The informal economy and coronavirus in Latin America

The coronavirus pandemic has resulted in Latin America's worst economic and social crisis in decades, with a disproportionate impact on informal workers. The informal economy describes economic activity by workers or economic units that is not or only insufficiently covered by formal legal or practical arrangements. Although it is on the decline in Latin America, the informal economy still accounts for slightly over half of all jobs in the region. To counteract the spread of Covid-19, various confinement measures were implemented in Latin American countries. These lockdowns have had a substantial effect on earnings in the informal economy, some estimations show income contraction of up to 80 %. By its very nature, the informal economy leaves workers vulnerable to external shocks. Inadequate or non-existent social safety nets mean that income losses can quickly lead to poverty or death. Despite several Latin American countries being classified as high- or upper middle-income countries, large parts of the region's inhabitants lack access to health care. For those who do have access, out-of-pocket expenses are high. Furthermore, many public hospitals are overstrained and lack the qualified staff to deal with a health crisis. The pre-existing levels of high inequality have been aggravated since the start of the pandemic. Various economic and social policy responses have been implemented to alleviate the current circumstances. Nevertheless, limited fiscal space and a lack of state capacity weakens the effectiveness of such policies. The situation is worsened by an expected slow economic recovery: estimates project a return to pre-pandemic levels of aggregate output only by the end of 2023. The European Union has pledged €918 million to support the region under the Team Europe package.