The Importance of the Private Sector in the Costa Rican Economy
The tensions between the defenders of the public and the private sectors of Costa Rica have been high during the last years, because of the State’s big debt and expenses that have taken a toll on the economy. In politics, the subject has been at times controversial and during the most recent electoral campaign it led to heated discussions between candidates that offer different models to overcome the fiscal crisis the country is facing.
There are those who think that the Costa Rican State is too big and the tax burden too high, so they propose to reduce public spending, the size of the institutions and taxes, so that the private sector can thrive and, with that, have a higher tax collection to pay the ever-increasing debt. Others defend the State almost as it is and instead aim to have a more progressive tax scheme because they consider that the wealthy parts of society don’t contribute as much as they should. Others offer a mixture of both visions.
This debate always leads to questions about how important are the public and the private sectors for the economy. According to the latest continuous employment survey of the National Institute of Statistics and Censuses (INEC, its acronym in Spanish), out of every 100 jobs in the country, 86 are in the private sector and 14 are in public institutions. So, when a politician or an economist says that the private sector employs most of the Costa Rican workforce, they are correct, but not without nuance.
One of the biggest problems Costa Rica has been having in the last two decades is the informal part of the private sector. These are workers that do not have social security financed by their employers, who don’t have working contracts, who may only be paid in kind, or who chain temporary jobs without decent conditions, for example. All of these jobs are in the private sector, since it would be illegal for any public institution to hire workers without giving them formal contracts.
According to the latest data by INEC, 46% of the jobs in Costa Rica at the end of 2021 were informal, and 54% were formal (counting those on the public sector). This means that, out of every two jobs in the private sector, one is informal. According to the United Nations and the International Labour Organization, the high incidence of the informal economy “is a major challenge for the rights of workers” and “has a negative impact on the development of sustainable enterprises, public revenues and governments’ scope of action.”
What’s more worrying for Costa Rica is that, even though the unemployment rate keeps declining after reaching a 25% high during the first year of the pandemic (now it’s less than 14%), more than half of the jobs that are being created as of now are still in the informal sector. The public sector, on the other hand, has not shown significant increases in job creation, since there are recent laws in place to control public spending and to force that State to make better use of its resources.
Read More: Celebrating the World Day of Social Justice and Pushing Against the Informal Economy
The characteristics of the private sector in Costa Rica
Around 70% of the jobs in Costa Rica are from the service and commercial sectors. Contrary to what many people think, only 12% of the jobs are in the sector of agriculture, livestock and fishing. Another 18% of the workforce is in the manufacturing and construction industries. This means that the most important sector of the Costa Rican economy is that related to services and commerce, which includes everything from stores to hotels, restaurants, financial services, transportation, administrative activities, health services, and communication services.
Almost 1,5 million people in Costa Rica are employed by the service and commercial sectors. This number grew 11,4% between the end of 2020 and the end of 2021, consistent with the reactivation of economic activity during the last year. Overall, the tertiary sector of the economy (services and commerce) represents around 77% of the country’s GDP, while the secondary sector (manufacturing and construction) represents 17,7%, and the primary sector (agriculture, livestock and fishing) represents 5,3% of the size of the economy.
While it is true that, in general, the private sector is the main force of the Costa Rican economy, besides its informal job problems, one thing that differentiates it from the public sector is the disparity of wages of its workers. Of the people in the country that earn less than 250.000 colones (around $400 dollars) a month, 92% are in the private sector, according to a study from the University of Costa Rica that affirms that you cannot have a decent life with such low salaries.
On the other hand, the Costa Rican State has less public workers than the average OECD-member countries, but spends a lot more on their wages than almost every other country of the so-called “rich country club”.
Particularities of the informal sector
Workers of the informal sector of the Costa Rican economy are more likely only to have primary education or less, they usually work for companies or farms, and they tend to earn less that the minimum salary. One of every four informal workers is underemployed. Otherwise, workers with formal contracts and social security paid by their employers tend to have college degree and seldom earn less than the minimum salary or are underemployed.
The primary sector is the one that employs more informal workers than formal workers. The commercial subsector also has more informal employment than formal.
