WASHINGTON, United States — Economic crises like the one that Latin America and the Caribbean is suffering now, have long-lasting effects on the structure of employment and may permanently drive many from the formal economy, according to a new World Bank report.

According to ‘EMPLOYMENT IN CRISIS: The Path to Better Jobs in a Post COVID-19 Latin America’, the COVID-19 pandemic is having the biggest impact on low-skilled workers and exacerbating the region’s already high inequality.

Noting that low-skilled workers often suffer from lower earnings for a decade following a crisis, while high-skilled workers see a quick rebound, it said government labour policies should focus on providing social safety nets and retraining, as well as improving the macroeconomic and business environment to ensure long-term and inclusive economic growth.

“Economic recovery has often been a myth when it comes to jobs, but it doesn’t have to be that way,” said World Bank Vice President for Latin America and the Caribbean Carlos Felipe Jaramillo. “The right policies can help limit the impact crises have on employment and foster the creation of more jobs in recoveries.”

As some of the largest shocks that have shaken the region in recent decades show, the consequences of crisis in Latin America and the Caribbean are long-term and leave deep scars on employment.

The report said on average, after three years, major crisis causes a net loss of 1.5 million jobs, with a three per cent contraction of formal work and an expansion of the informal. It said the current crisis could be even worse and cause a contraction in formal employment of up to four per cent

Low skilled workers tend to suffer the most, exacerbating persistent inequities in the region, as “the scars of the crises can remain for up to a decade, with loss of income and greater vulnerability”, the report continued. It added that two thirds of the countries in the region do not have national assistance or unemployment insurance programs. To minimise this long-term scarring, the report encouraged governments to adopt policies to support a sustainable recovery of economies and facilitate the recovery of employment.

“We need to seize the opportunity to build back better,” said Joana Silva, World Bank Senior Economist and the lead author of the report. “We should strengthen our labour markets so they are able to cope with and quickly reverse the impacts of future shocks.”

It said the key initial step is to put strong, prudent macroeconomic frameworks and automatic stabilisers in place to shield labour markets from potential crises.

“Sound fiscal and monetary policies can preserve macroeconomic stability and avert system-wide financial strain in the face of a shock. Fiscal reforms, including less distortive taxation, more efficient public spending, financially sustainable pension programs and clear fiscal rules are the first line of defence against crises,” the report explained.

“Countercyclical income support programs, such as unemployment insurance and other transfers to households during downturns, limit the damage caused by contractions and help economies recover. One of the region’s challenges, though, is that large segments of the workforce are informal and thus cannot be reached through traditional unemployment insurance.

“Also, it is crucial to increase the capacity of the region´s social protection and labour policies, blending these policies into systems that provide income support and prepare workers for new jobs through reskilling and reemployment assistance. Governments’ quick reaction to expand some social protection and labour programs in the wake of the pandemic can lead to progress in building better and more integrated social registries.

This is feasible in the short run and can make a difference in the reach of these programs,” the report continued.

But the World Bank report noted that stronger macroeconomic stabilisers and reforms to social protection and labour systems are not enough.

It said jump-starting job recovery by supporting vigorous job creation is also needed.

“This effort will require tackling structural issues. Competition policies, regional policies and labour regulations are key areas. If countries don’t address these fundamental issues, recoveries will remain characterised by sluggish job creation,” the report concluded.