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Growth, Employment, and Poverty in Latin America$

Guillermo Cruces, Gary S. Fields, David Jaume, and Mariana Viollaz

Print publication date: 2017

Print ISBN-13: 9780198801085

Published to Oxford Scholarship Online: June 2017

DOI: 10.1093/oso/9780198801085.001.0001

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Peru

Peru

Chapter:
(p.377) 20 Peru
Source:
Growth, Employment, and Poverty in Latin America
Author(s):

Guillermo Cruces

Gary S. Fields

David Jaume

Mariana Viollaz

Publisher:
Oxford University Press
DOI:10.1093/oso/9780198801085.003.0020

Abstract and Keywords

The Peruvian economy performed exceptionally well between 2000 and 2012, with a growth performance that placed the country well above the regional average and an improvement in all labour market indicators. The chapter shows that the economy suffered a slowdown as a consequence of the international crisis of 2008, but Peru sustained positive GDP growth rates during that episode and had only a small reduction in gross domestic product per capita. The only labour market indicators impacted by the international crisis were the employment structure by educational level and the percentage of registered workers who suffered a slowdown in their improving trends.

Keywords:   Peru, labour market indicators, international crisis, gross domestic product, employment, educational level

20.1 Introduction

This chapter on labour markets and growth in Peru since 2000 is one of sixteen studies of Latin American countries, each of which analyses the growth–employment–poverty nexus and aims to answer the following broad questions: Has economic growth resulted in economic development via improved labour market conditions in Latin America in the 2000s, and have these improvements halted or been reversed since the Great Recession? How do the rate and character of economic growth, changes in the various labour market indicators, and changes in poverty relate to each other?

To answer these questions, we analyse the growth experience of Peru during the 2000s and a wide set of labour market indicators that we assign to one of two different categories: employment and earnings indicators, and poverty and income inequality indicators. More specifically, for the group of employment and earnings indicators we construct statistics on the following variables: the unemployment rate; the employment structure by occupational group, employment position, economic sector, registration of workers with the social security system, and educational level; and mean labour earnings and hourly wages. We present all these indicators for the employed population as a whole and for different population groups (youth, adults, men, and women). For the group of poverty and income inequality indicators, we compute poverty rates using the official moderate and extreme poverty lines and the international lines of 2.5 and 4 dollars a day. We also calculate the Gini coefficient of household per capita income and labour earnings.

All the statistics in this chapter are obtained using microdata from the Encuesta Nacional de Hogares (ENAHO), from 2003 to 2012. The nationwide surveys were processed following a harmonization methodology and incorporated into the SEDLAC—Socio-Economic Database for Latin America and the (p.378) Caribbean (CEDLAS and World Bank 2014).1 The resulting labour market indicators were compiled into a large number of tables and figures, which are available in an earlier version of this study (henceforth, Cruces et al. 2015). Chapter 1 of this book provides the definition for each of the indicators we analyse here, while Cruces et al. (2015) includes details on definitions and classification systems used by Peru’s household surveys, and on comparability issues of these surveys over time.

20.2 Economic Growth

The Peruvian economy performed exceptionally well between 2000 and 2012 with a growth performance that placed the country well above the regional average. The economy proved highly resilient in response to the global economic crisis of 2008. The country suffered a slowdown in 2009 and recovered quickly in 2010. (Cruces et al. 2015: figures 1 and 2)

During the period 2000–12, the Peruvian economy had one of the highest growth rates in Latin America and experienced rapid economic growth by the region’s standards. GDP per capita increased by 71.1 per cent, placing Peru’s growth performance at twice the average of 32.6 per cent for the eighteen Latin American countries during the same period. GDP (measured in PPP dollars of 2005) grew by 97.3 per cent, and GDP per employed person rose by 45.5 per cent. The annual growth rate of GDP per capita was 4.4 per cent, and it varied from a minimum of −1.2 per cent in 2001 to a maximum of 8.6 per cent in 2008 (Table 20.1).

