Growth and price stability have returned to Latin America, but at a staggering social cost. Through the first half of the 1990s the combined Latin American economies grew by about 15% with decreasing inflation. This growth has been accompanied by high rates of unemployment and a fall in real wages. Nine out of every ten new jobs created in the 1990s is in the informal sector—an acceleration of a trend that began in the second half of the previous decade when 80% of all new jobs were informal. Employment is now concentrated in low-productivity activities and is increasingly unstable.[1]
The unemployment rate has grown despite the fact that gross domestic product (GDP) growth rates have been higher than the growth rates of the 1980s. Increases in GDP now do very little to counter high unemployment [See Table 1]. Nor, counter to the predictions of orthodox economic theory, do low wages allow employers to put a greater percentage of the labor force to work. Unemployment has remained high and has even grown in countries which have done the most to deregulate labor relations, dismantle worker protections, and cut wages. Economic theory notwithstanding, there appears to be no automatic connection between low wages and rising employment.
These trends suggest that the restructuring of capitalist accumulation in the past decade is progressively erasing the borders between formal and informal activity. On the one hand, we see wages and working conditions typical of the informal sector penetrating ever more deeply into the institutions of formal employment. On the other hand, it is clear that a high percentage of workers in the formal sector combine income from their informal work with their formal-sector earnings.
This situation brings to mind the oft-quoted praise free-market advocate Hernando de Soto has lavished on the informal sector.[2] To leave underdevelopment behind, runs de Soto’s influential argument, it is necessary to overcome the legal and administrative barriers which block the access of the poor to activities which can liberate their “entrepreneurial energies.” In order to create the conditions within which this liberation can proceed, say de Soto’s neoliberal followers, it is necessary to dismantle the apparatus of protectionism and regulation which marginalizes the informals and generates privileges and abuses of power. Once the regulatory entanglements are eliminated, small firms can be stimulated by competition, directing their savings from low labor costs to technological improvements and productive investments. This is the point of view that has been adopted by the multilateral financial organizations in their designs of neoliberal labor-market reforms.[3] Until now, however, a demoralizing impoverishment rather than unfettered creative energy has been the hallmark of these reforms.
Industrial employment has declined sharply in large and medium firms in Latin America, particularly in Mexico, Peru, Uruguay and Venezuela. In Colombia, Costa Rica and Venezuela, the growth of total employment which is linked to growing self-employment and employment in microenterprises, has been much stronger than its growth in medium and large firms. Among medium and large firms, only the maquiladora sector has shown a net increase in employment.[4] This decline in the number and quality of manufacturing jobs is the result of a number of factors, including changes in industrial organization, the work process and techniques of production. In addition, the manufacturing sector has been battered by the financial crises which have arisen over the past few years, first in Mexico and now in Asia. But above all, the economic policies carried out in most countries since the mid-1980s are to blame for the rapid decline in manufacturing employment. The unbalanced opening of the economies, the overvaluation of the real rate of exchange, implicit subsidies of imports as part of an anti-inflationary balance-of-payments strategy, and the contraction of credit have all played a part.
The progressive “maquilization” of the manufacturing industry in countries such as Mexico and Argentina has also played a role in this decline. The percentage of imported inputs has grown significantly in certain branches of production, such as the automobile industry, and this has reduced the production of intermediate goods within the region. Although the assembly sector is the major generator of new jobs in manufacturing, the transformation of some firms and sectors into maquiladoras and the effect this transformation has had on other firms and sectors has had a negative impact on employment. Between 1988 and 1992, for example, the Mexican manufacturing sector lost 1.3 million jobs, and between 1990 and 1994, the percentage of jobs in the non-agricultural formal sector fell from 47.9% to 44.3% in the region as a whole.[5]
The downward trend in industrial employment contrasts with the experience of the service sector which, since the early 1980s, has accounted for almost all the region’s net growth in employment. The service sector is very varied, combining highly skilled and productive financial activities, for example, with highly unstable, low-paying, low-productivity jobs in home shops. The growth of the service sector has been accompanied by a tendency toward self-employment and wage work in small businesses and microenterprises. The small and micro business sectors include technology-intensive firms as well as firms that rely on craft production, with enormous variations in labor productivity and working conditions.
