Labor and Social Outcomes

Although unemployment declined on average in the region as a whole from 8.6 percent in 2006 to 8 percent in 2007, it did so more slowly than in previous years, indicating that unemployment rates are nearing structural levels, which are influenced more by labor market characteristics and labor laws than by the business cycle.

Among the larger countries, the greatest reductions in unemployment occurred in Argentina, Colombia and Venezuela (see Figure 6 • Unemployment 2006-2007). The highest unemployment rates in the larger countries were in Colombia and Brazil, where salary rigidities and high labor indemnities and other fees represent an obstacle to job creation.

According to the latest ECLAC estimates, poverty continued to contract in 2007, although here too at a more moderate rate than in the two previous years (see Figure 7 • Poverty 1990-2007). The poverty rate dipped from 36.5 percent in 2006 to 35.1 percent in 2007, and the number of poor persons dropped from 194 million to 190 million. Of these, the number of extremely poor or indigent persons declined from 71 million to 69 million, and the extreme poverty rate fell from 13.4 percent to 12.7 percent. These are the lowest poverty rates on record since the 1980s, and the number of poor persons is at a 17-year low.

The reduction in extreme poverty since 1990 means that the region has advanced 87 percent toward achieving the first Millennium Development Goal, which is to reduce the 1990 extreme poverty level by half by 2015. According to ECLAC, current extreme poverty levels suggest significant progress in many countries.

Estimates for Brazil, Chile, Ecuador (urban areas) and Mexico indicate that these countries have achieved the goal. Colombia, El Salvador, Panama, Peru and Venezuela are progressing at a pace close to or faster than that required to achieve the goal by 2015. Although all the countries have reduced their extreme poverty rates, Argentina, Bolivia, Honduras, Nicaragua, Paraguay and Uruguay are behind in achieving the goal. In some of these countries, such as Argentina and Uruguay, progress in reducing poverty and indigence has accelerated in recent years. But because poverty increased during the financial crisis, these countries are having trouble reaching the goal.

Despite the reductions in unemployment and poverty, there remain great challenges for labor and social policy. Future progress in these areas will depend much more on structural and sector policy reforms than on macroeconomic policy or variables. Reform of social security systems and labor legislation in order to improve worker protection and promote formal employment remains pending in most countries. Chile is a major exception: an innovative reform of its pension system is underway, with a view to increasing coverage and expanding the options available to different groups of workers.

Another challenge is to target social spending to those most in need in order to improve its distributional impact. Conditional cash transfer programs are a noteworthy improvement in this area. However, public spending on health and social security in most countries continues to provide greater benefits to higher-income segments of the population. In addition to redirecting benefits to the poor, it is crucial that governments focus on programs with the greatest potential to resolve the most pressing social problems.

The Bank recently supported an innovative initiative to identify the most effective public programs for reducing poverty (see Box 1 • San José Consensus). However, resolving the problems of economic and social exclusion in the region requires much more than redirecting social spending and improving its effectiveness. Exclusion has very deep, diverse and changing causes that cannot be addressed simply with public spending programs (see Box 2 • Outsiders? The Changing Patterns of Exclusion in Latin America and the Caribbean).