Table 20.1 Peru: Evolution of growth and labour market indicators over the 2000s

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Growth Indicators

GDP per capita

5,514

5,447

5,644

5,797

6,013

6,349

6,765

7,288

7,916

7,904

8,503

8,982

9,431

Peru

GDP per capita growth rate

1.41

−1.20

3.62

2.71

3.71

5.60

6.56

7.72

8.62

−0.15

7.57

5.63

5.01

Peru

Employment and Earnings Indicators

Employment-to-population ratio

68.47

68.02

66.98

68.69

70.42

70.45

70.78

71.14

70.72

70.52

Peru

Unemployment rate

5.06

5.18

5.16

4.54

4.55

4.41

4.29

3.90

3.77

3.45

Peru

Share of low-earnings occupations

61.74

63.18

63.25

61.84

59.37

57.92

55.69

54.82

53.82

52.59

Peru

Share of mid-earnings occupations

25.31

24.43

24.90

25.56

26.52

28.13

29.84

31.01

31.95

32.42

Peru

Share of high-earnings occupations

12.95

12.39

11.85

12.60

14.11

13.95

14.47

14.17

14.23

14.99

Peru

Share of employers

5.31

5.49

5.64

5.60

5.92

5.62

5.65

5.98

5.44

5.59

Peru

Share of wage/salaried employees

39.78

40.96

41.33

43.22

44.58

45.09

45.31

45.22

45.26

46.64

Peru

Share of self-employed workers

37.34

36.00

36.46

35.22

35.85

36.34

36.04

36.56

36.81

36.42

Peru

Share of unpaid family workers

17.57

17.54

16.57

15.96

13.65

12.95

13.00

12.23

12.49

11.35

Peru

Share of workers in low-earnings sectors

44.44

43.97

44.08

43.02

40.17

39.21

38.04

37.10

36.83

35.83

Peru

Share of workers in mid-earnings sectors

44.67

44.79

44.93

45.08

47.36

48.33

48.80

49.94

50.11

50.40

Peru

Share of workers in high-earnings sectors

10.89

11.24

11.00

11.90

12.47

12.46

13.16

12.96

13.07

13.76

Peru

Share of low-educated workers

45.32

44.20

44.29

42.60

39.80

39.06

38.75

38.43

37.87

36.07

Peru

Share of medium-educated workers

37.03

37.67

37.72

38.42

39.25

40.11

39.95

40.31

40.25

40.90

Peru

Share of high-educated workers

17.65

18.13

17.99

18.98

20.95

20.83

21.30

21.26

21.88

23.04

Peru

Share of workers registered with SS

14.85

20.10

19.71

22.57

25.96

26.47

28.82

29.69

30.49

32.39

Peru

Mean labour earnings

408.3

375.3

368.9

386.3

413.7

423.3

449.9

457.8

467.3

486.3

Peru

Poverty and Inequality Indicators

Official extreme poverty rate

26.2

21.3

23.5

19.8

17.7

16.1

14.2

12.2

9.5

9.1

Peru

Official moderate poverty rate

51.6

47.8

51.5

45.7

40.5

37.4

34.6

31.1

27.2

24.9

Peru

Poverty rate 2.5 dollars-a-day

28.29

25.24

27.21

22.98

21.22

17.23

14.61

12.64

12.75

11.07

Peru

Poverty rate 4 dollars-a-day

47.30

44.64

46.67

41.38

37.62

33.55

30.04

26.87

25.80

22.29

Peru

GINI of household per capita income

0.538

0.487

0.493

0.491

0.496

0.469

0.462

0.449

0.457

0.453

Peru

GINI of labour earnings

0.559

0.518

0.522

0.514

0.524

0.513

0.509

0.506

0.496

0.489

Peru

Note: The shaded figures of labour market indicators represent statistical significant improvements at 5 per cent between the initial and final years for all the employment and earnings indicators and poverty and inequality indicators. The only exceptions are the share of mid-earnings occupations, share of mid-earnings sectors, and share of medium-educated workers for which we did not assign welfare evaluation criteria.

Source: SEDLAC (CEDLAS and World Bank 2014) and World Development Indicators (World Bank 2014).

Peru suffered an episode of slow growth at the beginning of the period analysed, between 2000 and 2001, as a consequence of the Russian crisis, which led to a strong reduction in capital inflows to the country and declining terms of trade (Mendoza Bellido 2013). Two factors form the basis for Peru’s economic expansion from 2002 to 2012. First, growing investment, a higher rate of private consumption, and returning capital inflows fuelled the economy. Second, a favourable international environment, characterized by growing foreign demand for Peruvian products and a prolonged period of improvements in its terms of trade, laid the grounds for considerable export growth. Between 2002 and 2009, Peruvian exports grew at an average annual rate of 18.3 per cent. This was driven by an increase in both traditional and non-traditional exports (Guerra 2012). But, while the volume of Peru’s traditional exports—minerals, hydrocarbon, and raw materials—increased mostly due to a price (p.379) (p.380) (p.381) (p.382) boom, exports of a few non-traditional agro-industrial products more than tripled between 2002 and 2008. According to Guerra (2012), Peru did not take advantage of the favourable international climate to further diversify its export base. Consequently, with an economic structure characterized by undiversified exports, and imports that comprised mainly of complementary goods, the country was highly vulnerable to movements in its terms of trade (Mendoza Bellido 2013). The increasing prices for Peru’s products also had a pronounced effect on tax revenues through the income tax paid by the export sector. The increased revenues enabled the Peruvian government to improve public finances. Indeed, following the establishment of the Fiscal Responsibility and Transparency Law in 2001, the government achieved a significant reduction in the fiscal deficit and in the debt-to-GDP ratio (IMF 2013).

