By Luis H. Vargas Faulbaum
This blog post is based on a partnership between the Regional Office for Latin America and the Caribbean of UNICEF and the International Policy Centre for Inclusive Growth (IPC-IG) who have been working on the analysis of the social protection responses and COVID-19, with a particular focus on social assistance, school feeding programmes, social insurance and labour market, migration and digitalisation of the implementation of the responses. For full details and the technical report on social insurance and labour market (only in Spanish), see this link (Rubio, et al., 2020).
During the austral winter, the number of cases and fatalities caused by the COVID-19 pandemic rose significantly in Latin America. Brazil has reported the highest number of infections, but other countries, relative to their population size, have had more severe concentrations such as Peru, Ecuador, Colombia, and Chile. By the late Spring, lockdowns were more flexible, and economic activity was waking up. However, leaders in the region are cautious of the effects of the second outbreak such as the one currently affecting Europe and the US. The region has experienced record-breaking economic impacts (economic contraction of 9.1 per cent), with women hardest hit by unemployment and declining labour market participation rates (CEPAL, 2020). This grim outlook is likely to worsen child wellbeing as estimations are showing that 48 per cent of children and the younger population will be classified as living in a low-income household. This will mean an increase of 20 million people living on low incomes in Latin America, thus dramatically affecting the future prospects of this population (UNICEF and Save the Children, 2020).
What have some of the region’s social insurance and labour market responses looked like so far? In a nutshell, the social insurance and labour market responses have been mostly adaptations of existing programmes, followed by the enactment of temporal initiatives to maintain labour force, such as compensations for independent workers or credits and allowances for the leading employers in the region (SMEs). However, the region shows considerable heterogeneity, with longstanding social insurance coverage gaps in Central American and Andean countries. This of course impacts the relevance and scope of social insurance responses.
So, delving into more details, what do these responses in the region look like?
Twenty-four countries have implemented responses, the most frequent being employment protection, early access to redundancy payments, and the use of contributory pension savings for consumption activation. Nevertheless, the pandemic has uncovered some of Latin America’s structural labour market structural challenges, in particular with regards to informality. Here are some of the responses:
Countries adapted existing programmes in different ways, such as relaxing eligibility conditions (Chile, Colombia, Ecuador, Mexico, and Uruguay), expanding benefit amounts (Argentina, Mexico and Uruguay), and extending the claim periods for insurance payments (Ecuador). The duration of these schemes was from two (Mexico City) to six months (Argentina), but in most cases, coverage of the measures did not surpass six per cent of the labour force, except in Uruguay. According to Amorim and Bilo (2019), nine countries (Argentina, Bahamas, Barbados, Brazil, Chile, Colombia, Ecuador, Uruguay and Venezuela) have a public unemployment insurance scheme. In contrast, ten countries do not have any protection mechanism against unemployment (such as Cuba, Haiti, Jamaica, Nicaragua, Paraguay, Dominican Republic and Suriname). Also, fifteen countries (for instance, El Salvador, Guatemala, Mexico, Costa Rica, Belize, Bolivia, Panama and Peru) only offer severance pay. Hence, the initial — already fragile — unemployment situation in the region got more severe as the pandemic triggered mass unemployment that governments will need to tackle.
Regarding pensions, 40.1 per cent of employed workers are consistently contributing to the schemes, except in a few countries, such as Brazil, Chile, Costa Rica and Uruguay, where more than 60 per cent of employed workers are contributing to the pension scheme. On the other hand, Bolivia, Guatemala, Honduras, Nicaragua, Paraguay and Peru show less than 30 per cent of coverage. The most widely utilised adaptation was vertical expansion, including top-ups (Argentina), advance payments (Belize, Brazil, Costa Rica, Guyana, and Mexico), additional payments (Cuba and Venezuela), and exceptional withdrawal from mandatory individual accounts of pension funds (Chile and Peru). For instance, the Brazilian government allowed the advance payment of the 13th monthly pension for pensioners under the General Social Security Regime. Meanwhile, Chile allowed two early withdrawals of 10 per cent of the funds, capped at approximately USD 5,300, from individual retirement accounts.
