In economics, productivity refers to how efficiently resources —human labor and machines— are used to produce goods and services. If a company or an economy generates more output using the same resources, productivity has improved. It is a broad concept influenced by factors such as human capital quality, institutional strength and market conditions. However, in theory, productivity growth is largely linked to technological progress, whether through innovation or more efficient processes.
Productivity is not only about producing more, but about producing better: with higher quality, lower costs and smarter use of resources. When that happens, we would expect the benefits to translate into better employment conditions and new job opportunities. By using resources more efficiently, companies can grow, expand production and hire more workers. That should result in more stable and better-paid jobs, meaning productivity complements workers. However, this logic does not always hold. Under certain conditions, technological progress can replace workers instead of benefiting them, turning productivity gains into job displacement.
Two regions, two realities
In Europe, according to ILO data from 2019, more than 80% of workers are formal —that is, they have social protection and a salary— and they work mainly in high value-added and technology-intensive sectors such as specialized services and industry. In Latin America, however, 53% of workers are informal, meaning they lack social protection. This translates to more than 140 million people without contracts, social security or job stability. At the same time, Latin America still depends heavily on less productive sectors such as agriculture, traditional commerce and low-productivity manufacturing.
These contrasts are also visible in technological development, often measured by comparing productivity levels across regions. One way to do so is by taking a technological and efficiency leader like the United States as a benchmark and calculating what percentage of its productivity other regions reach. This difference is known as the technological gap. In other words, it measures how far a region is from matching the productivity —and therefore technology use, knowledge and productive methods— of an advanced economy. Between 2000 and 2019, that gap widened in Latin America: from reaching 69% of US productivity to just 56%. Instead of closing the gap, the region is falling further behind.
Many jobs in Latin America are repetitive and easily replaceable by machines or automated systems. This includes work in informal transportation, agriculture, commerce, basic manufacturing and simple administrative tasks. When companies modernize production to cut costs and there is no retraining or alternatives for displaced workers, the result is higher efficiency alongside job losses. Europe, by contrast, generates jobs in more complex tasks that require analysis, creativity or technical skills —jobs that are much harder to replace with technology. There, productivity tends to complement workers, while in Latin America it often replaces them. On top of that, many Latin American companies —especially small ones— lack the resources needed to train their workforce or modernize in an inclusive way.
There is also a wide labor productivity gap, which measures how much economic value each worker generates. In 2019, a worker in Europe produced roughly USD 68,000 per year on average, while in Latin America the figure was barely USD 27,000, according to the World Bank. This shows that, with the same time and resources, European workers are more productive. The difference is not about working less, but about better use of resources thanks to stronger investment in technical education, technology and innovation.
The relationship between productivity and employment
Despite ongoing debate, the link between productivity and employment in Latin America remains insufficiently studied and poorly documented. It is not enough to know that productivity is rising or technology is advancing. What matters is understanding what kinds of jobs are created, which ones disappear and how the labor market changes.
A study by the School of Economics at UDLA analyzed the relationship between productivity and employment in 36 countries —19 European and 17 Latin American— between 2000 and 2019. The findings are revealing. In Europe, when productivity rises, employment improves as well: unemployment falls and jobs grow in modern sectors like services and industry. In Latin America, the opposite tends to occur. Increased productivity is associated with a decline in formal employment, particularly in services and industry. These sectors —which elsewhere generate quality jobs such as in health, education, technology or specialized manufacturing— tend to reduce staff in the region. At the same time, informal work and agricultural employment expand, often under more precarious conditions. In short, productivity gains are not translating into better jobs, but rather pushing many workers toward more vulnerable occupations.
In Europe, productivity growth has been accompanied by investment in technical training, active labor policies and strategies that help workers adapt to change. This has allowed sectors such as technology, health, education and professional services to expand and create jobs. In Latin America, technological progress has not been backed by similar public policies or institutional support. As a result, the sectors most affected by modernization are the ones losing the most employment.
Productivity as an opportunity
Productivity should not be seen as a threat, but as an opportunity. However, seizing that opportunity requires reforms that prepare workers, modernize productive sectors and provide alternatives for those who may be left behind by technological advances.
Investing in technical education, supporting small businesses, promoting value-added sectors and protecting labor rights are essential steps to ensure productivity generates employment and well-being. Europe’s experience shows that growth with inclusion is possible. Latin America must bet on technological progress that not only boosts numbers, but also improves people’s quality of life.
*Machine translation, proofread by Ricardo Aceves.
Autor
Economist. Professor and researcher at the Univ. of the Americas (Ecuador). PhD in Economics and Business from Autonomous Univ, of Madrid and Master in International Econ. from the same university. Specialized in macroeconomics and international economy.
Economist from the University of the Americas, Ecuador.