The growth in labor supply—the number of people seeking employment—has also contributed to rising unemployment. Labor-supply growth stems largely from the increased participation of women in the labor force, a trend which began in the previous decade. Between the early 1980s and the middle of the 1990s, the percentage of working-age women in the labor force grew from 37% to 45%, while the male labor-force participation rate held steady at about 78%. This is due to long-term phenomena such as increased urbanization, higher levels of education and changes in people’s understanding of sex-role norms and gender relations.[6]
Conjunctural factors, like recessions and economic crises, have also led more women to seek employment. A common household strategy to make up for abrupt falls in income during such periods of economic downturn has been to send additional family members into the labor force. Since few jobs are available in the formal sector, these new members of the labor force enter the informal sector, the personal-services sector, or they seek seasonal and casual work. As the number of new jobs has contracted precisely as the number of people seeking work has increased, Latin American labor markets continue to be characterized by high unemployment.[7]
In all the countries of the region, rising unemployment is correlated with falling incomes. As a result, the poor are getting poorer. In the metropolitan area of São Paulo, for example, the percentage of families in extreme poverty grew from 37% to 47% in the first half of this decade.[8] In that same period, the percentage of workers from poor families who ended up in jobs that paid at the official poverty level or below more than tripled. And as the labor-force participation of the indigent poor increased, the gap between the best-paid and the worst-paid Brazilian workers increased from seven-to-one to 8.5-to-one. A similar phenomenon can be observed in Chile. The real wage grew modestly between 1992 and 1994, but among the employed workers in the bottom 10% of income distribution, the percentage of those who earned less than the minimum wage grew from 48% to 67%.[9]
The shortage of full-time jobs is therefore not the only labor-market source of poverty. Poverty is also the result of the very low wages many people with steady jobs are paid—wages that are insufficient to provide a minimal level of well being to their households. In Argentina, for example, about 70% of poverty has been found to be the result of low wages.[10] The central problem, in other words, is not the lack of employment but the precariousness of employment and the meager income it generates.
The impoverishment of many Latin American workers thus derives from the incapacity of the labor market to provide enough adequately paid work. In light of this phenomenon, the World Bank has warned that the region may be facing a break in the relation between income and work.[11] This is a relation that grew in Latin America within the framework of the model of development that held sway until the 1970s. The older model, called import-substitution industrialization, was concerned with creating the purchasing power necessary to sustain the region’s internal markets and with generating a much more integrative dynamic of development.
The meagerness of income has led large portions of the work force to put in longer hours than the 40- to 49-hour work week considered normal within Latin America. In fact, the concept of the “legal working week,” one of the first achievements of Latin American labor movements, has nearly disappeared. Latin American workers find themselves having to work longer than the legal work week in order to compensate for their low incomes. Without this “overtime,” many people could not reach minimal levels of well being. Venezuela and Panama appear to be the countries within which the legal work week continues most strongly in effect, while Bolivia and Paraguay are the countries in which the norm is most often exceeded. In Chile, with little more than half of those employed complying with the legal working day, the trend seems to be toward the greater observation of the norm.[12]
The state has played a strategic role in the reconfiguration of the labor market. Latin American governments have enacted regressive labor-law reforms, substituted commercial law for labor law, shown permissiveness in the face of company violations of labor laws and eased labor regulations in order to allow companies to hire, alter working conditions, and fire personnel virtually at will. The privatization of social security, cutbacks in public spending on education, health and recreation, and the privatization of these services, all have heightened the vulnerability of the working class. Privatization in general has contributed significantly to an increase in unemployment. The privatization of the railroads and the energy sector (gas, oil and electricity) in Argentina, for example, is principally responsible for job losses in those sectors.[13]
Social legislation that had its origins in the principle of the compensation of workers for their vulnerability vis-à-vis capital has been replaced by a principle of abstract equality which legitimates and reinforces the supremacy of capital over labor. It is argued that these policies are justified by the excessive costs of production created by labor stability, legal protections, employer contributions to social security, the high costs of layoffs and similar measures of state regulation of the labor market. These costs, argue neoliberal reformers, reduce international competitiveness and profitability, discourage more productive investment, and block the growth of employment.[14]
In political terms, the new policies reflect changes in the relations between capital and labor as well as greater fragmentation of the working class, changes which would not have come about were it only for the actions of companies and private investors. As in all significant transformations within capitalism, state intervention has been necessary to shape a new scenario and new definitions of winners and losers.[15] The enormous political influence in the region of the major international financial institutions—the World Bank, the International Monetary Fund (IMF) and the Inter-American Development Bank (IDB)—since the outbreak of the crisis of the past decade has led to a radical dismantling of labor legislation.[16]
In the framework of the so-called neoliberal “reform of the state,” privatizations and reductions in public spending have redimensioned the public sector, severely reducing public employment. While, in some cases, the shrinking of the bureaucracy has had no significant impact on the carrying out of state functions, in many cases, it has deprived the state of its most skilled and efficient public servants.[17]
The dismantling of labor legislation and cuts within the public sector have been greater and have encountered fewer obstacles in countries emerging from prolonged military dictatorships which severely repressed the trade-union movement and promoted diverse styles of savage capitalism, as in Chile, Argentina and Uruguay. It is also the case in countries with state-linked corporate or clientistic labor movements like Argentina and Mexico. On the contrary, in countries with labor organizations with greater power and autonomy, like Brazil, capital’s onslaught against protective labor legislation has encountered greater obstacles and less support from the state.