The labour market suffered a remarkable deterioration during the first wave of the pandemic and lockdowns, on both the supply and demand sides, primarily affecting primarily employment and wages. The most affected were informally employed workers and small and medium enterprises. To partially address this issue, eight countries enacted temporary suspensions of labour contracts for three to 12 months. In addition, the most popular policy was to implement wage subsidies, mainly through new and temporary programmes (Argentina, Belize, Brazil, Colombia, Costa Rica, Cuba, Dominican Republic, Guatemala, Haiti, Honduras, Jamaica, Paraguay, and Peru). Chile, Trinidad and Tobago, and Uruguay implemented these subsidies through existing platforms, such as unemployment insurance.
In addition, joint UNICEF and IPC-IG research explores the use of a set of implementation features like direct transfers to unemployed workers or subsidies paid to the company to partially finance payroll. The coverage of these initiatives, as a percentage of the labour force, ranges from 0.1 per cent (Guatemala) to 46.4 per cent (Chile). Lastly, five countries enacted temporary contract suspensions or working hours reductions, without public financial support to afford the wage payment.
Support to Small and Medium-sized Enterprises (SMEs)
Small and Medium-sized Enterprises (SMEs) are some of the most important employers in the region in terms of the number of hired workers (equating to 61 per cent of formal employment), with a relatively small contribution to GDP. SMEs’ sustainability has been heavily affected by the crisis due to a shortage of liquidity, as they may not be able to afford their financial and contractual obligations. Consequently, governments had to act quickly to reduce the chances of many SMEs falling into bankruptcy and negatively impacting the labour market. The policies adopted include a temporary reduction of social security contributions paid by the employers (Argentina, Brazil, Colombia, Honduras, Paraguay and Peru), wage subsidies and labour contract suspensions. Some countries offered state-guaranteed loans to SMEs to tackle short-term financial problems (Argentina, Bolivia, Brazil, Chile, Costa Rica, Ecuador, Guatemala, Honduras, Mexico, Paraguay, Peru, Uruguay and Venezuela), primarily to afford payroll, right to a moratorium and restructuring capital debts. An exciting innovation was implemented by Costa Rica, as it offers technical advice for companies in priority economic sectors in order to increase the likelihood of success and recovery.
Independent and self-employed workers
In general, independent or self-employed workers do not have access to contributory social insurance benefits, except in Argentina and Uruguay where they have established single social tax-payers schemes (monotributo social). The single social tax-payers schemes have been essential for enabling rapid adaptations during the pandemic. For example, in Uruguay, no-interest loans were provided and coverage expanded to street vendors and informal food markets workers. Other countries enacted measures such as postponement of social insurance contributions for self-employed workers (Ecuador) or temporary discounts of mandatory contributions (Colombia). Jamaica supports small individual entrepreneurs with a special grant, and Chile enacted a soft loan for independent workers paid annually through tax retentions.
The region needs to further advance in mitigating the negative economic impacts caused by the pandemic and the prior slow growth since the early 2010s. Social protection policies have the potential to contribute towards this by also avoiding a new lost decade with high social costs.
An additional challenge these policies need to take into consideration is reducing the burden of female unpaid domestic work and the need to establish and expand care services. Contributory schemes were at a disadvantage as a platform for responding to crisis. This is because they reflect underlying labour market segmentation, including large numbers of insured, particularly among women, indigenous people, rural and workers in low-productivity sectors. Consequently, this extraordinary situation shows the urgent need, on the one hand, to expand the coverage and financing of social insurance to include more uninsured workers — and on the other hand, to pursue wage subsidies to incentivise the creation of formal jobs for vulnerable workers, especially women and youth.
Our blogger, Luis H. Vargas Faulbaum, is a DPhil Candidate in the Department of International Development at the University of Oxford.
Amorim, B., & Bilo, C. (2019). Seguro-desemprego ao redor do mundo: uma visão geral. Brasilia: IPEA.
CEPAL. (2020). Enfrentar los efectos cada vez mayores del COVID-19 para una reactivación con igualdad: nuevas proyecciones. Santiago: Naciones Unidas.
Rubio, M., Escaroz, G., Machado, A., Palomo, N., Vargas, L., & Cuervo, M. (2020). Protección social y respuesta al COVID-19 en América Latina y el Caribe: seguridad social y mercado laboral. Panama City and Brasilia: UNICEF and IPC-IG.
UNICEF and Save the Children. (2020). Children in monetary poor households and COVID-19: Technical Note.