The Two Sides of Latin America’s Youth Employment Challenge

December 3, 2015

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To what extent can any single measure of unemployment accurately provide insight into a country’s economic health and the prospects for its people? A survey of the most recent Latin American youth unemployment data (2014) provides important insights. A quick glance at Mexico’s and Brazil’s data, for example, would suggest a relatively bright picture of for youth employment in Mexico, with youth unemployment at 9.5% (albeit this percentage has risen slightly from the year-earlier percentage), especially in comparison with Brazil’s youth unemployment of15.7% (this is down a minuscule 0.1% from last year’s figure). There’s another side to this data, however—where young people are finding work when topline numbers seem to track in the right direction. The picture becomes more complicated when you consider that 64.6% of Mexico’s youth is employed in the informal sector, compared with only 40.5% of Brazil’s youth.

It might be tempting to argue that it’s not a problem for the informal sector to absorb youth who might otherwise go unemployed and, in that way, soften topline unemployment numbers. But that overlooks the realities of employment in the informal sector. The informal sector, which consists of jobs that fall outside the reach of the law, fails to afford these young workers labor protections and frequently pays very poorly. The macro risks to a country’s current and future economic output are hardly less significant. A recent McKinsey report, “A Tale of Two Mexicos,” warns of the sharp divergence between the country’s globally competitive industries, which are now raising productivity at 5.8% per year, and its growing informal sector of low-productive, low-wage traditional firms where productivity is actually falling by 6.5% per year.

The need to think about and to consider both sides of Latin America’s youth employment challenge—unemployment itself and high informal sector employment—is clear. Such consideration must also include looking at why making formalization work requires more than modernizing labor laws—it also requires getting at the root causes, like the education gap, that enable the informal sector to thrive.

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