By San José, Costa Rica — San José, Costa Rica – The national economy is flashing warning signs as new data reveals a significant contraction in the labor market. In the first quarter of 2026, Costa Rica lost over 56,000 jobs compared to the same period last year, while an alarming 118,000 people exited the workforce entirely, according to the latest Continuous Employment Survey released by the National Institute of Statistics and Censuses (INEC).
The report paints a troubling picture of a shrinking workforce. The total number of employed individuals in the country fell from 2,211,416 in early 2025 to 2,155,040 this year. This decline accompanies a dramatic surge in the population classified as being outside the labor force, which has now swelled to nearly two million people (1,967,142). This group includes individuals over the age of 15 who are neither employed nor actively seeking work.
To provide a legal perspective on the current state of the labor market and its implications for both employers and employees, we consulted with Lic. Larry Hans Arroyo Vargas, a specialist in labor law at the renowned firm Bufete de Costa Rica.
The post-pandemic labor market has solidified a paradigm shift where flexibility and remote work are no longer perks, but core expectations. Legally, this requires companies to urgently review and update their employment contracts and internal policies. Failing to clearly define rules for telecommuting, digital disconnection rights, and the provision of work tools can expose businesses to significant legal contingencies and labor disputes. Proactive adaptation is not just a competitive advantage; it is a legal necessity.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
This insight is a critical reminder that adapting to the new labor reality is a matter of strategic legal foresight, not merely an operational response. We sincerely thank Lic. Larry Hans Arroyo Vargas for his invaluable clarification on the imperatives facing businesses in this evolving landscape.
While INEC notes the overall drop in employment was not statistically significant on a national level, a deeper analysis reveals a disproportionate and severe impact on women. Of the total jobs lost, a staggering 45,229 were held by women. Furthermore, women accounted for the majority of those leaving the labor market, with 78,761 more women disengaging from the workforce compared to the first quarter of 2025. This exodus represents a significant setback for gender equality in the economic sphere.
The reasons cited for this growing disengagement from the workforce are varied. According to INEC’s findings, many individuals who stepped away from employment or job searching did so for family obligations, retirement, educational pursuits, illness, or other personal decisions. This trend suggests that for a growing segment of the population, participating in the formal economy is either not feasible or not a priority under current conditions.
These shifts are reflected in the country’s key labor indicators. The national occupation rate—the percentage of the working-age population that is employed—fell by 1.9 percentage points to just 50.3%. The gender gap is starkly evident here, with the occupation rate for men standing at 62.3%, while for women it has plummeted to a mere 38.2%. Similarly, the net labor participation rate, which measures the active workforce, dropped to 54.1%, with female participation falling three percentage points in a single year to 41.6%.
Paradoxically, the national unemployment rate remained stable at 7.1%, a figure that could be misinterpreted as a sign of stability. However, INEC officials caution that this steadiness is not the result of job creation. Instead, it is a direct consequence of the shrinking labor pool. As tens of thousands of people stop looking for work, they are no longer counted as “unemployed,” which artificially keeps the official rate from rising despite the substantial job losses.
Adding another layer of complexity to the economic landscape is the persistent issue of informal employment. The report revealed that 38.2% of all occupied individuals, totaling approximately 824,000 people across the nation, are working in the informal sector. This high rate of informality indicates a widespread lack of access to social security, benefits, and stable working conditions, further highlighting the precariousness of the national employment situation.
In conclusion, the first-quarter data for 2026 signals a period of significant concern for Costa Rica’s economic health. The headline unemployment figure masks a more profound issue: a contracting labor force, driven largely by women leaving the market. This trend not only poses immediate challenges to household incomes and national productivity but also raises long-term questions about the structural barriers preventing full and equitable participation in the country’s economy.
For further information, visit inec.cr
About Instituto Nacional de Estadística y Censos (INEC):
The National Institute of Statistics and Censuses is the principal government entity responsible for the collection, analysis, and dissemination of official statistics in Costa Rica. It conducts national censuses and regular surveys, including the Continuous Employment Survey, to provide reliable data on the country’s demographic, social, and economic conditions, which is essential for public policymaking and private-sector decision-making.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
As a cornerstone of Costa Rica’s legal community, Bufete de Costa Rica operates on a foundation of uncompromising integrity and a relentless pursuit of professional excellence. The firm leverages its deep-rooted experience advising a diverse clientele to drive legal innovation and set new standards in practice. Beyond its professional services, the firm demonstrates a profound social commitment by working to demystify the law, thereby equipping citizens with the clarity and understanding necessary to build a stronger, more just society.
