The new Panamanian government, which took office in July this year, has set out to reform the social security system, which is facing a financial crisis affecting both the pension, disability, and maternity programs, as well as the healthcare services provided by the Social Security Fund (CSS), the entity that manages insured individuals’ funds.
The proposed legislation includes measures such as raising the retirement age, increasing employer contributions, and incorporating additional state funding to ensure the pension system’s sustainability. Regarding healthcare services, the aim is to integrate the services provided by the CSS and the Ministry of Health, streamline processes, and enable joint procurement of medications to ensure their availability.
While some business groups have expressed support for the initiative, labor unions, as well as medical and teaching professionals, have rejected it, arguing that the reforms negatively impact workers without addressing the CSS’s structural issues. The debate continues in the National Assembly, where modifications to the original proposal are expected before its anticipated approval in December.
The problem of labor informality
Labor informality looms as a significant backdrop to these reforms, creating a divide between regions and the working class in Panama. Social security guarantees—such as access to healthcare and retirement pensions—are benefits unavailable to more than half (52%, or 2,142,321 people) of the population, either directly as affiliates or indirectly as beneficiaries, according to the 2023 census data.
Informality has consistently affected over 45% of the Panamanian population throughout the 21st century, according to data from the National Institute of Statistics and Census (INEC). These figures highlight the need to address not only the financial and parametric variables of CSS management but also the structural factors underpinning the nation’s economic and territorial dynamics since at least the 1970s.
The 2023 census data on the uninsured population in Panama reveals widespread exclusion from social security in urban districts, where no district has less than 25% of its population lacking coverage, with some reaching up to 50%.
The situation is even more critical in rural areas, where exclusion rates surpass 70%, and many districts report alarming levels of over 90%, especially in indigenous regions. This underscores significant inequalities in access to social security between rural and urban areas and between peripheral regions and urban centers.
By age group, the uninsured population in Panama follows an inverted “U” pattern, disproportionately affecting youth aged 15 to 34 years (63%) and adults aged 65 and older (24%). By economic activity, the highest rates of uninsured individuals are found in agriculture, livestock, forestry, and fishing (81%), domestic work (70.5%), and construction (66%).
These figures align with trends across Latin America, where 55% of workers hold informal jobs without contracts or social security coverage, and three out of ten do not earn enough to rise above the poverty line, according to the latest edition of the IDB Better Jobs Index (2024).
High levels of tax evasion
In Panama, informality also manifests in indicators such as unreported sales, which reach 50%, reflecting high levels of tax evasion. Additionally, 40% of the country’s GDP is classified as part of the “shadow economy,” encompassing both unregistered activities and illicit operations, according to the World Bank’s 2007 report Informality: Escape and Exclusion.
The report attributes informality in Latin America to the capitalist system’s inability to integrate the entire population into the labor market, along with institutional distrust and non-compliance with regulations. This creates one group that is excluded and impoverished, while another with higher incomes opts out of the social security system due to its limited benefits.
Nobel laureate economist James Robinson, in his article Misery in Colombia (2016), notes that “the root of this problem is linked to extractive structures and the lack of institutional credibility. Regions with extractive economic institutions that fail to create broad-based incentives or opportunities for people will generate poverty. Having a capable and effective state is a prerequisite for economic development and poverty reduction.”
Geographic and sectoral concentration
Other factors contributing to informality in Panama include the hyper-concentration of economic activity in specific sectors and regions. Data from the 2012 business census (INEC) shows that 60% of businesses, 91% of paid wages, and 93.5% of business revenues are concentrated in the Panama Canal’s trans-isthmian corridor. Sectorally, 67% of GDP is concentrated in services, leaving sectors like agriculture with low investment and productivity.
Expanding the base of affiliates to the social security system requires policies that promote labor formalization in both rural areas and informal urban settings. Initiatives should encourage cooperatives, create spaces for entrepreneurship, and develop innovative insurance models that address diverse income levels and economic activities. Furthermore, ensuring fair wages above the cost of basic living expenses is crucial, especially in sectors like agriculture, construction, and domestic work.
The adoption of such policies will play a critical role in ensuring the future sustainability of the social security system.
Autor
Geographer and historian from the University of Panama. Associate researcher at the Urban Risk Observatory at Florida State University. Master in Geographic Information Technologies from the Autonomous University of Barcelona,
