Ecuador, like many countries, celebrates International Workers’ Day on May 1. Unions take to the streets demanding better working conditions, often a euphemism for increased privileges.
However, these feel-good demands are disconnected from economic reality.
Only three out of 10 economically active people in Ecuador hold formal jobs with full legal benefits. The rest work informally, without legal perks—but also without the bureaucratic weight that formal employment implies. This reality is echoed across Latin America.
Instead of expanding entitlements, the region needs to focus on policies that promote formalization, job creation, productivity, and sustainable growth—backed by a workforce equipped with skills for today’s economy.
The irony of Labor Day marches is that while unionized protesters clamor for more so-called rights, street vendors show up to serve the crowds, seizing the business opportunity. These vendors do not demand benefits; they just need fewer barriers to formalize. The long list of labor “rights,” coupled with burdensome procedures to start, operate, or close a business, makes formalization not only difficult but unattractive.
In 2024, Ecuador’s informal employment rate rose to 56 percent, back to 2018 levels, despite a 2023 labor reform intended to “protect workers’ rights.” Even the World Economic Forum (WEF)—despite its social-engineering bias—acknowledged in an April report that Latin America needs labor flexibility: greater adaptability to new work models, simpler hiring and firing processes, and a focus on digital and soft skills. This report showcases the interests and demands of employers surveyed across the region.
This advice runs counter to Ecuador’s recent reforms, Colombia’s proposed labor changes via referendum, and the chants heard in Labor Day marches. Typically, the voices we hear are from those already enjoying legal protections.
Latin American governments need political will to pursue effective reforms: stop trading new privileges for short-term union support or electoral favors. Instead, implement a parallel labor regime that embraces flexibility and attracts younger workers—until the outdated model fades into obsolescence. (Dismantling it outright could trigger costly international lawsuits, under the narrative of a rights violation.)
The region’s problems go beyond labor codes. A hostile business climate and low investment stifle job creation. However, a viable path forward is exporting digital services through the gig economy and outsourcing models. According to the WEF, this is particularly feasible in urban areas, where digital infrastructure already exists.
While rural expansion—potentially through public-private partnerships—would be a smart long-term investment, focusing first on urban centers is a key first step. As of March 2025, 41 percent of urban workers in Ecuador remain informal.
Promoting service exports meets global tech demands and aligns with the rise of nearshoring. Mexico and Central America are already seeing results. Our intern Joselyn Sánchez highlighted this in our recent Action Report, which outlines investment and outsourcing opportunities for BPO firms across El Salvador, Guatemala, and Honduras.
Ecuador has relatively good starting conditions: a dollarized economy, 80 percent internet connectivity, a service-driven urban economy, and a growing pool of unemployed youth. English proficiency, digital literacy, and connections between local workers and global employers are not just the focus of potential new policies, but business opportunities.
Effective reforms will not come from marching or policymaking alone. They will come from those who challenge and disrupt the status quo: entrepreneurs, investors, and educators who connect talent to global markets, build agile training programs, and empower individuals to thrive outside the traditional system.
