The World Bank (WB) has revised its growth forecast for Latin America and the Caribbean downwards to 2.1% for 2025, signaling a potential slowdown in job creation across the region. This adjustment, announced in April, positions Latin America as the region with the lowest projected growth globally. The institution also lowered its 2026 growth estimate to 2.4%.

The anticipated sluggish growth occurs against a backdrop of subdued investment, high levels of debt, and a volatile external environment, all of which pose significant impediments to the development of Latin America and the Caribbean, according to the World Bank.

The report highlights that limited productivity growth and a restricted structural transformation are among the key challenges, indicating a stagnation in labor demand. Consequently, the World Bank anticipates a less dynamic labor market in Latin America in 2025, influenced by the economic deceleration and the repercussions of global trade tensions.

The reduced expansion expected for the current year is projected to negatively affect both the creation of new employment opportunities and the progression of labor income throughout the region.

"The region is expected to remain in its cycle of not creating enough quality jobs to accelerate its progress towards poverty eradication," the World Bank stated in its new report, released on International Workers' Day. This sentiment underscores a persistent challenge in the region's ability to translate economic activity into meaningful employment for its populace.

Based on current macroeconomic projections, the World Bank estimates that job creation will slightly decrease to 1.6% year-on-year, down from the 2% recorded in 2024. Concurrently, the growth of labor income is expected to decelerate to 1.5%, falling below the average of around 4% observed at the beginning of 2024.

Last year, the employment rate in Latin America saw a 1.3 percentage point increase, reaching 58.9%, while unemployment fell from 8.5% to 6.2%. However, youth unemployment remained stubbornly high at 14%, continuing to be a major concern for the region. Notably, a significant portion of employed youth, nearly 60%, work in the informal sector, limiting their access to social security and labor rights.

Carlos Rodríguez-Castelán, Manager of the Global Practice for Poverty and Equity for Latin America and the Caribbean at the World Bank, told Bloomberg Línea that this labor stagnation, coupled with the persistence of low-quality jobs, will limit the effectiveness of the labor market as a tool for poverty reduction in the short term. He further noted, "The region today faces the challenge of creating quality jobs to accelerate its progress towards poverty eradication. We estimate that poverty will remain stagnant in 2025, with one in four people living below the poverty line."

The projected decline in job creation and labor income growth for 2025 is not expected to affect all workers equally. Rodríguez-Castelán pointed out that youth employment tends to be more precarious and informal, offering less protection against adverse economic cycles. In a context of lower growth, these jobs are often the first to disappear, potentially reversing some of the progress made since 2016. The International Labour Organization (ILO) has also highlighted youth unemployment as a key challenge, with rates remaining about three times higher than adult unemployment in the region.

Addressing bottlenecks in labor-intensive sectors such as agribusiness and tourism, as well as key infrastructure and energy sectors, could help sustain labor demand and foster a more vibrant local economy.

The Footprint of Informality in New Job Creation

Despite experiencing the lowest economic growth since 2015, Latin America has maintained employment growth comparable to other regions. The World Bank report highlights that job growth has been stronger among the more educated segments of the workforce, and women accounted for 54% of the new positions created, equivalent to 14.5 million jobs.

Over the last decade, the region generated approximately 27 million net new jobs, predominantly created by larger companies (with more than five employees), in urban centers, within the trade and hospitality sectors, and among skilled workers.

However, despite an increase in wage employment, the World Bank cautioned that many of the new jobs created were informal, lacking pension rights and other labor benefits. This trend of informal job creation has long been a defining feature of Latin American labor markets, encompassing nearly half of the employed population. The OECD notes that over 42% of people in the region reside in households solely reliant on informal employment.

"This disconnect suggests that Latin America and the Caribbean is creating jobs without improving productivity, which may explain the persistence of low job quality in the region," the report stated.

The report reveals a prolonged stagnation of labor productivity in Latin America over the past decade, a critical obstacle to the generation of quality employment. Several interconnected factors contribute to this, including high levels of informality, burdensome regulations, complex and distortive taxation, and poor governance. Boosting productivity growth 1  requires a policy agenda that prioritizes human capital accumulation, simplifies business and labor market regulations, and improves tax design.

Carlos Rodríguez-Castelán emphasized that boosting productivity growth requires policies that promote macroeconomic stability and a predictable regulatory environment.

Furthermore, the World Bank observed that education systems in the region are "not necessarily delivering useful skills for work." Alarmingly, three out of four 15-year-olds in the region lack a basic understanding of mathematics, and more than half cannot read adequately. Consequently, 22.8% of companies in the region identify an inadequately educated workforce as a significant or very severe limitation, exceeding the global average of 19%. This skills gap exacerbates the challenges faced by young people entering the labor market. Nearly one in five young people in the region were categorized as "Ninis" (neither studying nor working) last year, surpassing the average for upper-middle and high-income countries.

While informality rates decreased by 2.3 percentage points between 2016 and 2024, reaching 42.1% of workers, significant disparities exist across countries. Chile and Costa Rica exhibit relatively low informality rates (27% and 34%, respectively), while Peru and Bolivia show rates exceeding 60%.

Overcoming these obstacles will be crucial for the region, as employment has historically been a significant driver of poverty reduction in Latin America and the Caribbean, accounting for two-thirds of the decrease during the last period of rapid progress (2009–2014), according to the report.

More Jobs, But Not Better Quality

While more jobs were created, the region has not seen a corresponding increase in the proportion of higher-quality employment. Underemployment remained high at 5% in most countries in 2024, exceeding the averages for upper-middle-income (4.9%) and high-income (3.2%) economies. Underemployment is defined as individuals who are employed but working fewer hours than desired and are seeking and available for additional work.

The World Bank indicates that half of the countries in the region with available data experienced a decline in the Employment Quality Index (EQI), which combines four dimensions characterizing good employment.

The entity states that "going forward, policies to create more and better jobs must take into account both the demand and supply sides of the labor market."

On the supply side, the World Bank found that education systems in the region are not adequately preparing individuals with the skills demanded by the labor market. This mismatch contributes to the challenges faced by both job seekers and employers.

Carlos Rodríguez-Castelán noted that, on the other hand, the entity found that education systems in the region "do not necessarily deliver useful skills for work." This skills gap is evident in the fact that a significant proportion of young people lack basic competencies in areas like mathematics and reading. Consequently, a considerable percentage of companies in the region identify an inadequately educated workforce as a major constraint.

Overcoming these interconnected challenges – low growth, limited productivity, high informality, skills gaps, and insufficient creation of quality jobs – will be essential for Latin America and the Caribbean to unlock its full potential for economic development and poverty reduction in the coming years.