How Artificial Intelligence Can Boost Productivity in Latin America

This article is published in association with IMF.

Bas B. Bakker, Sophia Chen, Dmitry Vasilyev

Latin America and the Caribbean has long been a region with one of the most informal labor markets. A large part of the workforce is outside of the formal economy, leaving many people without access to benefits and protections.

Informal businesses are typically small, have limited access to financial and legal systems, and struggle to attract investment. They are also less likely to adopt new technologies because they lack the talent and scale that makes such innovation viable.

As the Chart of the Week shows, less than half of the region’s jobs are likely to be highly impacted by AI.  This is lower than for advanced economies like the United Kingdom or United States, and is mostly due to the large size of the informal sector. Overall in the region, more than half of all jobs are informal. In some countries, like Bolivia, Peru and Honduras, the share of informal jobs exceeds two-thirds, according to International Labour Organization data.

The relatively low exposure to AI may help the region avoid more immediate disruptions, but countries also risk missing out on the full benefits of AI-driven economic growth, as we show in a recent working paper. Among exposed jobs, about half, such as those in healthcare, would gain from AI-enhanced productivity without major job losses. Others, like call center jobs, would face a high risk of displacement.

Bringing more people into formal work will help the region fully harness AI’s potential for growth. Formalization would help more users enjoy the benefits of AI and allow workers and businesses to leverage AI for growth.

Countries can encourage relatively new businesses to transition into the formal sector by expanding access to finance and streamlining regulation. Easing regulatory burdens such as occupational licensing restrictions can reduce the costs of operating in the formal sector. Providing enhanced education, training and social safety nets will equip workers to adapt to an AI-driven economy and ensure that they are not left behind.