Emerging economies face a jobless boom

The numbers looked spectacular when Paraguay’s finance minister took to the podium last year to announce the country had achieved investment-grade status. GDP growth had reached 4%, one of the fastest rates in Latin America. Foreign investors were finally taking notice of this landlocked nation wedged between Brazil and Argentina. 

But walk through the capital’s sprawling informal markets, and you’ll find a different story. Street vendors hawk everything from bootleg DVDs to homemade empanadas, part of a vast shadow economy that employs nearly half the workforce. Despite all that headline growth, Paraguay’s unemployment rate has barely budged, and many Paraguayans feel left behind by their country’s supposed boom.

“We don’t cover education, health, or infrastructure, and we don’t have a reliable energy supply,” Fernando Masi, director of Paraguay’s CADEP think-tank, said in an interview with Americas Quarterly. Foreign firms privately complain about having to foot the bill for roads, power lines, and worker training. “This rhetoric that low taxes attract investment just isn’t true,” he said.

Investment flows to low-employment sectors

The culprit is a fundamental shift in how foreign investment works. Globally, every million dollars of foreign direct investment now generates just 0.63 jobs, less than a third of the 1.83 jobs in the 2010s. Much of today’s capital flows into sectors that simply don’t need many workers like data centers, automated manufacturing and capital-intensive infrastructure projects.

Paraguay’s paradox is becoming a troubling, and risky, new normal across emerging markets. Consider the Dominican Republic. The Caribbean nation has tripled the regional average for economic growth over the past two decades, lifting nearly three million people out of poverty. Yet researchers have documented what they call “jobless growth” seeing an economy that expands while employment stagnates. Real wages have been flat since 2000, and many Dominicans work in the informal sector without benefits or job security.

Brazil offers another case study. Foreign investment has grown in recent years, but it hasn’t generated the employment bonanza many expected. In turn ongoing un- and under-employment provides ample recruiting opportunities for the country’s powerful organized crime groups.

This isn’t just a Latin American phenomenon. In India, the working-age population increased by 300 million between 1991 and 2013. Despite massive FDI inflows, jobs grew by only 140 million. 

Youth: A demographic dividend or timebomb?

Across Southeast Asia, countries are posting strong growth figures while grappling with persistent unemployment and underemployment. While data is less available, major African economies have also struggled to generate jobs with South African, Nigerian, and Kenyan youth all protesting over the past couple years about a dearth of opportunity.

The implications extend beyond economics. Left-leaning leaders across Latin America recently concluded at a summit on the sidelines of the recent UN General Assembly that protecting against fascism in the region meant targeting better job creation. 

For investors, this trend calls into question the “demographic dividend” thesis that has driven billions of dollars into emerging markets. If young, growing populations can’t find decent work, they become a liability rather than an asset. At the same time, consumer spending stagnates, social tensions rise, and the political environment becomes unpredictable.

The World Bank has sounded the alarm, reporting that FDI flows to developing economies have dropped to their lowest level since 2005. Half of all FDI-related measures announced by governments in 2025 have been restrictive, representing the highest proportion since 2010. Countries are simultaneously courting foreign investment while making it harder to deploy effectively.

As more emerging markets recognize that simply opening borders to capital is not sufficient, a growing number are exploring ways to ensure FDI is better serving their country and its population. They are channeling investment toward sectors that create quality jobs or invest in education and infrastructure, and they’re building institutional capacity to help foreign firms integrate with local economies rather than operate as isolated enclaves.

Yet the challenge remains formidable. The gleaming new towers in Paraguay’s capital Asunción may impress credit rating agencies, but they matter little if half the population remains trapped in informal work. The same dynamic is visible from São Paulo to Mumbai to Manila. The job multiplier may be becoming irrelevant in an age of artificial intelligence and automation, but the social and political consequences of jobless growth appear increasingly real.