graph Research Institute, offers a comprehensive narrative of labor trends in the region between 2016 and 2024. Employment has consistently played a pivotal role in poverty reduction, accounting for nearly two-thirds of the progress made during the 2009–2014 economic boom. Over the past decade, Latin America and the Caribbean (LAC) generated 27 million net new jobs, a remarkable achievement on paper. However, the quality, structure, and inclusivity of those jobs present a far more complex and, at times, concerning picture.

Despite this apparent success in job creation, the region remains plagued by stagnant productivity, widespread informality, and persistent inequality. While job growth closely followed the rhythm of the broader economy, including a dramatic post-pandemic rebound, earnings did not immediately recover. It wasn't until 2024 that labor incomes finally climbed above their pre-pandemic levels. That momentum now appears to be losing steam, with projections for 2025 indicating a modest GDP growth of 2.1 percent and a deceleration in job creation to just 1.6 percent. In parallel, LinkedIn data, which captures hiring in higher-skilled sectors, shows a flatline in job transitions, signaling an incomplete recovery in digital and professional fields.

Job Creation Without Productivity

Though Bolivia stood out with a robust annual job creation rate of 4.4 percent, and Argentina and Paraguay followed closely, countries like Uruguay faced net job losses. Surprisingly, LAC maintained employment growth on par with other developing regions despite having the weakest GDP growth since 2015. This decoupling suggests a troubling trend: the area is creating jobs, but often in low-productivity and informal sectors, limiting their impact on long-term development.

Educational attainment increased significantly over the decade. The share of tertiary-educated adults rose by over 5 percent annually, outpacing growth among those with only secondary education or less. However, this transformation didn’t deliver a commensurate boost in earnings. The returns to education declined, and many graduates found themselves in roles ill-suited to their qualifications. Meanwhile, a skills mismatch continues to hamper growth, with three-quarters of 15-year-olds failing basic math proficiency and over half struggling with reading comprehension. Nearly one in four businesses across the region identified poorly educated workers as a serious constraint to growth.

Gains for Women and Cities, Gaps for Youth and Rural Areas

Job gains were concentrated in urban centers, where 25.9 million of the 27 million net new jobs were created. Women emerged as primary beneficiaries, capturing 54 percent of new employment and driving up female employment rates by over two percentage points. Notably, women made strides across multiple sectors, including education, health, and retail. In contrast, rural areas and low-skilled workers were largely left behind. Employment for workers without a high school diploma declined, contributing to a 2.7 percentage point drop in employment rates for this vulnerable group.

Youth unemployment dropped by more than five percentage points, yet remained high at 14 percent in 2024, more than double the regional average. Even more troubling is the NEET rate (Not in Employment, Education, or Training), which hovered around 20 percent, signaling a widespread lack of engagement among young people in critical years for skills development. Meanwhile, senior workers aged 65 and older posted the fastest employment growth, highlighting shifting demographic patterns and possibly inadequate pension systems pushing older individuals to remain in the workforce.

Informality and Inequality Hold Firm

Despite progress in some areas, job quality remains a major concern. Informality, when defined by productivity measures (such as employment in microenterprises or unskilled self-employment), declined by 2.3 percentage points across the region. However, when measured by access to social protection, such as health insurance or pension benefits, informality actually rose by 0.6 percentage points. Countries like Peru, Bolivia, and Argentina saw notable increases, revealing a widespread trend of salaried jobs without corresponding benefits.

Underemployment remained above 5 percent, and the Job Quality Index (JQI), which considers wages, benefits, job security, and satisfaction, declined in half of the countries surveyed. Wage inequality was also entrenched. Labor income grew at an average of just 0.7 percent annually, and the gender wage gap held steady at 22 percent. High-skilled workers continued to earn nearly three times more than their low-skilled counterparts, and regional inequality remained among the highest globally, with Brazil, Argentina, and Colombia scoring particularly poorly on wage distribution measures.

Preparing for the Future: AI, Green Jobs, and Policy Gaps

Looking ahead, LAC’s labor market faces formidable new challenges. The rapid spread of generative AI technologies puts 2 to 5 percent of current jobs at high risk of automation. At the same time, digital infrastructure shortfalls leave up to 17 million workers unable to benefit from these innovations. Additionally, the global shift toward sustainability threatens employment in carbon-intensive industries, where many low-income workers are concentrated. These threats are exacerbated by high external volatility and the region’s slow pace of structural transformation.

To navigate these turbulent currents, the report emphasizes the need for dual strategies. On the supply side, improving the quality of education and expanding lifelong learning opportunities will be crucial. On the demand side, removing bottlenecks in promising sectors like tourism and agribusiness, and fostering a more business-friendly environment, could spur the creation of more and better jobs. Without such coordinated interventions, Latin America and the Caribbean risk remaining trapped in a cycle of low-quality employment that fails to deliver inclusive and sustainable growth.