Despite robust labor regulations, Latin American countries have exceptionally high turnover rates. Roughly 24 to 44 percent of workers in Argentina, Brazil, Ecuador, Mexico, Paraguay and Peru quit each year, and 30 to 50 percent of them exit the workforce.
Of course, workers vary in education levels, commitment to finding employment, compatibility with their positions and willingness to accept job offers, but the high turnover rates can be largely attributed to the unregulated informal sector, which accounts for more than 40 percent of the workforce in many Latin American and Caribbean (LAC) countries. The lifespan of informal jobs tends to be significantly shorter than that of formal jobs, owing to the lack of adequate regulations and benefits.
Of course, not all transitions are bad. Moving from low to high-productivity jobs, for example, can boost wages, especially early in a worker’s career, and help them secure better, more stable jobs with opportunities for promotion.
However, in many economies, younger and less-educated workers tend to change jobs more often. Consequently, they receive less training, on-the-job learning and experience; suffer slower wage growth and are more likely to move from formal jobs to the informal sector or leave the workforce altogether. In this way, high turnover can impede human-capital accumulation.
Given that job transitions are more common in the informal sector, it is reasonable to expect that Latin America’s high turnover rates will exacerbate labor-market inequalities in the long run, but so far, there has been little empirical evidence to support this view.
In a recent study, my coauthor, Naercio Menezes-Filho, and I explore the relationship between employee turnover and wage inequality. By analyzing labor-mobility patterns in five Latin American countries — Argentina, Brazil, Chile, Ecuador and Mexico — we show that high turnover rates might indeed exacerbate existing wage inequalities.
At first glance, our findings suggest that workers who switch jobs experience faster annual wage growth than those who stay in their current positions, reflecting the immediate gains that finding new employment can provide. In line with previous studies, we find that younger people, in particular, benefit more from the positive effects of changing jobs. This is true even in the formal sector, where higher investment in human capital usually encourages employee retention.
By analyzing wage distributions, we were able to compare actual wage outcomes to hypothetical scenarios where individuals did not switch jobs. We found that job transitions can contribute to short-term declines in inequality, as they initially benefit lower earners and younger people, but as human capital accumulates, the benefits of job stability can outweigh those of seeking new positions. Consequently, those who frequently change jobs experience slower long-term wage growth.
Given that unskilled workers change jobs more often, this suggests that high turnover increases inequality in the long run.
To be sure, other factors, such as non-wage benefits, also play a crucial role. For example, after Brazilian firms introduced private health insurance, the country’s formal sector hired fewer workers and fired more due to increased labor costs. Similarly, the introduction of public healthcare for informal workers and unemployed people in Mexico has resulted in fewer people moving to the formal sector. Given that less-educated individuals and women are more likely to work in the informal economy, this has impeded efforts to reduce existing wage disparities.
Nevertheless, our empirical findings underscore the need to address the adverse economic effects of high turnover. While younger people benefit from changing roles in the short term, those who frequently change jobs tend to experience slower average wage growth. Informal workers, in particular, find it more difficult to move to high-skill, well-paid jobs. This limits their ability to accumulate human capital and likely impedes economic growth in LAC countries, where the informal sector employs a significant share of the population.
To reduce wage inequality, LAC governments should implement policies that create incentives for workers to shift from informal to formal employment.
Specifically, they should focus on removing barriers to formalization and creating an environment in which employees can develop new skills and advance to higher-quality, better-paying positions.
By facilitating positive turnover and encouraging investment in human capital, policymakers can lay the groundwork for a more equitable labor market.
Renata Narita is an associate professor of economics at the Pontifical Catholic University of Rio de Janeiro.
Copyright: Project Syndicate
Jan. 1 marks a decade since China repealed its one-child policy. Just 10 days before, Peng Peiyun (彭珮雲), who long oversaw the often-brutal enforcement of China’s family-planning rules, died at the age of 96, having never been held accountable for her actions. Obituaries praised Peng for being “reform-minded,” even though, in practice, she only perpetuated an utterly inhumane policy, whose consequences have barely begun to materialize. It was Vice Premier Chen Muhua (陳慕華) who first proposed the one-child policy in 1979, with the endorsement of China’s then-top leaders, Chen Yun (陳雲) and Deng Xiaoping (鄧小平), as a means of avoiding the
In the US’ National Security Strategy (NSS) report released last month, US President Donald Trump offered his interpretation of the Monroe Doctrine. The “Trump Corollary,” presented on page 15, is a distinctly aggressive rebranding of the more than 200-year-old foreign policy position. Beyond reasserting the sovereignty of the western hemisphere against foreign intervention, the document centers on energy and strategic assets, and attempts to redraw the map of the geopolitical landscape more broadly. It is clear that Trump no longer sees the western hemisphere as a peaceful backyard, but rather as the frontier of a new Cold War. In particular,
As the Chinese People’s Liberation Army (PLA) races toward its 2027 modernization goals, most analysts fixate on ship counts, missile ranges and artificial intelligence. Those metrics matter — but they obscure a deeper vulnerability. The true future of the PLA, and by extension Taiwan’s security, might hinge less on hardware than on whether the Chinese Communist Party (CCP) can preserve ideological loyalty inside its own armed forces. Iran’s 1979 revolution demonstrated how even a technologically advanced military can collapse when the social environment surrounding it shifts. That lesson has renewed relevance as fresh unrest shakes Iran today — and it should
The last foreign delegation Nicolas Maduro met before he went to bed Friday night (January 2) was led by China’s top Latin America diplomat. “I had a pleasant meeting with Qiu Xiaoqi (邱小琪), Special Envoy of President Xi Jinping (習近平),” Venezuela’s soon-to-be ex-president tweeted on Telegram, “and we reaffirmed our commitment to the strategic relationship that is progressing and strengthening in various areas for building a multipolar world of development and peace.” Judging by how minutely the Central Intelligence Agency was monitoring Maduro’s every move on Friday, President Trump himself was certainly aware of Maduro’s felicitations to his Chinese guest. Just
RSS