Peru: Less flexibility, more unemployment*

In a country like Peru, where 62% of the GDP is represented by informal labor – the fifth highest number worldwide – it is imperative to promote policies that will formalize the economy and create more formal employment. But in order to do that, it is necessary to understand what is it that motivates entrepreneurs to do business outside of the law.

According to a study launched by the International Monetary Fund, named “Measuring the Informal Economy in Latin America and the Caribbean”, what creates the informality, in the specific case of Peru, is the lack of flexibility in the workforce. Therefore, it really comes as no surprise that the World Bank, placed Peru in its Doing Business 2008 Report, in the 159 position out of 178 countries ranked. On the other hand, The World Economic Forum, in its Global Competitiveness Report 2007- 2008, confirms that the Peruvian working market is located amongst the most inefficient ones in the world, ranking us in position number 87 out of 131 nations analyzed. As opposed to Chile and Costa Rica who occupy the 14th and 18th positions respectively.

Hence, it is quite evident that if legislation is not released and worked towards a less rigid labor status, formality in the system will not be instilled, and if this occurs those who are deprived from basic benefits like health insurance and a social security pensions will never be able to take advantage of the economic growth.

Under these circumstances, the recent law of SMEs is appropriate because it contributes to the formalization of more than 3 million productive units that are, to this day, operating outside of the law.

Nevertheless, this clear notion is not present in certain sectors of Congress, who is still pushing to make the labor legislation more and more rigid in order to protect just a few, forgetting that in this manner they create havoc to the private sector who wants to create formal jobs.

Therefore, dear reader, you may coincide with me in the urgency of making this framework more flexible in order to ensure quality employment now that several free trade agreements are about to begin, in order to increase the minimal percentage of Peruvians who have access to basic labor benefits without that threatening the viable economic growth and finally attacking the historic problem of poverty in our country.

*Translated by Joceline Frank

Frankly Speaking Inc.