The Peruvian economy proved highly resilient in response to the global economic crisis. A deceleration was observed in 2009 when the GDP growth rate was only 0.9 per cent and GDP per capita growth −0.15 per cent. This slowdown was due to a fall in foreign demand for Peruvian products, a dramatic drop in the international prices of Peruvian exports, a reduction in remittances from abroad, and falling investment and external credit (Moron et al. 2009; Rozenberg 2009). However, the economy bounced back the following year, surpassing pre-crisis GDP and GDP per capita levels. Peru’s resilience in the face of the global crisis can be explained by earlier prudent policies like the creation of fiscal and international reserve buffers and the implementation of a timely countercyclical policy response (IMF 2010; Mendoza Bellido 2013). These policies included the injection of liquidity into the system, the reduction in the interest rate by means of central bank policies, and a fiscal stimulus plan.

20.3 Unemployment

The 2003–12 period witnessed a drop in the unemployment rate in the aggregate and for all population groups. The international crisis of 2008 did not affect the downward trend in the unemployment rate in the aggregate and for women, but led to a slight increase in the unemployment rate of men and young workers, while the adult unemployment rate remained unchanged. (Cruces et al. 2015: figure 3)

The unemployment rate (measured as the ratio of the unemployed to the labour force) fell over the period, from 5.1 per cent in 2003 (656,181 unemployed people) to 3.5 per cent in 2012 (573,560 unemployed people) (Table 20.1). The evolution of the unemployment rate can be divided into two stages. It initially kept stable at around 5.1 per cent from 2003 to 2005. (p.383) The unemployment rate then dropped significantly from 2005 to 2012, falling from 5.2 to 3.5 per cent while GDP was growing. The downward trend of the unemployment rate continued even during the Great Recession.

Despite the growth performance over the period, the unemployment rate did not experience a major decline in Peru. Osorio Amezaga (2014) finds a negative and modest association between GDP growth and the unemployment rate (which was −0.12) through the estimation of Okun’s coefficient from 2001 to 2012. This fact cannot be explained by standard arguments that revolve around workers leaving the labour market as soon as they are faced with limited prospects for employment since the participation rate increased over the period analysed. On the other hand, the widespread failure to comply with laws mandating employment benefits and labour protection should encourage employers to hire more workers during periods of expansion. The author concludes that the low output elasticity of unemployment can be attributed to particularities of the Peruvian labour market.

The unemployment rate fell for young and adult workers, men, and women between 2003 and 2012. The unemployment rates of all population groups were essentially unchanged from 2003 to 2005, and began a downward trend from 2005 to 2012. The declining pattern was not interrupted by the international crisis for women, but the unemployment rate of young workers and men suffered a slight increase. By 2010, men had recovered the pre-crisis level of unemployment. Young workers returned to their pre-recession unemployment rate in 2012. The unemployment rate of adult workers stopped decreasing during the international crisis but recovered the downward trend immediately. The World Bank (2010) claims that the small effect of the international crisis on the unemployment rate in Peru could be explained by an increase in the share of unregistered or informal labour relationships in total employment, which eased the adjustment process in the presence of wage rigidities and employment protection legislation.

