Publication: (In)Formalizing Jobs in Latin America and the Caribbean: Taxes, Benefits, and Labor Market Incentives
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2025-10-02
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2025-10-02
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Fietz, Katharina
Joubert, Clement
Ñopo, Hugo
Ocampo, Alberto J.
Chamussy, Lourdes Rodriguez
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Abstract
Designing and administering effective national social protection systems have long been a challenge for policy makers worldwide. For decades, the principal objection to social protection policies was that they encouraged sloth. Today, voters and governments are less worried that taxes and social protections are unintentionally creating poverty traps than that they are encouraging workers to be static rather than dynamic or leading employers to be averse to using new technologies that can scale economic activity.
"(In)Formalizing Jobs in Latin America and the Caribbean: Taxes, Benefits, and Labor Market Incentives" deepens the understanding of the incentives to informalize or formalize work in the labor markets in Latin America and the Caribbean (LAC), focusing on the interplay among personal income taxation, social protection, and labor market policies and how they all combine to shape firms’ and workers’ incentives to (in)formalize jobs. This book introduces a new conceptual framework to guide the analysis and inference—one that centers on individual workers’ decisions and in light of the value they ascribe to present and future benefits; their bargaining power with employers, which is determined by labor market competitiveness; and the government’s ability to detect and sanction evasion.
This report provides a detailed mapping of tax, benefits, and contracting rules, which supports empirical analysis to identify and quantify incentives for (in)formal employment and to simulate how reforms to current policies and programs would affect these incentives. This analysis forms the basis for policy reform recommendations that would substantially improve incentives, so that more workers and firms in the LAC region choose to formalize employment and participate in personal income tax and social protection systems.
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“Fietz, Katharina; Joubert, Clement; Ñopo, Hugo; Ocampo, Alberto J.; Packard, Truman; Posadas, Josefina; Chamussy, Lourdes Rodriguez. 2025. (In)Formalizing Jobs in Latin America and the Caribbean: Taxes, Benefits, and Labor Market Incentives. International Development in Focus. © World Bank. http://hdl.handle.net/10986/43535 License: CC BY 3.0 IGO.”
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