Panama’s economic progress is being held back by a persistent deficit in job quality and workforce skills, a new World Bank analysis concludes. The report, released this week, argues that despite strong growth, these factors are slowing the reduction of poverty and inequality in the country.
Panama’s position on the global Human Capital Index has stagnated for ten years. This leaves the nation as one of the world’s most unequal for its income level. A child born in Panama today is projected to reach only half of their potential future productivity, a gap representing a massive 50 percent loss in future earnings.
Education Access Does Not Guarantee Opportunity
While more Panamanians are entering the education system, the report finds serious limitations. Access for low-income households remains problematic, directly blocking routes to better employment. Higher education also fails to reliably deliver improved prospects. Only one in five young people attain a tertiary degree, and many programs are not aligned with modern labor market demands.
The resulting skills mismatch fuels severe wage disparities. Data from 2023 shows low-skilled workers earning up to 74 percent less than their university-educated counterparts. These inequalities hit indigenous communities hardest, with their incomes averaging 36 percent below non-indigenous populations.
“Panama has experienced rapid economic growth in recent years. However, improving job quality and addressing labor market inequalities are key to expanding opportunities for people to escape poverty,” said Oscar Calvo-Gonzalez, World Bank Director for Equitable Growth, Finance, and Institutions for Latin America and the Caribbean. [Translated from Spanish] He added that the country must invest in relevant training and promote policies to reduce territorial and ethnic gaps for growth that benefits everyone.
The divide is widening with new technology. High-income workers predominantly fill emerging tech-intensive roles. Meanwhile, low-skilled laborers remain trapped in informal, low-productivity positions with little chance for advancement into the formal labor market.
Informal Sector Traps the Poorest Workers
Labor income grew steadily at 2.2 percent annually from 2001 to 2023. Yet Panama’s Job Quality Index deteriorated faster over the past decade than in regional peers. This decline disproportionately impacted low-income households. In 2023, the poorest 40 percent of Panamanians were largely employed in the informal sector.
Official figures from the Ministry of Economy and Finance place the national poverty rate at 21.7 percent last year. Extreme poverty affected 9.6 percent of the population. The report also notes that without strategic intervention, current growth patterns will not substantially improve these numbers.
To forge a more inclusive path, the World Bank recommends Panama focus on three policy areas. First, closing territorial and ethnic gaps requires better infrastructure and services in rural and indigenous regions. Second, building human capital demands improved education, health, and training aligned with market needs. Finally, strengthening household resilience against natural hazards through social protection is critical for vulnerable areas.
The analysis presents a clear challenge. Panama’s celebrated economic expansion has not yet translated into quality jobs or advanced skills for a large part of its population. Addressing this world bank identified gap is now the central task for achieving sustainable and shared prosperity.