Panama's Metro workers with their laptops. Photo: Javier Conte for The World Bank
Central American countries and the Dominican Republic are at a critical juncture for the transformation of their economies, creation of new jobs, and consequently the alleviation of poverty. To achieve this, they must embrace technological progress. However, in order to seize this opportunity, human capital must be developed and there must be greater deployment of technology in the workplace, as highlighted in the report "The Future of Work in Central America and the Dominican Republic."
The report indicates that automation in the most developed countries can lead to reshoring, where companies bring back production and manufacturing to their countries of origin. This happens because automation reduces labor costs, thereby incentivizing companies to keep or to create jobs in their own countries instead of moving operations abroad.
Automation can be an opportunity. If Central American countries and the Dominican Republic take the right steps, these countries can attract high-quality investments and foster job creation through new technologies. To achieve this, technological infrastructure and human capital must be improved. This entails promoting initiatives that increase access to technology and improve education and training systems to focus on the skills needed in the labor market.
Adapt or get left behind
The report shows that robot adoption in the United States had a negative impact on labor markets in some countries in the region, probably because companies decided not to move their operations abroad or downsized their existing operations, thus reducing job opportunities in the region. In Costa Rica, for example, robot adoption in the United States led to a slight increase in unemployment of 0.2 percentage points for workers with low and medium-levels of education.
The report also analyzes the impact of technological development on Central America's labor markets, noting that many countries have not taken full advantage of technological advances or their benefits. But why have they not been able to capitalize on this wave of progress? It is primarily due to the low penetration and diffusion of technology, and the urgent need to improve the quality of education.
The jobs of the future, which require expertise and considerable social networking, are increasing in the region, but manual and blue-collar jobs, that is, those that require more manual and routine skills, still dominate. The region is currently characterized more by agricultural employment than by robot-assisted manufacturing.
Compared to the United States, jobs in Panama, Costa Rica, and the Dominican Republic are 31% less intensive in knowledge and analysis tasks, such as risk assessment or strategic planning. Low technology adoption is also reflected in the limited use of computers and the internet by workers. Guatemala has the least frequent use of computers and the internet (4%) by workers, followed by Honduras (5%), El Salvador (8%), Costa Rica (12%), and Panama (13%), while in the United States this percentage is 27%.
Challenges and opportunities
Although remote work and gig-type jobs are gaining ground, their scope continues to be limited. In Costa Rica, during the pandemic, remote work increased from 8% of employment in 2019 to 18% in 2021. However, in the Dominican Republic, only 2% of the employed population can be classified as teleworkers.
Another key challenge is the lack of skills that are complementary to technology among workers. Less than 30% of the workforce has high levels of education that complement new technologies. In the Dominican Republic, 40% of employers report difficulties in filling vacancies due to a lack of the requisite skills or experience. LinkedIn data in Panama and Costa Rica show that technology skills are lagging behind the global average in many industries.
Using technology for progress
However, the news isn’t all bad. The report presents a set of actions that countries can implement in order to benefit from technological development.
First, initiatives must be launched that increase access to and the use of technology. Implementing pilot projects that encourage SMEs to use digital platforms is a good place to start.
In addition, education systems must be improved. These improvements should focus on developing fundamental skills, including basic digital skills, and should be geared toward new demands in order to prepare the workforce for the challenges and opportunities of the future.
In the short term, policymakers can explore models that increase platform workers’ access to social protection. Given the nature of jobs in the subregion – they tend to be temporary and part-time – most of these workers now have no access to a safety net. In the long term, relying exclusively on traditional employer-employee relations to finance and provide social protection will have to cease.
According to the report, automation, while disruptive, has the potential to create new jobs, even for lower-skilled workers. However, in order for this potential to be realized, countries must first address important challenges. The key lies in preparing for and adapting to technological progress. With the right policies and investment in education and technology, the Central America and the Dominican Republic subregion can ride this wave of progress to transform their economies and improve their citizens’ lives, thus building a more prosperous and equitable future for all.
Download the full report "The Future of Work in Central America and the Dominican Republic."
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