Economic Growth and the Employment Gap in Panama

Part 7 of our 2026 Labor Series

Introduction

Panama maintains one of the most dynamic economies in Central America, but aggregate economic performance has not translated evenly across the labor market. In 2025, gross domestic product grew by 4.4 percent and employment increased by 1.4 percent. Yet unemployment remained significant, at 10.4 percent, while informal employment accounted for 47.1 percent of non agricultural employment.

This gives Panama a somewhat different labor market story from several of its neighbors. The country has a large and sophisticated service economy, is internationally connected industries, and has relatively high levels of productivity in some sectors. At the same time however, a substantial share of workers remain outside those parts of the economy.

Labor Market Expansion

The September 2025, Labor Market Survey recorded 1.97 million employed people, roughly 27,500 more than in October 2024. The increase was not evenly distributed between men and women. Female employment rose by more than 21,000, compared with approximately 6,000 among men. Labor force participation also continued to rise, reaching 64.0 percent in 2025. The gender difference remains considerable, however. Participation was 75.1 percent among men compared with 53.8 percent among women.

The increase in female employment is notable because it occurred alongside a broader expansion of the labor force. More people are participating in Panama's economy, but the employment figures also show that the economy is not absorbing all of this additional labor into the same types of jobs. The distinction between having employment and having access to formal, stable and productive employment remains important. The figures come from the September 2025 Labor Market Survey, which provides the most detailed picture of employment structure used in this analysis (INEC, 2026).

Service Sector

The structure of employment helps explain some of the differences within Panama's labor market. Around 70.3 percent of employment was concentrated in the tertiary sector in 2025. In urban areas, the figure was considerably higher, at 80.9 percent. Rural employment remained more closely connected to primary activities, which accounted for 42.4 percent of employment there (INEC, 2026).

This is one of the clearest divides in the Panamanian economy. The labor market surrounding the country's major urban centers is closely tied to services, commerce, transportation, finance and other activities associated with a modern service economy. Rural employment retains a much stronger connection to agriculture and other traditional activities.

Employment changes during 2025 reflected this structure. Real estate, financial and insurance activities, and transportation all recorded relatively strong increases, while agricultural employment declined. The result is an economy in which the sectors generating new employment are not necessarily distributed evenly across the country's territory.

A similar geographic pattern appeared in Costa Rica, where the labor market showed a pronounced concentration of higher productivity activities around the country's main urban and export oriented economy. Panama's structure is different, but the broader pattern is comparable: aggregate economic performance can conceal substantial differences in the types of employment available to workers in different parts of the country.

Informal Labor Market

Informality remains one of the most important features of Panama's employment structure. INEC counted 784,990 informal non agricultural jobs in September 2025, equivalent to 47.1 percent of non agricultural employment. The rate was slightly lower than the 47.7 percent recorded in 2024, although the absolute number of informal workers increased by more than 8,500. The composition of this informal economy is also revealing. Roughly three quarters of informal workers were employed in units classified as part of the informal sector. Another 14.5 percent worked in formally classified businesses, while 11.2 percent worked in households.

Self employment stands out in particular. Approximately 96 percent of self employed workers were classified as informal. Informality was also very high among contributing family workers, domestic workers and employers. By sector, the rates reached 68.9 percent in construction and 63.7 percent in manufacturing. Hotels and restaurants, transportation and commerce also had relatively high levels of informality, while financial activities and education were much more formalized (INEC, 2026). The contrast with Nicaragua is useful here. Nicaragua's labor market, examined earlier in this series, combined very low open unemployment with substantial subemployment and a large role for self employment. Panama presents almost the opposite statistical picture: unemployment remains comparatively high even though the economy has a much larger modern service sector. In both cases, however, the headline unemployment rate alone does not fully describe the quality or distribution of employment.

Labor Distribution

Another measure provides a different perspective on the labor market. In 2025, 55.4 percent of employed workers met INEC's definition of full employment, up from 53.9 percent the previous year. This refers to workers putting in at least 40 hours without seeking or wanting additional hours. The national figure conceals a substantial urban rural difference. Full employment reached 65.2 percent in urban areas but only 29.0 percent in rural areas (INEC, 2026). Geographic differences become even more pronounced in Panama's Indigenous comarcas. Informality reached 95.0 percent in Guna Yala and 76.0 percent in Ngäbe Buglé, compared with considerably lower levels in the country's more formalized areas. These figures point to a labor market divided not simply by occupation or industry, but also by geography. Panama's urban service economy operates alongside rural and Indigenous labor markets where informal employment remains much more common.

Conclusion

Panama's labor market therefore presents an unusual combination. The country is not experiencing weak economic growth. GDP expanded by 4.4 percent in 2025, employment increased and several service industries recorded strong gains. At the same time, unemployment and informality remain substantial. The World Bank has similarly identified informality and limited access to higher quality employment as continuing constraints on the distribution of economic gains. Small and medium sized enterprises make up the overwhelming majority of businesses in Panama and face constraints related to financing and productivity, factors that can affect their ability to generate more formal employment (World Bank, 2024).

This is also where Panama differs from the other labor markets examined in this series. Costa Rica's challenge was strongly associated with the geographic concentration of productive employment. Honduras showed pronounced differences in participation, income and employment conditions. Guatemala combined very low open unemployment with exceptionally high informality, while Nicaragua combined low unemployment with extensive subemployment. Panama adds another variation: relatively strong economic growth occurring alongside substantial unemployment and a large informal labor market. The central feature is therefore not any single indicator. It is the coexistence of a modern, service oriented economy with a labor market in which access to formal and productive employment remains uneven. Panama can sustain relatively strong economic growth while this division persists. The labor market data suggest that the relationship between economic expansion and employment is more complicated than GDP growth alone would imply.

Sources

Instituto Nacional de Estadística y Censo. 2026. Encuesta de Mercado Laboral, septiembre 2025: Situación de la Población Ocupada. Panamá: Contraloría General de la República.

Instituto Nacional de Estadística y Censo. 2026. Comentario de la Encuesta de Mercado Laboral, septiembre 2025. Panamá: Contraloría General de la República.

Ministerio de Economía y Finanzas. 2026. Informe Económico y Social Anual 2025. Panamá: Ministerio de Economía y Finanzas.

World Bank. 2024. Marco de Alianza País para Panamá 2024–2028. Washington, DC: World Bank.

World Bank. 2026. Panama. Washington, DC: World Bank.