20.4 Job Mix

The composition of employment by occupational group improved between 2003 and 2012 as workers moved from agricultural, forestry and fishery occupations, and elementary jobs to better paying occupations like professional and technical jobs. All demographic groups—young and adult workers, men, and women—benefited from the improvement in the occupational composition of employment over the period. The international crisis of 2008 did not affect the improving trend in the composition of employment by occupational group. (Cruces et al. 2015: figure 4)

(p.384) The share of the following occupations shrank between 2003 and 2012: elementary occupations (drop of 7.8 percentage points) and agricultural, forestry, and fishery jobs (drop of 2.5 percentage points). The share of the following occupations grew: clerical (increase of 2.5 percentage points); services and sales workers (increase of 2.7 percentage points); plant and machine operators (increase of 1.9 percentage points); and technicians and associate professionals (increase of 1.2 percentage points). The share of the other occupational groups remained largely unchanged. These changes in the occupational composition of employment can be interpreted as an improvement, since low-earning occupations (agricultural, elementary, and crafts and trades occupations) reduced their share in total employment by 9.2 percentage points between 2003 and 2012, while high-earning occupations (management, professionals, and technicians and associate professionals) gained share in total employment (increase of 2.0 percentage points) (Table 20.1). These changes resulted in an increase in the share of mid-earning occupations (services and sales occupations, plant and machine operators, clerical jobs, and armed forces) in total employment over the period (increase of 7.1 percentage points).

The improvements in the occupational composition of employment between 2003 and 2012 were observed for young and adult workers and for men and women. The decrease in the rate of working in low-earning occupations in total employment was larger among youth compared to adult workers as was the increase in the rate of working in high-earning occupations. When the analysis is broken down by gender, women experienced a larger reduction in the share of employment in low-earning occupations compared to men, but a lower increase in share of high-earning occupations in total employment.

The international crisis of 2008 did not adversely affect the improvement in the composition of employment by occupational group. Between 2008 and 2009, the share of low-earning occupations continued to fall in the aggregate and for all population groups, while the share of high-earning occupations increased overall and for adult workers, men, and women. For young workers, though, a slight reduction in the share of high-earning occupations resulted in an increase in the share of mid-earning occupations. The share of high-earning occupations in total employment reached and surpassed the pre-crisis level by 2010 for young workers.

The employment structure by occupational position improved from 2003 to 2012 as the share of paid employees and employers in total employment increased and the share of self-employed and unpaid workers decreased. The improving trend in the composition of employment by occupational position was experienced by young and adult workers, men, and women. The international crisis of 2008 did (p.385) not affect adversely the improvement in the structure of employment by occupational position for the employed population overall, for young workers, adults, and men, but led to a standstill for women. (Cruces et al. 2015: figure 5)

Between 2003 and 2012, the share of paid employees in total employment—the largest category—grew from 39.8 to 46.6 per cent. The share of employers also increased, but slightly, from 5.3 to 5.6 per cent. The shares of the self-employed and unpaid workers decreased over the period. The reduction was from 37.3 per cent in 2003 to 36.4 per cent in 2012 for the self-employed, and from 17.6 to 11.4 per cent for unpaid workers (Table 20.1). These changes can be characterized as an improvement of the employment structure by occupational position, as the share of low-earning categories (self-employment and unpaid employment) dropped by a total of 7.2 percentage points and the share of high-earning categories (paid employees and employers) increased.

The employment structure by occupational position improved between 2003 and 2012 for all population groups (young and adult workers, men, and women).

The international crisis of 2008 did not reverse the improvements that had been taking place for the employed population overall and for young workers, adults, and men, while there was a worsening for women. The share of low-earning positions recovered the previous downward trend in 2010 for women.

The employment composition by economic sector improved over the course of the period studied overall and for all population groups. The international crisis of 2008 did not interrupt the improving trend in the structure of employment by economic sector. (Cruces et al. 2015: figure 6)

The period 2003–12 witnessed a reduction (from 44.4 per cent to 35.8 per cent) in the share of workers in low-earning sectors (primary activities, domestic service, and low-tech industry). There was, during the same period, an increase (from 10.9 per cent to 13.8 per cent) in the share of high-earning sectors (skilled services, public administration, and high-tech industry) in the total (Table 20.1). These changes resulted in an increase in the share of mid-earning sectors in total employment over the period. Despite the improvement in the employment structure by economic sector, a large portion of workers remained employed in sectors like primary activities (26.8 per cent in 2012) and commerce (26.2 per cent in 2012); these sectors tend to have a low degree of formalization and pay low wages (Guerra 2012).

The employment composition by economic sector improved between 2003 and 2012 for young and adult workers, men, and women, as they moved from low-earning sectors to high-earning sectors.

