By Paulo Eduardo da Rocha Maia Fernandes, International Policy Centre for Inclusive Growth (IPC-IG).
Labour markets worldwide have suffered the effects of the economic and social disruptions caused by the COVID-19 pandemic. There was a significant reduction in employment, forcing workers to transition to unemployment or inactivity, and in the number of hours worked, adversely affecting workers’ income. In this respect, ILO (2020) presents data indicating that Latin America and the Caribbean was the region most affected in terms of hours worked and labour income during the first three quarters of 2020, facing a decline of 20.9 per cent and 19.3 per cent, respectively. Besides, the region saw 34 million workers losing their jobs during the first half of this same year. As a response to mitigate these effects on workers, governments sought to expand their social protection systems by enhancing existing programs and/or implementing new ones.
Social protection systems can be divided into three main areas: social assistance, social insurance, and labour market programs. The latter involves programs to support enterprises, retain and create jobs (opportunities), and offset labour income losses. Table I shows that labour market programs were the second source of social protection in the Latin America and the Caribbean region during the COVID-19 pandemic, while figure 1 distinguishes the type of programs implemented in the region under the labour market area. Most programs in this area were wage subsidy, flexibility in payment of social security contributions to employees and employers, and subsidized credit for payroll. We classify these programs as “Job Retention Schemes”, which seek to preserve jobs at firms experiencing a temporary reduction in business activity by alleviating firms’ labour costs while supporting the incomes of workers whose hours were reduced (OECD, 2020).
Table I. Distribution of social protection measures by regions of the Global South
Source: IPC-IG. 2021. Social protection responses to COVID-19 in the Global South Online Dashboard.
Figure 1 - Social Protection responses by type of labour market categories in Latin America and the Caribbean. Source: IPC-IG. 2021. Social protection responses to COVID-19 in the Global South Online Dashboard.
Therefore, wage subsidies were used to top up the earnings of workers who had hours of work reduced through short-time work agreements or contracts temporarily suspended. Lowering and deferring social security contributions aimed at alleviating employers’ labour costs, while subsidised credit for payroll provided credit lines to enterprises to meet their short-term obligations to their employees. Figure 2 shows that most of these programs were new interventions implemented during the pandemic, figure 3 reveals that most were focused to retain formal workers, and figure 4 indicates that most were financed from public funds, which may be general tax revenue or a combination of it with social security funds (CEPAL, 2021).
Figure 2 – Programs extension of “Job Retention Schemes” (wage subsidy, flexibility in payments of social security contributions to employees and employers, and subsidized credit for payroll) in Latin America and the Caribbean. Source: IPC-IG. 2021. Social protection responses to COVID-19 in the Global South Online Dashboard.
Figure 3 - Target groups of "Job Retention Schemes" (wage subsidy, flexibility in payments of social security contributions to employees and employers, and subsidized credit for payroll) in Latin America and the Caribbean. Source: IPC-IG. 2021. Social protection responses to COVID-19 in the Global South Online Dashboard.
Figure 4 - Financing source of “Job Retention Schemes" (wage subsidy, flexibility in payments of social security contributions to employees and employers, and subsidized credit for payroll) in Latin America and the Caribbean. Source: IPC-IG. 2021. Social protection responses to COVID-19 in the Global South Online Dashboard.
These job retention programs played a crucial role to provide income to (formal) workers and maintain employment relationships (mainly) during the first year of the pandemic, avoiding a more drastic employment loss (CEPAL, 2021). Besides, ILO (2020) argues that these measures and incentives to retain workers can save enterprises from losing employees with specific and general job skills, avoid recruitment and job search costs that companies and workers would incur in the future, and contribute to a faster economic recovery. Table II presents some job retention programs from selected countries in Latin America and the Caribbean.
Table II. Examples of Job Retention Schemes in Latin America and the Caribbean
Source: IPC-IG. 2021. Social protection responses to COVID-19 in the Global South Online Dashboard.
The design of job retention programs varies from country to country. Also, this table does not represent all job retention programs in these countries, it just illustrates the variety of programs around the Latin America and the Caribbean region. However, looking in detail at the social protection responses to COVID-19 in the Global South online dashboard, we find similar patterns among these programs. For example, wage subsidies and deferral of social security contributions were temporary and limited to specific periods (although many of them were extended to 2021). In the specific case of wage subsidies, these programs did not target specific groups by sex or age, but they mostly covered lower-income formal workers, using the minimum wage as a benchmark to set up the benefit level (CEPAL, 2021).
The main challenge of “Job Retention Schemes” in the Latin America and the Caribbean region is their limitation to cover informal workers. The share of informal workers has historically been high in the region, and the crisis caused by the COVID-19 pandemic has exacerbated this problem. In normal times, when economies face difficulties to create formal jobs, the share of informal workers (especially from vulnerable groups) tends to increase. However, this counter-cyclical adjustment mechanism has not been seen during the pandemic crisis, in which informal (and vulnerable) workers have experienced the greatest job losses in the Latin America and the Caribbean region (ILO, 2020). In turn, informal workers (and firms as well) are more likely to suffer from a lack of access to social protection since they do not participate in contributory schemes, facing several legal, financial, and administrative barriers (which is the case in the design of job retention programs).
