the A.M. Costa Rica staff
The high cost to
employers of paying their workers'
social security contributions is one
of the factors explaining the high
level of informality in Costa Rica's
employment, according to the
Organisation for Economic Co-operation
and Development (OECD).
For this reason, the international
organization proposes to reduce taxes
on labor and suggests that the costs
of the programs they finance be funded
by other types of taxes, such as added
value tax and income tax.
This is one of the OECD
recommendations to Costa Rica after
reviewing the state of the labor
market and social policies. This is
part of the inspection process to
which the country is subjected if it
wants to join this group of nations.
The report was presented Wednesday by
Stefano Scarpetta, Director of
Employment, Labor and Social Affairs
of the OECD. The representative
explained that social charges should
be reduced from items that do not
provide direct benefits to the worker.
"19 percent of that coverage is for
old age, health, maternity, survivors'
benefits and disability benefits,
which is very good because they are
indeed safe, but there are also 25
percent of those resources which
finance the operations of public
institutions, public banks and
anti-poverty programs," said
"The anti-poverty programs have been
extremely successful in Costa Rica,
the question is how they are financed.
The general message we have in the
report is that there should be an
effort to finance these programs with
the general taxes, both the value
added tax and income tax," added the
The OECD report notes that the tax
rate on the total social security
payroll is 36.5%, which is almost nine
percentage points above the OECD
average, which is 27.2 percent.
According to the Organisation, 26.33
percent of the social charges paid by
employers to finance the Instituto
Nacional de Aprendizaje, Instituto
Mixto de Ayuda Social e Institute and
the Fondo de Desarrollo Social and
Asignaciones Familiares and Banco
Popular, raise the cost of formal
employment, which makes it more
attractive to hire informally.
The OECD considers that other sources
of taxation, such as value added tax
and income tax, are underutilized
because they have low tax bases and
low tax rates, so they could assume
the burden of financing
non-contributory social programs.
According to Scarpetta, recharging
these taxes would not affect lower
income households because of income
tax exemptions to persons who receive
Currently, the Legislative Assembly is
negotiating a bill to transform the
sales tax into value added tax or VAT.
The Costa Rican Chamber of Commerce
and Private Sector Associations
(Uccaep) attended the presentation of
the OECD report and reported that it
will only start analyzing the document
and its proposals, while the Social
Unity Bloc seemed against the
recommendation to reduce social
"Do you know what it would take to
decrease support for the social
security entities? This country lives
on a series of supports, we are a very
vulnerable country in that sense,"
said Gilberto Cascante, president of
Bussco, a unions confederation.
Ana Helena Chacón, Vice President of
the Republic, considered that, in
order to encourage formal contracting,
the Government would allow employers
to have a period of two years in which
they can pay social charges in a
staggered way, until they arrive to
Chacón said that the proposal was
presented by Geannina Dinarte,
Minister of Economy, and is currently
under study in the Financial
Department of Caja Costarricense del
Security fees are mandatory
in every pay check.
In its report, the OECD
also proposes the country reduces
the list of minimum wages, which it
considers too broad.
The Organization considers
that the fact that there are
24 minimum wages in the
private sector, which differ
by occupation and skill level,
and complicate compliance.
The OECD limitation is high,
considering that almost a
quarter of workers in the
private sector (25% in the
formal sector and 60% in the
informal sector) earn less
than the lowest minimum wage.
At the same time, the OECD
suggests strengthening the
skills of labor inspectors in
the Ministry of Labor to
better monitor workers' living
"This would be a way to
support people who lose their
jobs in the formal sector and
allow them to look for another
in the same sector, instead of
going to any job in the market
because they do not have
enough savings," Scarpetta
So far, Costa Rica has obtained
approval in areas like trade,
health and agriculture policies.
Ana Helena Chacon categorically
refuted several of the OECD's
observations on shortcomings
that the state must improve.
One of them was the
Organization's request for Costa
Rica to adapt its regulations
for migration, to facilitate the
regularization and insertion of
foreigners in the labor market.
"An open door policy for Costa
Rica, with its current fiscal
situation, is not possible," she
said. Chacón also criticized the
OECD for more efforts to reduce
"We have become one of the
countries that have eradicated
it the most, we have 10,000
children less on the streets
than some years ago. Costa Rica
does have a well-established
strategy," Chacón said.
Some other OECD recommendations:
-Promote social dialogue and
collective agreement to improve
wage setting mechanisms.
-To strengthen the insertion and
labor intermediation services.
-Establish a one-stop
institution of social programs
and reduce the fragmentation of
those same plans.
-Introduce mechanisms to
evaluate the effectiveness of
labor market programs.
-Increase funding so that the
program reaches more young
-Consider measures to increase
the capacity of the tax system
to reduce income inequality.
-Extend coverage of
non-contributory pensions for
all people at risk of poverty
and extreme poverty.
-Improve the long-term
sustainability of the pension
system by revising the legal
retirement age based on changes
in life expectancy.
-Increase provision of childcare
services paid with public funds.
-To combat gender discrimination
in the workplace.
-To combat child poverty.
-Consider an extraordinary
regularization of the immigrants
present in the country.
-Redefine the cost that migrants
must face to regularize their