Wednesday 23 June 2021

Costa Rica has made major socio-economic progress but more efforts needed to reduce inequality and poverty

"More than half of the adult population has only attained less than upper-secondary education so for many Costa Ricans, learning new skills will be necessary to take advantage of new employment opportunities"

Costa Rica enjoys relatively high life satisfaction levels, but should do more to develop a more inclusive and sustainable economy, according to a new OECD report.

Nicaraguan coffee pickers in Costa Rica. (Photo: Ingmar Zahorsky, Flickr)

The OECD Review of Labour Market and Social Policies: Costa Rica says that the country should step up its efforts to reduce poverty, income inequality and promote better participation in formal activities of key demographic groups such as women, youth and migrants.

Working with over 100 countries, the OECD is a global policy forum that promotes policies to improve the economic and social well-being of people around the world.

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“A relatively high share of informal sector jobs – estimated to represent nearly a third of total employment – and large numbers of workers poorly equipped for new job opportunities have hindered the transition to more productive, better paid and better quality jobs,” said Stefano Scarpetta, Director for Employment, Labour and Social Affairs, presenting the Review in San José.

“More than half of the adult population has only attained less than upper-secondary education so for many Costa Ricans, learning new skills will be necessary to take advantage of new employment opportunities,” said Mr. Scarpetta. Further investment in active labour market policies and better targeting of programmes will support disadvantaged workers come closer to the labour market.

To boost employment opportunities for women and improve access to formal jobs, the offer of publicly-funded child care services should be expanded. At 36.5%, taxes on labour use (or social security contributions) are currently higher than the OECD average and efforts should be made to reduce them.  Efforts to better enforce minimum wages and improve job-quality should be stepped up further; including by strengthening the role of the labour inspectorate and ensuring that sanctions are high enough to act as a strong deterrent against violations of labour regulations.

Labour market reforms must go hand-in-hand with better designed anti-poverty policies. Taxes and transfers have not been able to compensate for growing disparities, and thus need to be made more effective. At just over 15% of GDP, public social spending is considerably less than the OECD average of 21%.

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Among its recommendations, the OECD says that Costa Rica should:

  • Further simplify and reduce the number of minimum wage rates while considering their level and possible disincentive effects in hiring formally.
  • Re‑activate proposals to introduce a Social and Economic Council to promote government’s dialogue and consultations with employers and unions as well as to strengthen trust between the social partners.
  • Establish a one‑stop‑shop agency or better co‑ordinate social programmes to avoid dispersion of limited resources and to help vulnerable groups to navigate the system and seek employment services.
  • Increase the ability of the tax system to reduce income inequality by gradually shifting part of the financing of healthcare and selective/anti-poverty programmes from Social Security contributions to general taxes (e.g. VAT and personal income tax).
  • Further improve the employment outcomes for women with a particular emphasis on helping women in the informal sector find jobs in the regular economy and addressing the needs of migrants.

The “OECD Review of Labour Market and Social Policies: Costa Rica” is part of a wider review of policies as part of Costa Rica’s accession process to the OECD.

The report is available at www.oecd.org/els/oecd-reviews-of-labour-market-and-social-policies-costa-rica-9789264282773-en.htm

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