The international crisis of 2008 did not halt the improving trend in the employment composition by economic sector overall and for all population groups. Between 2008 and 2009 the share of low-earning sectors continued to (p.386) decrease, while the share of high-earning sectors in total employment kept on increasing in the aggregate and for young, adult workers, men, and women. The continued improvement in the structure of employment by economic sector despite the international crisis in the aggregate and for all population groups, can be explained by the reduction in the share of workers in the primary activities sector, which includes the mining subsector in our classification, and by the reduction in the share of workers in the low-tech industry sector in total employment between 2008 and 2009. That occurred as a consequence of the drop in the exports of minerals, hydrocarbons, and agro-industrial products. As the primary activities and low-tech industry sectors are low-earning sectors in Peru, the reduction of their share in total employment implied an improvement in the labour market.

The educational level of the Peruvian employed population improved steadily over the period for all population groups, and especially among young workers. The international crisis of 2008 led to a slowdown in the falling trend of the share of employed workers with low educational levels in the aggregate and for all population groups. (Cruces et al. 2015: figure 7)

The share of employed workers with low educational levels (eight years of schooling or less) dropped from 45.3 per cent in 2003 to 36.1 per cent in 2012, while the share of workers with medium and high educational levels (nine to thirteen years of schooling and over thirteen years of schooling) grew from 37.0 per cent in 2003 to 40.9 per cent in 2012 and from 17.7 per cent to 23.0 per cent respectively (Table 20.1).2 We interpret this result as an improvement for the employed population as the level of education is an important predictor of labour earnings. Consequently, the changes in the employment structure by educational level implied an increase in the share of workers that tend to have high levels of earnings and a decline in the share of workers with low earnings levels.3

The educational level of the employed population improved between 2003 and 2012 for all groups and especially for young workers.

The international crisis of 2008 led to a slowdown in the improving trend in the structure of employment by educational level overall and for all population groups. Between 2008 and 2009, the share of employed workers with low levels of education continued to fall, but at a slower pace than before the crisis. The pattern of slowdown in the improving trend in the structure of (p.387) employment by educational level took place for young and adult workers, men, and women.

The overall share of workers registered with the social security system increased over the period analysed. Nonetheless, the share of unregistered workers in Peru is still very high, despite sustained economic growth. The international crisis of 2008 led to a slowdown in the upward trend of the registration rate. (Cruces et al. 2015: figure 8)

The Peruvian social security system comprises contributory schemes and non-contributory schemes (Lavigne 2013). The contributory scheme of the pension system is composed of four regimes: (1) the Sistema Nacional de Pensiones, which covers both private- and public-sector employees; (2) the Cédula Viva, which is a special regime that covers teachers that started working before 1980, workers at state companies, and magistrates; (3) the Sistema Privado de Pensiones, which is an individual capitalization system; and (4) the Fondo de Pensiones Sociales, which is a voluntary pension system for workers who are not covered by any of the other regimes. The public contributory regimes are funded by employers, employees, and the government, while the private regime is funded by worker contributions. The Peruvian social security system also offers two non-contributory pensions for the vulnerable elderly who did not contribute to a pension fund or whose contributions do not allow them to receive a decent pension: the Pensión Mínima de Vejez and the Pensión Nacional de Asistencia Solidaria. The contributory scheme of the health insurance system is composed of two regimes, EsSalud and the Sanidades de las Fuerzas Armadas y de la Policía Nacional, which are compulsory for wage earners and members of cooperatives from both the private and public sectors and for independent workers that decide to affiliate, and for personnel from the army and police forces respectively. Finally, the Seguro Integral de Salud is the non-contributory scheme of the health insurance system and covers the non-insured population, with a specific focus on undernourished children and elderly living in poverty and extreme poverty.

The share of workers registered with the contributory schemes of the social security system (public and private) increased by 17.5 percentage points during the 2000s, climbing from 14.9 per cent in 2003 to 32.4 per cent in 2012 (Table 20.1). The government of Peru instituted a set of policies designed to improve working conditions over the period. Those measures included a special regime for small enterprises which provides tax incentives and reduces labour obligations, such as payment for unjustified dismissal. In addition, the Fondo de Pensiones Sociales (FPS) was created. Small enterprises were not obliged to contribute to any social protection system before the creation of the FPS. Since its creation in 2008, small-enterprise workers can voluntarily access the FPS which includes a government co-payment. In terms of health (p.388) insurance, the obligation to contribute to Essalud for small-enterprise workers was eliminated and government–worker co-financing was established for affiliating workers to the Seguro Integral de Salud (ILO 2014). Available evidence indicates that these policies did not have an important effect on the formalization of workers (Díaz 2014). On the contrary, they may have contributed to the deterioration in working conditions. Vidal Bermúdez et al. (2012) point out that the increase in the registration of workers with the social security system during the 2000s occurred through the set-up of the Seguro Integral de Salud, which offers a minimum coverage with standards that are below those of the contributory health insurance scheme, and through temporary contracts. A further institutional change was the implementation of an electronic system through which employers with three or more workers must send monthly reports to the National Tax Authority indicating the number of workers, service providers, personnel in training, and outsourced workers. This administrative change increased the Ministry of Labour’s capacity to supervise and monitor compliance with labour obligations. It is estimated that the introduction of the electronic system contributed to the registration of jobs (ILO 2014).