The deterioration in the quality of employment is linked to the deterioration of the quality—in terms of health, education and inter-generational transference of poverty—of the labor force, due largely to the reduction of state spending in these areas. This is a marked contrast with the situation in southeast Asia—the once-exalted model of the neoliberal reformers—where public investment in education and health is quite high and well directed. In addition, deep economic and political reforms in South Korea, Taiwan and Japan favored the cheapening of wage goods and the modernization of infrastructure. These reforms have permitted these economies to combine low nominal wages with high purchasing power, generating a highly skilled work force and allowing for the introduction of new productive and organizational techniques and a sustained elevation of quality.[18]
Nothing like this is taking place in Latin America and the Caribbean. Therefore the dismantling of labor legislation and savings in the cost of labor power have not translated into increased labor productivity or increasing quality of workmanship.[19] The reduction in labor costs has not typically been directed toward productive investment, and savings have not generated new employment. Cheap labor has simply maintained or increased the levels of poverty and has pushed internal demand further downward.
At the same time, the growth of poverty and the high rates of unemployment, combined with the increasing transformation of complex productive processes into simple operations, has reduced the returns on investments in training and education. The progressive deskilling of jobs in certain branches of industry and commerce has operated to generate an abundance of continually cheapening labor power. The process has heightened the competition for available jobs and diminished the capacity of workers to bargain with capital.
This combination of factors has allowed for severe blows against trade unions. The fragmentation of the labor market, the growing instability of work and the growth of unemployment all reduce the ability of unions to recruit new members and to successfully bargain for wages, hours and working conditions. This has not been brought about simply by the market’s “invisible hand.” Private firms have deliberately reinforced this weakening of unions. When firms “streamline” their operations by eliminating certain job categories, they are typically eliminating the jobs of unionized workers. When they hire new workers, they prefer the unorganized. Firms are increasingly making use of the institution of apprenticeship, permitting the short-term contracting of young workers in “training” programs which exclude any type of legal benefit, the right to join a union or to enjoy the benefits of collective bargaining. The reorganization of the work process and the growing emphasis on short-term productivity have generated new challenges that the unions are still trying to deal with.[20]
The changes in the labor market and in the relationships among the state, employers and workers are also introducing deep changes in what we might call “the culture of work”: the combination of attitudes, behaviors, ideas and symbolic understandings of the population in general and of workers in particular about the nature of work. The idea of employment as the means which permits a living to be earned—an institution which permits one to attain minimal levels of well being and a sense of efficacy and dignity—is now diluted by the evidence that having a job does not necessarily permit one to live better. The vision of the union as the instrument of the defense of rights and access to benefits is likewise losing ground. The idea of belonging to a group of fellow-workers—a class—is brought into question by fragmentation. The sentiment of solidarity with fellow workers is undermined by the competition of all against all for a decent job.[21]
Deep down, we are witnessing one of the most conventional modalities of the functioning of the capitalist state: fragmenting and destructuring those “below” to guarantee the rule of those “above.” This is reinforced by state policies and also by the mass media which have eliminated collective referents—the term “working class, for example—in the formation of workers’ identities as a way of reducing the symbolic dimension of social conflicts and antagonisms.[22]
The capital-labor contradiction remains in effect, but its physiognomy, the terms of its development, and the identity of the actors involved have changed dramatically. The debate over working-class strategies in these new scenarios of increasingly internationalized accumulation must begin with a recognition of these changes. Not the working class nor capital nor the state at the close of the 1990s are what they were at the close of the 1960s. Latin American capitalism has changed, and popular and working class strategies that cannot recognize these changes are condemned to failure and to the reproduction of an unjust social order.
ABOUT THE AUTHOR Carlos Vilas is an Argentine political economist currently affiliated with the National Institute for Public Administration in Buenos Aires. His most recent book is Between Earthquakes and Volcanoes: Market, State and Revolutions in Central America (Monthly Review, 1995). He is a member of NACLA’s editorial board. Translated from the Spanish by NACLA.
