World Bank: Latin Americans begin to feel squeeze in earnings

World Bank: Latin Americans begin to feel squeeze in earnings.
World Bank: Latin Americans begin to feel squeeze in earnings.

The four years of economic deceleration in Latin America are already affecting Latin Americans' capacity to find or hold onto jobs as well as their income, according to Augusto de la Torre, chief economist of the World Bank for Latin America and the Caribbean; while the region has already been posting worse-than-projected results for as many as five years, the job markets had remained for the most part unaffected in past years. 

That has started to change, however, de la Torre said this week during the annual conference of the World Bank in Lima, Peru.

“In recent times, however, we are seeing that the quality of employment is deteriorating as workers on salaries become independent or move from bigger companies to smaller ones,” he said, according to a video of a speech made available in the World Bank website along with a press release. "What is most notorious, however, is the fact that workers are abandoning the labor market completely, a trend especially for the younger and less educated.”

As these men return to their homes, to schools, without salaries, the incomes in poorer homes suffer the most.

The changes in Latin America follow strong growth during most of the past decade that was in part the consequence of a boom in commodity prices. 

The situation is looking worse, however, due in part to a deceleration in China and also as commodity prices have declined with zero percent growth projected for 2015 and one percent for next year, according to the World Bank figures.

“Most of the countries in the region are in the middle of an adjustment faced with a new reality of reduced income from exports,” De la Torre, who was born in Ecuador, said. "The key is “to avoid excessive losses in terms of economic activity and employment.”

Those countries with a flexible exchange rate have been better able to absorb the external shock because of an immediate reduction in imports, which have become more expensive while at the same time their exports can become more competitive. 

Those countries with capacity to enter into more debt will be able to soften the adjustment, he added.

The situation has significant political repercussions because well-designed social protection networks can help to soften the impact for the most vulnerable.

In addition, the governments need to balance laws to protect minimum salaries because, while they helped to elevate the income of non-skilled workers in the years of fast economic growth, now they could hurt employment creation.

In times of economic recession, a minimum salary “can be an enemy of unemployment,” according to De la Torre.