Labour markets and the (hyphenated) welfare regime in Latin America

Abstract

This article deploys a welfare regime approach to examine changes in social policy in Latin America since the ‘lost decade’. Before the ‘lost decade’ the welfare regime in Latin America could best be described as ‘conservative/informal’. It was ‘truncated’ because the main welfare institutions, social insurance and employment protection, did not extend beyond workers in formal employment. The article shows that the structure of the labour market was the main stratification device, and argues that labour-market liberalization and new forms of social assistance are producing a shift towards a ‘liberal-informal’ welfare regime, ‘hyphenated’ rather than ‘truncated’.

Keywords:

• labour markets
• welfare regimes
• Latin America

Acknowledgements

I am grateful to the editors and to Ian Gough and Juliana Martínez Franzoni for insightful comments on an earlier version of this paper. The errors that remain are mine alone.

Notes

1. In December 2006, there were 30m contributors to individual saving pension plans in ten countries in the region. A conservative estimate would put the number of households reached by new forms of social assistance in the region at over 20m.

2. Especially as social policy has a common historical link to Mediterranean countries with a distinctive approach to social policy (Ferrera, 1996) and because of the influence of the ILO in shaping common social protection institutions extended across the region (Usui, 1994). At the same time diversity across countries in the region in terms of their welfare institutions poses some limitations to the welfare regime approach. A premise of this paper is that there is enough commonality in the basic structure of social policy across countries in Latin America to support the kind of generalization adopted. This is a challenging premise

3. The conservative welfare regime is explained in more detail below.

4. Throughout the paper the labour market stands for the institutional structures that support different forms of employment and protection (Barrientos, 2003).

5. On decommodification see Room's (2000) critique and Esping-Andersen's (2000) response. On defamilialism see Lewis's (1993) and Esping-Andersen's (1999) extensive response. Bambra (2006, 2007) provides a recent examination of these two concepts and their empirical counterparts.

6. Several reviews update on subsequent progress (Arts & Gelissen, 2002; Castles & Obinger, 2008)

7. An important feature of Esping-Andersen's welfare regime approach is the empirical identification of welfare regimes. This involves identifying appropriate measures of the relative significance of state, markets and household welfare production across countries. The literature has also sought to identify and refine appropriate statistical tools (Esping-Andersen, 1999; Janoski & Hicks, 1994; Pitruzzello, 1999; Shalev, 1999).

8. In low-income developing countries in particular, formal institutions of social policy are rudimentary, and the main sources of protection against vulnerability are extended households and communities. In middle-income countries, the absence of social contracts, which underpin welfare regimes in developed countries, results in very fragmented social policy. Few developing countries have reached a point at which welfare states (providing protection ‘from the cradle to the grave’ on a citizenship basis) could become an option. International organizations constitute a fourth important source of social policy. These are some of the issues emerging from applying the welfare regime approach in developing countries.

9. Interestingly, Jaeger notes that in a conservative welfare regime ‘the opposition between labour market “insiders” and “outsiders” is predominant’ (Jaeger, 2006, p. 160)

10. They add that the ‘construction of ideal-types can be fruitful under the condition that these will eventually lead to theory’ (Arts & Gelissen, 2002, p. 140). See also an emerging literature aimed at identifying global welfare regimes (Abu Sharkh & Gough, 2008).

11. Other factors are also important in explaining a welfare regime shift. The role of fundamental change in the development model from import-substitution industrialization to export-led growth and the demise of its associated political settlement are explored in Barrientos (2004a). On the politics of social insurance reforms, see also Mesa-Lago (1999) and Kay (1999).

12. Except for public works programmes, which are usually focused on unemployed heads of household.

13. Insofar as programmes are means-tested, employment status may have an indirect influence on entitlements through the contribution of labour earnings to household income.

14. For a discussion on whether new forms of social assistance reduce familialism, see Molyneux (2006).

15. The incidence of direct taxation on low-income households in developed countries requires that transfers and taxes be made consistent with maintaining work incentives. In Latin America, due to the relative weight of indirect taxation, and low capacity for enforcing direct taxation given the spread of informality, social assistance transfers are unlikely to attenuate work incentives significantly.

16. Esping-Andersen notes the dualism present in liberal welfare regimes: ‘at its core, liberalism's ideal of stratification is obviously the competitive individualism that the market supposedly cultivates. However, liberalism has had great difficulties in applying this conception in state policy. Its enthusiasm for the needs-tested approach, targeting government aid solely at the genuinely poor, is inherently logical but creates the unanticipated result of social stigma and dualism’ (1990, p. 64). The main stratification device in the liberal welfare regime in developed countries is social assistance, not the labour market.

17. On this point it is useful to note Room's (2000) critique of Esping-Andersen's notion of decommodification. He counterposes Esping-Andersen's focus on decommodification ‘as consumption’ with a Marxian-influenced notion of decommodification ‘as self-development’. In the latter view, investment in human development supports decommodification.

18. The Economist (16 November 2006) reported that since 1998 ‘public spending on social protection for informal workers has expanded by 110 per cent; the figure for the social security system is only 21 per cent’.

19. For example, in Mexico the government provides incentives to beneficiaries of Oportunidades to engage in pension saving, and in Costa Rica social insurance contributions finance non-contributory pensions.

20. In Latin America recent forms of social assistance have been defined by the time window imposed by their reliance on external financing from the World Bank and the Inter-American Development Bank. Bolsa Familia is the exception as regards the time window but not its reliance on external funding (Barrientos & Santibanez, forthcoming). The entitlements that are generated by these programmes are therefore significantly weaker than those of social assistance schemes in developed countries.