Therefore, “Job Retention Schemes” can play a significant role in the formal economy, but their impact may be very limited when it has to face a large informal sector. In the case of Latin America and the Caribbean, social assistance programs (non-contributory schemes) were created or expanded to support those who are engaged in the informal sector. However, these programs often focus on monetary poverty (or have strict targeting criteria), leaving a significant segment of informal workers who are not poor untargeted and uncovered, which we may define as the “missing middle” (Joubert, 2021). The COVID-19 pandemic has left this group of workers even more vulnerable (for example, increasing their risk to fall into poverty), exposing many gaps in social protection systems and the need to rethink and redesign them, especially to include the informal economy.
In this sense, countries in Latin America and the Caribbean have been gradually adopting measures since before the pandemic to incorporate the informal economy in their social protection systems. For instance, Argentina and Uruguay created the “monotributo social” (“monotax”), which simplified tax and contribution collections from small contributors, seeking to extend social protection coverage to self-employed workers and workers in micro- and small enterprises (ISSA, 2021). Other examples are the Social Security Institute of Guatemala that established new administrative rules and developed a digital solution to attract informal workers and accelerate their admission process, the Periodic Financial Benefits Programme in Colombia that extended coverage to informal workers in the creative economy, and the Mexican Social Security Institute that implemented a pilot program for the formalization of domestic workers (ISSA, 2021).
Lastly, these are good practices of improving registries, facilitating access to benefits, and incentivizing the affiliation to contributory schemes that were reinforced during the pandemic by many governments (ILO, 2021). Moving forward, countries should tackle structural drivers of informality by combining labour and social policies to develop solid labour markets and comprehensive social protection systems.
- Cerutti, P. et al. 2014. "Social Assistance and Labor Market Programs in Latin America: Methodology and Key Findings from the Social Protection Database". Social Protection & Labour Discussion Paper, No. 1401. Washington, DC: The World Bank Group. https://socialprotection.org/discover/publications/social-assistance-and-labor-market-programs-latin-america-methodology-and-key
- Economic Commission for Latin America and the Caribbean (ECLAC), International Labour Organization (ILO). 2021. “Policies to protect labour relations and hiring subsidies amid the COVID-19 pandemic”, Employment Situation in Latin America and the Caribbean, No. 25 (LC/TS.2021/163), Santiago.
- International Labour Organization (ILO). 2020, September. Impact on the labour market and income in Latin America and the Caribbean.
- International Labour Organization (ILO). 2021, January. Towards solid social protection floors? The role of non-contributory provision during the COVID-19 crisis and beyond.
- IPC-IG. 2021. Social Protection Responses to Covid-19 in the Global South. Online Dashboard. https://socialprotection.org/social-protection-responses-covid-19-global-south
- International Social Security Association (ISSA). 2021, November. EXTENDING AND MAINTAINING SOCIAL SECURITY COVERAGE. https://ww1.issa.int/analysis/extending-and-maintaining-social-security-coverage-americas
- Joubert, C. 2021, December. Not poor and not formal: Who are the ‘missed middle’ of social protection? World Bank Blogs. https://blogs.worldbank.org/africacan/not-poor-and-not-formal-who-are-missed-middle-social-protection
- OECD. 2020, October. Job retention schemes during the COVID-19 lockdown and beyond.
 “Labour market programs are comprised of both passive and active labour market programs. Passive labour market programs include contributory unemployment insurance and non– contributory unemployment assistance. Active labour market programs (ALMPs) - or labour activation programs - are designed to promote opportunity through connecting men and women to more productive employment. They empower beneficiaries with new and improved skills, help them find employment, and increase their earning potential through training, apprenticeships, job search assistance, subsidized job placements, and the like.” (Cerutti et al., 2014, p. 11)
This post is part of the ‘COVID-19 Social Protection response series’, a 12-piece blog series featuring discussions based on data and evidence from the interactive dashboard ‘Social protection responses to COVID-19 in the Global South’, developed by the International Policy Centre for Inclusive Growth (IPC-IG) in partnership with SPACE and sponsored by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ) and UNDP Brazil. The dashboard illustrates part of the data compiled in the COVID-19 tracking matrix and provides detailed insights into countries’ social protection responses to the crisis, working as a repository of experiences and government practices in shock-responsive social protection taking place in developing countries worldwide. Its indicators are divided into seven thematic sections: overview of responses, type of adaptation, timeliness, identification of beneficiaries and application tools; delivery mechanisms; coverage; and adequacy of benefits. This blog series is supported by the Department of Foreign Affairs and Trade (DFAT) of Australia.