Central America: learning how to create better jobs

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Trabajo informal en Centroamerica


The global events of the last few years, beginning with the 2008 financial crisis, have revived the debate around job creation as a key element for economic recovery.


In Central America, the global financial crisis had a significant effect on production and employment, and even though the region has recovered, the debate regarding how to create better jobs is still going strong.



The region’s economic growth before the crisis broke out in force was between 2% and 10%, with Panama in the lead and Nicaragua at the other extreme. The study “Better Jobs in Central America,” by the World Bank’s Latin America & Caribbean unit, states that until now, economic growth and migration has kept unemployment rates relatively low.


For example, more than 1.2 million people emigrated from El Salvador –20 percent of the total population—in search of work in the United States or other parts of the region. Nicaragua, for example, lost 12 percent of its population, or 720,000 people. This worker drain contributed to regulating the supply of manual labor and generating remittances.


The trade and agricultural sectors, both of which have low productivity, absorbed most of the labor force. While employment in manufacturing also rose, in most of the countries within the region, their share of employment in this sector fell.


In other words, most jobs are still generated in sectors with low productivity and limited technological development. This explains why aggregate productivity and real wages have stagnated over the past decade and informal employment continues to dominate the labor market (Costa Rica and Panama are exceptions to this trend).


So, rather than simply generating jobs, countries should focus on creating quality employment, that is to say, on activities with greater added value and better wages and working conditions.


In this context, the greatest challenge in terms of employment in Central America is to create the conditions that stimulate the creation of more productive, better quality jobs. Countries must have a skilled labor force if they hope to attract more investment – and more jobs—in high productivity sectors. Despite significant advances in education, much remains to be done to substantially improve the human capital base, including individuals who have dropped out of school.


Some statistics shed light on the education situation in Central America. In the region, the number of average years of schooling ranges from 4.1 years in Guatemala to 9.4 years in Panama --an indicator that has been increasing at the modest rate of one year per decade. The most rapid rise took place in El Salvador, where it approaches that of Costa Rica –eight years.  However, international education scoring systems such as UNESCO’s SERCE show El Salvador’s education lagging behind Costa Rica’s.  


Even so, the contrast with the rest of Latin America speaks volumes. For example, in Brazil, education levels increased much more rapidly during the same period (1995-2010). In addition, education levels in Chile are much higher than those of Panama or Costa Rica.


The contrast is even greater when comparing countries outside Latin America. South Korea, which in 1960 had only a one-year advantage over Central America, consistently increased its average years of schooling for more than five decades. The country now has more than a five-year advantage over the region.


As a result, access to secondary and tertiary education, as well as education quality, remains limited in the region. Moreover, Central America does not have enough workers with basic levels of scientific and technical skills to adopt and adapt new technologies.


How can public policy help remedy this situation? In addition to the importance of education, our study underscores the role social protection systems in improving investment in human capital. These systems help young children develop their cognitive potential through appropriate nutrition and stimulation, and create incentives to ensure that older children complete primary school (at the very least). In addition, training institutes and employment placement programs play a key role in improving job opportunities, particularly for young people. In their efforts to strengthen social protection systems, governments should evaluate current programs and strive to improve coordination, reduce fragmentation and expand coverage.


Investing in human capital is ambitious and the returns only become evident in the long term. However, Central America should make the commitment to its future, since competition based on inexpensive manual labor, which generates few benefits for the population and economic development, will not be sustainable over the long term.



Ana María Oviedo

Senior Economist, Poverty and Equity Global Practice, World Bank

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