IDB Presents Reform Agenda to Boost Worker Productivity and Well-Being

A new publication shows that it is possible to simultaneously improve worker productivity, increase pay, and enhance social protection.

WASHINGTON — A new Inter-American Development Bank (IDB) report proposes a comprehensive reform agenda to boost worker productivity while improving wages and working conditions, thereby increasing growth and reducing inequality in Latin America and the Caribbean.

The study, Making Labor Markets Work: Improving Productivity and Workers’ Welfare in Latin America and the Caribbean, highlights how labor policies and social protection systems that discourage the creation of formal, productive jobs are a major cause of two of the region’s challenges: slow productivity growth and high inequality.

The study presents the most complete analysis of labor markets in Latin America and the Caribbean to date, drawing on three decades of data, an exhaustive review of labor institutions, and empirical evidence on the effectiveness of public policies. It argues that the region does not have to choose between improving workers’ productivity or their well-being because well-designed reforms can simultaneously boost growth, increase wages, and reduce informal employment.

The report’s reform agenda also tackles the most influential topics for the future of work: labor regulations and compliance, social protection, collective bargaining, workforce training, and active labor market policies.

Among the report’s key proposals is to decouple social protection from employment status. The study recommends financing healthcare and protection against poverty in later life through general taxation rather than payroll contributions, which are de facto taxes on formal employment.

The report also recommends adapting labor regulations to an increasingly diverse reality with different modes of work and less stable career paths. This requires strengthening the institutions that govern collective bargaining to ensure the rules are enforced impartially for both businesses and unions.

Another key element of the agenda is to strengthen workforce training, expand on-the-job learning opportunities, and improve employment policies to better connect workers and employers.

The study outlines a roadmap to implementing the reform agenda in a gradual and fiscally responsible way, but it also warns of the growing costs of postponing the reforms given the population aging, technological transformation, and low economic growth in the region.