NOTES 1. UN Economic Commission on Latin America (ECLA), Estudio económico de América Latina y el Caribe, 1995-96 (Santiago: ECLA, 1997), Table VII-2. 2. Hernando de Soto, El otro sendero: La revolución informal (Lima: Oveja Negra, 1986). 3. See, for example, Inter-American Development Bank (IDB), Progreso económico en América Latina, Informe 1996 (Washington: IDB, 1996), especially chapters 6 and 7. Also see S. Horton et. al., eds., Labor Markets in an Era of Adjustment (Washington: World Bank, 1994), especially Vol. 1. 4. International Labor Organization (ILO), Anuario de estadísticas del trabajo (Geneva: ILO, various years). 5. ILO, Panorama laboral (Geneva: ILO, 1995), p. 2. 6. See H. Beyer, “Logros en pobreza: frustración en la iguadad?” Estudios Públicos,No. 60 (1995), pp. 15-33. 7. ECLA, Panorama social de América Latina y el Caribe, 1996 (Santiago: ECLA, 1997). 8. Paulo Eduardo de Andrade Baltar, et. al., “Mercado de Trabalho e Exclusao Social no Brasil,” Revista Latinoamericana de Estudios del Trabajo, No. 2 (1996), pp. 9-28. 9. Kevin Cowan and José de Gregorio, “Distribución y pobreza en Chile: Estamos mal? Ha habido progreso? Hemos Retrocido?,” Estudios Públicos, No. 64 (1996), pp. 27-56. 10. Claudio Lozano, “Desempleo y pobreza en la Argentina,” Realidad Económica, No. 145 (January/Febuary 1997), pp. 33-43. 11. World Bank, El mundo de trabajo en una economía integrada: Informe sobre el desarrollo mundial, 1995 (Washington: World Bank, 1996), p. 12. 12. H. Henríquez and P. Román, “Cambia el tiempo de trabajo en Chile?” Economía y Trabajo en Chile, No. 6 (1996), pp. 131-148. 13. Carlos M. Vilas, “La reforma del estado como cuestión política,” Taller, Vol. 2, No. 4 (August 1997), pp. 87-129. 14. See, for example, World Bank, El mundo del trabajo en una economía integrada: Informe sobre el desarrollo mundial 1995; Pierre-Richard Agénor, “The Labor Market and Economic Adjustment,” IMF Staff Papers, Vol. 43, No. 2 (June 1996), pp. 261-335; Gustavo Márquez, ed., Reforming the Labor Market in a Liberalized Economy (Washington: IDB, 1995). 15. Carlos M. Vilas, “Después del ajuste: la política social entre el estado y el mercado,” in C. M. Vilas, ed., Estado y políticas sociales después del ajuste (Caracas: Nueva Sociedad, 1995), pp. 9-28. 16. This is particularly the case in Argentina, Colombia and Mexico. For the Argentine case, see Congreso de Trabajadores Argentinos, Carlos Menem (1989-1993): La demolición del derecho de trabajo (Buenos Aires: IDEP/ATC, 1993); Daniel Cieza, Crisis del estado de bienestar y desarrollo social (Buenos Aires: IBAP, 1994); Daniel Cieza, “Hiperdesocupación, precarización y riesgos en la Argentina: el caso del Gran Buenos Aires,” paper pesented at the II Inter-American Conference on Labor Law and Social Security, Havana, July 1996. 17. A. Marshall, “El empleo público en América Latina después de las ‘reformas del Estado,’” Revista Latinoamericana de Estudios del Trabajo, Vol. 2, No. 2 (1996), pp. 49-76. 18. Rhys O. Jenkins, “La experiencia del Corea del Sur y Taiwan: ejemplo para América Latina?,” Comercio Exterior, Vol. 42, No. 12 (December, 1992); Carlos M. Vilas, “Estado, actores y desarrollo: los intercambios entre política y economía,” Investigación Económica, No. 212, (April-June 1995), pp. 177-195. 19. For the case of Costa Rica, see Consejo Nacional de Rectores/PNUD/Defensoría de los habitantes, Estado de la nación en el desarrollo humano sostenible (San José: CONARE, 1995). 20. Pablo Pozzi and Alejandro Schneider, Combatiendo el capital: Crisis y recomposición de la clase obrera argentina, 1985-1993 (Buenos Aires: El Bloque Editorial, 1994); Marta Novick, “El Destino de los sindicatos,” Encrucijadas, Vol. 2, No. 4 (1996); Richard Hyman, “Los sindicatos y la desarticulación de la clase obrera,” Revista Latinoamericana de Estudios de Trabajo, Vol. 2, No. 4 (1996). 21. See, for example, Pablo Pozzi, et. al., “Cambio social y cultura laboral en Argentina (1983-1993),” Taller, Vol. 1, No. 1 (July 1996); Sergio Ibañez and Patricio Hurtado, “Los jovenes urbano-populares y el trabajo,” Proposiciones, No. 27 (October 1996). 22. Andrés Bilbao, Obreros y ciudadanos: La desestructuración de la clase obrera (Madrid: Trotta, 1993); Carlos M. Vilas, “Actores, sujetos, movimientos: donde quedaron las clases?,” Sociológica, No. 28 (May-August), 1995.
