Central America: Investing in People to Create Better Jobs

June 27, 2012

  • Most jobs in Central America are currently in the informal sector, says new report.
  • 30% of 15-24 year olds from urban areas aren't at school or in work.
  • The gap is growing not only in terms of the number of available jobs, but also with regards their quality.

GUATEMALA, June 28, 2012- Opportunities for badly-needed well paying jobs in Central America can be significantly increased by improving the region’s education system, generally ranked at the low-end of the scale when compared with other regions of the world, including Latin America.

Central America’s employment gap is growing, both in terms of the number and quality of jobs available. This perpetuates a vicious cycle of unemployment and low wages –especially among youth—at a time when Central America faces sluggish economic growth and the threat of a new crisis originating in the Eurozone.

These are just some of the conclusions of the “Better Jobs in Central America” study, which has analyzed the region’s labor market with a view to helping create more and better jobs.

A quick snapshot of people’s views confirms the report findings. Elsa Cáceres’s experience is typical. “You don’t earn much. They pay very little,” she says, adding that there are few sources of employment close to where she lives, in Tonacatepeque, El Salvador. Practically the only opportunity available is low-paid domestic work in homes far away, she says. And as a result, much of what domestic workers earn is spent on the bus fare.

Moisés González, for his part, works as a farmer. Needed to work in the fields ever since he was a young boy, he never went to school. Today, his children, ages 18, 17 and 14, have followed in his footsteps: “They are working now; they couldn’t go to school. They work with me on the farm,” he says.

Currently in Central America, most jobs are in the informal sector or in traditional, low-productivity sectors such as manufacturing, services and agriculture. Moreover, these jobs are usually performed by low-wage workers with little education.

After making significant strides to achieve macroeconomic stability, stimulate foreign trade and attract increased foreign investment, Central American countries now face the challenge of generating more and better jobs. The region needs to create more high-productivity jobs that have highly-skilled workers, but above all jobs which can break the cycle of poverty and contribute to sustained economic growth.

" My children are working now; they couldn’t go to school. They work with me on the farm "

Moisés González


These jobs should also help reduce the wave of crime and violence, which in many cases can be attributed to the lack of employment.

But how can the region create better jobs? The study “Better Jobs in Central America” offers some answers. To increase human capital, countries should redouble efforts to expand coverage of secondary and tertiary education while also improving the quality of education.

“The situation is very heterogeneous,” argues Sajitha Bashir, World Bank education sector leader and author of the study.
“In Nicaragua, Honduras and Guatemala, governments are encouraging all youth to complete their basic education. However, El Salvador, Costa Rica and Panama are focusing efforts on completion of secondary school and university enrollment. Whereas improving the quality of education is a major challenge for the other countries,” Bashir said.

Given that the majority of the labor force is under the age of 35, the composition of the Isthmus’ population is another major challenge. Statistics show that about 30 percent of urban youth 15 to 24 in Central America are neither at school nor working. For this reason, the generation of quality employment, especially for young people, should be a top priority.

The migration of unskilled youth workers, both to the United States and within the region, has been critical to the absorption of manual labor and the generation of remittances. Both factors have played a role in maintaining relatively low and stable unemployment rates by Latin American standards, although youth unemployment rates remain high. This is a disturbing trend given that the workforce will continue to grow in the coming decades, according to the report.
To address the challenge of youth unemployment, Central American countries can implement and expand youth training programs; initiatives that have proven to be successful in Latin America and the Caribbean. The goal of these programs is to provide young people with basic skills (especially those who are at greater risk, such as school dropouts) to improve their chances of finding a job. 

The study also suggests that Central America has the opportunity to integrate science, technology and engineering into business production processes to favor the production and export of value-added products. This can help stimulate the creation of high-productivity and formal employment.

Meeting the challenge of generating more productive employment and ensuring a workforce with high human capital will contribute to increasing the rate of economic growth in Central America, improving real wages and the overall standard of living for Central Americans. Above all, it will help to reduce poverty, inequality and social exclusion in the countries of the region.

Central American countries have promoted primary school enrollment, although in Guatemala, Honduras and Nicaragua, the primary school completion rate is well below 100 percent in Guatemala, Honduras and Nicaragua.

With regards to higher education, enrollment in Central America ranges from 15 percent in Guatemala and Honduras to nearly 50 percent in Costa Rica and Panama.

In Central America, a worker who has completed his or her tertiary education earns 200 percent on average more than a secondary-school graduate.

Unless a country has a substantial human capital, the Central American experience suggests that macroeconomic policies and “correct” structural reforms alone will not be sufficient to create the required number of quality jobs. Complementary policies are also needed to improve the quantity and quality of human capital and to strengthen the social protection system.