The tendency towards formalization was slightly affected by the economic crisis of 2008. The growth in the share of registered workers slowed down after the Great Recession, though not immediately. In 2009 alone, the share of registered workers rose by 2.4 percentage points, whereas the increases in 2010 and 2011 were only 0.9 and 0.8 percentage points respectively. The World Bank (2010) claims that unregistered employment in Peru may have eased the adjustment process during the Great Recession in a labour market characterized by wage rigidities and rigid labour market regulations. Despite sustained economic growth in Peru, the share of registered workers continues to be very low (32.4 per cent in 2012). Questions remain, then, about the ability of the country to turn growth in employment into an increase in employed workforce formalization (Guerra 2012). Chacaltana and Yamada (2009) also point out that the pronounced growth in employment has meant an increase in both formal and informal employment. Indeed, between 2003 and 2012, the number of registered workers increased from 2,371,403 to 6,531,140 (4,159,737 new registered workers), while the number of unregistered workers also rose from 15,612,469 to 16,231,855 (619,386 new unregistered workers).

Failure to register with the social security system is a long-standing problem in Peru. First, a demographic change at the beginning of the twenty-first century meant an increase in the economically active working-age population that could not be absorbed into the wage/salaried employment sector. As a result, there was an increase in low-productivity self-employment (Garavito 2010). Self-employed workers account for the majority of unregistered workers in the country. For this occupational position, the rate of unregistered workers (p.389) fell from 96.1 per cent in 2003 to 84.1 per cent in 2012. For wage/salaried employees the rate of unregistered workers dropped from 68.7 per cent in 2003 to 47.7 per cent in 2012. Second, the Peruvian labour market has restrictive labour market regulations, which have contributed to the increase in unregistered employment (Toyama et al. 2009; World Bank 2010).

The rate of registration with the social security system increased for all population groups (young and adult workers, men, and women). Young workers are the least likely to be registered with the social security system, and while the share of young workers enrolled increased over the period, adult workers were at the forefront of the trend towards registration. Men were more likely to be registered in the system than women, and the rate of registration increased more dramatically for them compared to women over the period. The rate of registration with the social security system continued to increase for young workers, adults, men, and women during the international crisis.

20.5 Labour Earnings

Labour earnings increased between 2003 and 2012. Within the period, there was a reduction between 2003 and 2005 and a steady increase in the following years. Labour earnings increased overall, for young and adult workers, men, and women. The evidence of earning changes by employment category over the period indicates that low-earning categories increased their earnings, while high-earning categories tended to suffer earnings reductions. Workers were not affected negatively by the 2008 crisis in the aggregate, but some employment categories suffered earnings losses. (Cruces et al. 2015: figure 9)

Average monthly earnings, expressed in PPP dollars of 2005, increased by 19.1 per cent, from US$408 in 2003 to US$486 in 2012 (Table 20.1). Labour earnings decreased at the beginning of the period—between 2003 and 2005—and grew steadily in the following years. From 2003 to 2008, GDP per capita grew by 5.8 per cent a year, but the annual increase in real labour earnings and hourly wages was just 0.7 and 0.9 per cent respectively. Two reasons have been presented to explain the real wages stagnation in Peru despite rapid economic growth. First, the increase in labour supply may have compensated for the increase in labour demand; or a highly elastic labour supply may have allowed for an increase in the employment level without increases in hourly wages (World Bank 2010). Second, the predominant type of contract in Peru is the temporal contract which limits the access of workers to trade unions, which are the main tool they have to increase their wages (p.390) (Vidal Bermúdez et al. 2012). Real labour earnings were not affected negatively by the Great Recession. In fact, in 2009 real earnings exhibited the largest annual growth rate of the period. The increase in real labour earnings during the international crisis can be explained by the reduction in the inflation rate (World Bank 2010).

