Chapter IV
Economic Commission for Latin America and the Caribbean (ECLAC)
For this, three scenarios were developed to reflect what would happen to labour and productivity in the countries by 2050: (i) if only demographic changes occurred, with each country’s current levels of activity by age group and sex remaining unchanged; (ii) if in addition to the demographic changes the female activity rate rose to the levels of what are currently the best-performing countries; and (iii) if the population’s level of education increased.23 These scenarios are not projections of what will happen to activity and productivity levels in the region’s countries, but have been developed as the basis for analysis of possible trajectories.24 Although migration flows may alter the supply and productivity of labour, they are not considered in this exercise because of the difficulty of modelling them.25 Figure IV.16 presents the results for five countries (each representative of a group of countries with similar characteristics) of the evolution of the activity rate, reflecting the labour supply.26 There are major differences between the countries and between the scenarios for each country as regards both levels and evolution. In the demographic scenario, the activity rate declines in three of the five groups of countries. This means that the expected evolution of the age and sex composition of the population will force down the activity rate in most of the region’s countries, as there will be a rise in the proportion of older persons, who participate less in the labour market. Indeed, when this rate is observed at the central ages (between 20 and 59), the declines are much more moderate, indicating that the observed reduction is explained by the rise in the relative size of the older age groups. The effects are most pronounced in the countries where the demographic transition is most advanced, represented by the results for Brazil and Chile, which come out with significantly lower activity rates over the time horizon analysed. At the other extreme, the countries represented by Guatemala (Guatemala, Honduras and Nicaragua) and Peru (Paraguay, Peru and the Plurinational State of Bolivia) are at no risk of their active populations diminishing because of demographic factors, as their demographic transition is still in the early stages.27 Given the pressure exerted by the age and sex structure of the population, the other two scenarios consider factors exogenous to demography that can directly influence the population’s activity levels and account for much of the evolution of the activity rate in the past: the large-scale incorporation of women into the labour force and rising levels of education.28 When female activity rates are assumed to increase, overall activity rates improve in all countries. Activity levels in Guatemala and Mexico would be higher than the observed levels, a finding explained by the low level of female activity in these countries and their less aged population structure. In Chile and Peru, the large-scale incorporation of women into the labour market would mitigate the negative effects of demographic developments.29 Indeed, the activity rate would increase in the medium run before the effect was offset by the weight of demographic factors. Conversely, rising female participation in the workforce in Brazil (and Uruguay) would not be enough to maintain current levels, and the overall activity rate would drop by about 5%.
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Details of the construction of these scenarios can be found in Colacce and Manzi (2017). The base projections of scenarios i and ii differ from those of scenario iii in that this last takes account of the effects of education and its evolution on fertility and mortality levels. Scenario iii follows the proposal of Lutz, Butz and Samir (2014). ECLAC (2017b), among others, has prepared projections for the economically active population (EAP) and thence the activity rate. This study finds that the demographic effect alone would lead to an increase of 203 million people in the EAP between 1980 and 2050. Meanwhile, the participation effect, obtained by maintaining the 1980 age structures but allowing participation to change, would increase the EAP by 185 million people in the same period. Modelling migration is very difficult because of the unpredictability of the combination of conditions operating as endogenous causes in the countries of origin and the conditions in destination countries. Both sets of population projections used assume constant migration flows to 2015. The groups were constructed using the statistical technique of clusters and are: (i) Argentina, Chile, Costa Rica and the Dominican Republic; (ii) the Bolivarian Republic of Venezuela, Ecuador, El Salvador, Mexico and Panama; (iii) Brazil and Uruguay; (iv) Guatemala, Honduras and Nicaragua; and (v) Colombia, Paraguay, Peru and the Plurinational State of Bolivia. Colacce and Manzi (2017) detail the methodology used to construct the groups. Footnotes indicate where there are major differences between the country selected to represent the cluster and one or other of the countries composing this. Even in these cases, large differences in overall activity rates remain in the region, with a gap of almost 10 percentage points between the countries with the highest rate (Peru) and the lowest rate (Chile). This study does not consider a third trend: rising retirement ages. Part of this trend could be incorporated into the increase in the level of education, since the activity rate among people aged over 60 rises with education. The behaviour of the Dominican Republic, Paraguay and the Plurinational State of Bolivia is different from that of the representative country in their respective groups. These countries behave much like Guatemala and Mexico in that activity rates there will go on rising up to 2050.