Although informality in Peru’s labor market has declined since 2005, a majority of workers in the Andean nation are still employed in unregulated jobs, business business daily Gestion reports.
According to the Labor Ministry, 56 percent of Peru’s workforce is in the informal sector, meaning that employers don’t provide any benefits and that employees do not pay taxes on their income. The situation is more pronounced in small businesses, where almost 90 percent of the workers are believed to be informal.
In 2005, the overall informality rate in the workforce was at 69 percent and for small businesses it was at 92 percent.
Economist Elmer Cuba said the informality rate has declined due to strong economic growth that has created better jobs and a “migration” to the formal sector.
However, Cuba also said that a further decline in the informal rate can be supported by improving business productivity and reducing hurdles in labor legislation.
“We have to increase the productivity of the [small and micro businesses] and lower the costs for formality in order to increase the impact of growth on formalization,” said Cuba.
Peru’s government seeks to reduce informality in order to broaden the tax base that will raise government revenue.
Government officials have been cautious about raising the minimum wage —currently at S/. 750 (around $270) over concerns that it could push more workers into the informal sector. A disagreement about the wage was part of the reason that led to the resignation of Premier Cesar Villanueva on Monday.