Men, women, and young and adult workers all increased their labour earnings between 2003 and 2012. The trend in their labour earnings reflected the overall time path, with reductions from 2003 to 2005 and increases thereafter. Average earnings rose between 2003 and 2012 for workers employed in low-earning employment categories and tended to fall for workers in high-earning categories. Among occupational groups, agricultural, forestry, and fishery workers, workers in elementary occupations, and crafts and trades workers had an average increase in their labour earnings, while workers in management, professionals, and technicians had an average earnings reduction between 2003 and 2012. When the employed population is broken down by occupational position, the self-employed had a larger increase in labour earnings compared to employers and paid employees. Among economic sectors, workers in primary activities, domestic workers, and workers in low-tech industries increased their labour earnings over the period, while workers in high-earning sectors like skilled services, public administration, and high-tech industries suffered an earnings loss. Finally, labour earnings of workers with high educational levels fell, while workers with medium and low levels of education enjoyed an increase in their labour earnings.

The evidence of falling labour earnings for workers with high educational levels and labour earnings increases for workers with medium and low levels of education can be interpreted in light of previous findings of improving employment structure by occupational group and economic sector over the period. The improving employment structure by occupational group and economic sector implied an increase in the share of occupations and sectors that can be expected to use workers with high and medium levels of education, like professional and technical occupations, public administration, skilled services, and high-tech industry sectors, and a reduction in the share of occupations and sectors that employ workers with low educational levels, like elementary and agricultural occupations, domestic service, and primary activities sectors. This evidence indicates that the demand for workers with high and medium educational levels relative to those with low educational levels increased between 2003 and 2012. On the other hand, the educational levels of persons in the labour force improved over the same period, indicating an increase in the relative supply of workers with high and medium levels of education (Cruces et al. 2015: table 8). The prediction of a supply and demand analysis is that the relative wages of workers with high and medium educational (p.391) levels relative to those with low educational levels will rise or fall depending on which effect dominates (increase in the relative demand versus increase in the relative supply). In the Peruvian labour market, the relative wages of workers with high and medium educational levels relative to those with low educational levels fell over the period, and the relative wages of workers with high educational levels relative to those with medium educational levels also decreased (Cruces et al. 2015: table 7). The adjustment process also led to a reduction in the unemployment rate of all educational groups with a larger reduction for workers with medium levels of education (Cruces et al. 2015: table 9).

Even during the international crisis of 2008, labour earnings continued to grow, overall and for all demographic groups. However, some employment categories were impacted adversely by the crisis. Among occupational groups, workers in the armed forces and technicians were affected negatively by the international crisis of 2008. Workers in both occupations recovered their pre-crisis level of earnings in 2012. Among occupational positions, employers were the only group impacted negatively by the international crisis of 2008. Employers returned to their pre-recession level of labour income in 2010. Among economic sectors, workers in the utilities and transportation sector were affected negatively by the crisis but returned in 2010 to their pre-crisis level of earnings.

20.6 Poverty and Inequality

Poverty fell between 2003 and 2012 for all poverty lines used. The rate of working poor households also exhibited a decreasing trend. The pattern of poverty reduction over time was not interrupted by the international crisis of 2008. (Cruces et al. 2015: figure 10)

The moderate poverty rate (measured by the country’s official poverty line) fell from 51.6 per cent in 2003 to 24.9 per cent in 2012; the extreme poverty rate dropped from 26.2 per cent to 9.1 per cent; the percentage of the working poor (defined as the proportion of persons in the population living in poor households where at least one member works) decreased from 42.7 per cent to 20.1 per cent over the same period (Table 20.1). These indicators decreased consistently every year but 2005, when they had an increase. Thus, in Peru there was a negative correlation between economic growth and poverty. García Carpio and Céspedes Reynaga (2011) computed growth–poverty elasticities for the period 2001–10 using Kakwani’s (1990) methodology. They found that growth–poverty elasticities increased in absolute terms over the period and changed from being positive in 2001 (0.9) to negative in 2010 (−1.7). The (p.392) authors also found that economic growth was pro-poor in Peru between 2001 and 2010, using the measures proposed by Kakwani and Pernia (2000) and Kakwani and Son (2002).

An analysis based on the 2.5 and 4 dollars-a-day PPP international poverty lines also shows a drop in the poverty rate from 2003 to 2012 and a negative association between the poverty rate and the growth of the economy. The poverty rate based on those measures fell between 2003 and 2004, increased from 2004 to 2005, and began a downward trend up to the end of the period. The international crisis of 2008 did not affect the pattern of poverty reduction. However, the growth–poverty elasticity was largely unchanged between 2008 and 2009 while it had shown an increasing pattern in absolute value in the previous years, and the pro-poor growth index indicates that the growth was not pro-poor during the international crisis (García Carpio and Céspedes Reynaga 2011).

