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latinometrics OP t1_j437qte wrote

From our newsletter:

Uruguay has outperformed all other Latin American countries when it comes to eradicating informality, cutting it in half in the span of a decade.

Informal workers don't pay taxes and are not covered by social security, meaning that, although employed, they don't have access to social benefits like healthcare or pensions.

Having said this, it's no secret that Latin America has a vast informal economy, with more than half of its population working informally. In this context, Uruguay has become an anomaly in the region, with only a 20% informality rate. This puts them closer to Europe, which has a 17% rate.

The improvement did not happen overnight, though. It's a result of decades-long efforts. What can other countries learn from Uruguay?

After starting the century with an economic crisis, Uruguay saw sustained economic success, outperforming other countries in the region. Labor formality is a natural byproduct of economic success, meaning that the economic context laid the groundwork for their decline in informality.

However, this could not have been achieved without successful policies by Uruguay's government in various areas.

  • First, in 2005 the country set up policies to reactivate collective bargaining aka negotiations between employees and employers on working conditions. This has led to stronger unions in the country, which have worked towards workers' inclusion into social security.
  • Second, the government has introduced several tax reforms, including tax incentives for employers to integrate their workers into social security.
  • Lastly, the government has introduced other social programs, such as unemployment insurance and healthcare modifications.

Even as the pandemic brought about an increase in informal employment across Latin America, Uruguay's informality surprisingly decreased even further by an **estimated 3% during this period. **

This phenomenon is still being investigated; however, some experts have pointed to a generalized failure of small businesses in the country, driving labor into larger companies operating in the economy's formal sector.

Source: Our World in Data

Tools: Rawgraphs, Affinity Designer

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popejubal t1_j4604xx wrote

Are they reducing the amount of informal economic activity by eliminating it or are they reducing it by converting it into more formal economic activity?

Just eliminating the informal economic activity without a corresponding increase in formal activity doesn’t seem like a good thing.

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macksters t1_j4737ob wrote

I was checking the nominal GDP per capita figures for various countries the other day, and wow, Uruguay is shining like a bright star in all South America. I don't know who or what brought this change but the success is undeniable. Kudos Uruguay.

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Revenege t1_j43sjub wrote

The lack of proper axis titles makes it unclear what the percentage on the y axis represents. Is it the percentage of all jobs in the informal economy, the percentage of GDP, the percentage of a particular sector, etc. Even in your write up its just "Percentage of the economy" Which is doesn't really help.

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TROPtastic t1_j45dzf9 wrote

Diving into the Sources in Our World in Data, there's this in a linked PDF:

>Definition: This indicator presents the share of employment which is classified as informal employment in the total economy, and separately in agriculture and in non-agriculture.

>Concepts: Employment comprises all persons of working age who, during a short reference period (one week), were engaged in any activity to produce goods or provide services for pay or profit. Informal employment comprises persons who in their main or secondary jobs were in one of the following categories:

>- Own-account workers, employers and members of producers’ cooperatives employed in their own informal sector enterprises (the characteristics of the enterprise determine the informal nature of their jobs);

  • Own-account workers engaged in the production of goods exclusively for own final use by their household (e.g. subsistence farming);
  • Contributing family workers, regardless of whether they work in formal or informal sector enterprises (they usually do not have explicit, written contracts of employment, and are not subject to labour legislation, social security regulations, collective agreements, etc., which determines the informal nature of their jobs);
  • Employees holding informal jobs, whether employed by formal sector enterprises, informal sector enterprises, or as paid domestic workers by households (employees are considered to have informal jobs if their employment relationship is, in law or in practice, not subject to national labour legislation, income taxation, social protection or entitlement to certain employment benefits). For the purpose of classifying persons into formal or informal employment for this indicator, only the characteristics of the main job are considered. An enterprise belongs to the informal sector if it fulfils the three following conditions:
  • It is an unincorporated enterprise (it is not constituted as a legal entity separate from its owners, and it is owned and controlled by one or more members of one or more households, and it is not a quasi- corporation: it does not have a complete set of accounts, including balance sheets);
  • It is a market enterprise (it sells at least some of the goods or services it produces);
  • The enterprise is not registered or the employees of the enterprise are not registered or the number of persons engaged on a continuous basis is below a threshold determined by the country.
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ialghamdi1 t1_j43bdnm wrote

That’s a great achievement deserving to be praised. Ppl are entitled to job and future security and both are lacking in the informal sector.

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ecojota t1_j4403fb wrote

That's cool, while Brasil...

Also, there's any effect of ageing population on the statistics?

According to this site, the average age on Latin America and the Caribbean is 31.0years, while on Uruguai, is 35.8. Maybe the age of the population, has some impact on the informal economy and the force labour, impacting the marginal cost of employees...

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LupusDeusMagnus t1_j44i26h wrote

I wonder how it compares within countries: in Brazil’s South, it’s ~30%, while in the Northeast it’s ~55%

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gmuslera t1_j47uobp wrote

In Uruguay, during the pandemic, informal jobs had another reason to fall.

Formal jobs had unemployment insurance (you still had an income even without going to work, because it was closed), for some sectors it lasted more than a year, as activity lowered it was plain suspended for the pandemic. Informal jobs didn’t had that protection. 2021 and 2022 should had big changes there. Now it could be rising again, but probably less than before the pandemic.

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