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OECD Reviews of Labour Market and Social Policies: Costa Rica

image of OECD Reviews of Labour Market and Social Policies: Costa Rica

Costa Rica has recorded many social and economic achievements and currently enjoys one of the highest levels of well-being in the OECD. But progress has come to a standstill in most recent years and challenges have emerged along several social and labour market dimensions. Existing policies are outdated and no longer effective in today’s dynamic, export oriented economy which requires greater flexibility and more high skilled workers. How can Costa Rica better respond to the challenges of technological change and globalisation whilst minimising the transition costs it endures as it moves to a higher and a more sustainable path to inclusive growth? This report provides comprehensive analysis of Costa Rica’s policies and practices compared with best practice in the field of labour, social and migration from across the OECD and other countries in the Latin American region.  It contains several recommendations to tackle key challenges facing Costa Rica, including low labour utilisation, increasing inequality, high poverty and high-risk of economic exclusion especially of the low skilled and migrants.  This report will be of interest in Costa Rica as well as other countries looking to promote a more dynamic and an inclusive economy.

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Reinforcing social policies for inclusive growth in Costa Rica

Costa Rica is one of the countries that spends the most on social policies in Latin America, although considerably less than the OECD average. Social spending in Costa Rica focuses on public services. Cash social benefits fail to significantly reduce income inequality due to small size and low progressivity. Public services, in turn, have considerable redistributive impact due to large spending and favouring lower income households. Taxes do not reduce inequality and may hinder employment and formality due to over-reliance on social contributions. The pension system’s coverage is high but not universal. Further improvements in family policies; childcare and parental leave policies are needed to tackle key barriers for female labour market participation and taxes and benefits could contribute to reducing high child poverty among working families Finally, urgent action is needed in the area of anti-poverty policies which largely remain fragmented and un-coordinated.

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