Unemployment falls in Latin America, but inflation devours wages

The data related to employment in Latin America throws a bittersweet taste: in terms of hiring, the region is better today than before the arrival of the coronavirus and the respective confinements. The negative part is that inflation has been eroding the purchasing power of workers.

These observations arise from the report Labor Situation in Latin America and the Caribbean, recently published by the Economic Commission for Latin America (ECLAC) and the International Labor Organization (ILO).

UNEMPLOYMENT FALLS IN LATIN AMERICA

The ECLAC and ILO study shows that in the first semester of 2022 a pronounced drop in the unemployment rate was observed in the 16 countries analyzed in Latin America and the Caribbean (Argentina, Barbados, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, Jamaica, Mexico, Nicaragua, Paraguay, Peru, Dominican Republic, Trinidad and Tobago and Uruguay).

In this way, unemployment fell 2.8 percentage points compared to the same period in 2021, to stand at 7.3%. This meant that the unemployment rate was even below the levels registered before the pandemic.

This change in labor performance shows, on the one hand, that the growth of the economies of the region in 2021 and 2022 has been particularly reflected in the increase in the regional employment rate.

There is also an improvement in the participation rate (that is, of people who have or are looking for a job), although the latter is below the pre-pandemic figures.

JOB CREATION GROWS

In addition to the better performance of the unemployment rate, in Latin America and the Caribbean it can also be seen that job creation continues. 

During the first semester of 2022, among the eight countries for which updated information is available (Argentina, Brazil, Chile, Costa Rica, Ecuador, Mexico, Paraguay and Peru), total employment increased by 4.3% compared to the same period of 2021.

“Although this behavior was widespread, the increases in employment in Argentina, Brazil and Chile stand out,” the report details.

In all countries, there was an increase in salaried employment in the first half of 2022, although with nuances: notable increases can be seen in Argentina, Brazil and Ecuador, while in the rest of the countries the increases in salaried employment are lower than the regional average.

INFLATION: THE MONSTER THAT DEVOURS WAGES

ECLAC and the ILO pointed out that between the first semester of 2021 and the first semester of 2022 there is an acceleration of regional inflation in most of the countries of the region, as a result of several factors, both external (increase in international prices of fuels and food) and domestic (effect of higher aggregate demand in 2021).

“The increase in inflation has been progressive: it started with a slight increase at the end of 2020 and accelerated during the second quarter of 2021 and, in particular, in the first half of 2022,” the document states.

In the case of the real average wages of the ten countries considered with available information, in the first half of 2022 the indicator contracted in six countries. The falls in real average wages in Brazil (-6.5%), Paraguay (-4.7%) and Peru (-3.6%) stand out, while in Nicaragua, Uruguay and Chile the decrease is around 1.7%

Although increases in the indicator are observed in four countries, these are less than 1% in Argentina, Bolivia and Mexico, and only Colombia registers increases of more than 3%.

Although Argentina appears as one of the territories in which wages have won in the first half of 2022, it is necessary to take into account in this country the salaries of workers have been losing against inflation for several years, which is one of the highest in the world.

Regarding minimum wages in the region, the report states: “Although in 2021 minimum wages experienced a general drop, in the first half of 2022 they registered increases in 8 of the 17 selected countries.

In particular, Mexico (13.5%) and El Salvador (12.2%) presented the most pronounced positive adjustments, followed by Ecuador (3.1%) and five other countries with increases below 2%. In eight countries, on the other hand, falls in the real minimum wage are observed, among which the decrease registered in Paraguay (-5.4%) and the contractions of around 3.5% in Peru, Panama and Nicaragua stand out”.

In Chile, Argentina, Brazil and Ecuador, the informal employment rate increased by around 0.6 percentage points.compared to the same period in 2021, while in Costa Rica, Paraguay and Peru there were reductions of around 1.5 percentage points.

On the other hand, very different dynamics can be seen in the informality rate by sex. While the informal employment rate for men increased in Argentina and Chile, it fell in Peru, Paraguay, Costa Rica and Mexico, and, more marginally, in Ecuador. 

Among women, on the other hand, the informality rate increased in six countries (the exceptions were Argentina and Costa Rica), with particularly notable increases in Brazil, Chile and Ecuador.

EMPLOYMENT IN THE SERVICE SECTOR IS GROWING

During the first half of 2022, the expansion of employment in the tertiary sector (services) continued. However, as has been observed since 2021, the manufacturing job creation dynamics also showed a recovery. 

When the changes in the composition of employment by branch of activity are analyzed in eight countries for which information is available, the contraction experienced by agriculture also stands out.

In most countries, employment also increased in the commerce sector, which accounts for close to 20% of total employment. 

The average variation in this sector was 6% between the first half of 2022 and 2021, above what was observed between the first half of 2021 and 2020 (4.5%). In particular, robust growth in employment in this sector can be seen in Brazil, Costa Rica and Peru.

With information from Bloomberg Línea