The poverty patterns reported in the last paragraph can be understood by examining incomes from various sources. The analysis of sources of household total income indicates that labour income and income from transfers (public and private) increased between 2003 and 2012, while income from capital and pensions suffered a slight reduction over the same period (Cruces et al. 2015: figure 11). The increase in labour earnings (30.7 per cent between 2003 and 2012) was the most important factor to explain the increase in household total income over the period.

Household per capita income and labour earnings inequality decreased between 2003 and 2012. The international crisis of 2008 did not affect the downward trend in the inequality indices. (Cruces et al. 2015: figure 12)

Household per capita income and labour earnings inequality decreased while GDP increased over the period. The Gini coefficient of household per capita income fell from 0.538 in 2003 to 0.453 in 2012. This indicator fell at the beginning of the period from 0.538 in 2003 to 0.487 in 2004, a level it maintained until 2007. The downward trend continued in 2007 until 2011, when a new increase set in. Throughout the period, the Gini coefficient of labour earnings among employed workers was higher than that of household per capita income, and fell from 0.559 in 2003 to 0.489 in 2012 (Table 20.1); this reduction in labour earnings inequality is in accord with the evidence presented in section 20.5 showing earnings increases for workers employed in low-earning categories and earnings reductions for workers in high-earning categories. Consequently, the reduction in labour earnings inequality in Peru occurred at the expense of income losses for some categories. The evolution of the Gini coefficient of labour earnings over time was similar to the trend shown by the Gini coefficient of per capita household income.

(p.393) Several studies have found that the reduction in both labour and non-labour income inequality contributed to the reduction in household income inequality. Urrutia (2014) and Jaramillo and Saavedra (2011) presented evidence of the reduction in labour income inequality. They found that the relative wage of workers with high and medium levels of education decreased during the 2000s mainly as a result of the increase in their labour supply. The importance of non-labour income to explain the reduction in household income inequality in Peru was analysed by Yamada et al. (2012) and Jaramillo and Saavedra (2011). Yamada et al. (2012) found that 25 per cent of the reduction in the Gini coefficient of household per capita income between 2006 and 2010 can be accounted for by government transfers, like Programa JUNTOS. Jaramillo and Saavedra (2011) claimed that the pro-poor orientation of social spending in Peru and the improvement in access to public services were the main factors to explain the reduction in income inequality during the 2000–6 period.

20.7 Conclusions

From 2000 to 2012, the Peruvian economy performed exceptionally well, with a growth performance that placed the country well above the regional average. The economy suffered a slowdown as a consequence of the international crisis of 2008, but Peru continued to grow during that episode.

All labour market indicators improved between 2003 and 2012. The unemployment rate was always low and fell moderately. The composition of the employed population by occupational group improved over the period as workers moved from agricultural, forestry, and fishery occupations and elementary jobs to better-paying occupations like professional and technical jobs. The employment structure by occupational position also improved through the reduction in the share of self-employed and unpaid workers in total employment and the increase in the share of paid employees and employers. Workers moved from low-earning economic sectors like primary activities, domestic service, and low-tech industry to high-earning sectors such as skilled services, public administration, and high-tech industry. Moreover, the educational level of the Peruvian employed population, the overall share of workers registered with the social security system, and labour earnings all increased between 2003 and 2012. The evidence of labour income changes by employment categories indicates that low-earning categories increased their earnings, while high-earning categories tended to suffer earnings reductions. The moderate and extreme poverty rates and the rate of working poor households showed important reductions between 2003 and 2012, as did the Gini coefficient of per capita household income and labour earnings.

(p.394) Looking specifically at the international crisis of 2008, the only labour market indicators that were affected by the crisis were the employment structure by educational level and the share of employment registered with the social security system which suffered a slowdown in their upward trends. The comparison between the effects of the international crisis of 2008 on labour market indicators and the effects generated by the recession at the beginning of the decade (2000–1) reveals that the crisis at the beginning of the 2000s impacted Peru more strongly. The crisis of 2000–1 generated a larger reduction in GDP per capita and increases in the unemployment rate and in the shares of workers in low-earning occupational groups and economic sectors, while the unemployment rate and the shares of workers in low-earning occupational groups and sectors continued to decrease during the Great Recession. Other labour market indicators improved during both crises. The smaller negative impacts of the international crisis compared to the recession at the beginning of the decade can be explained by the prudent policies the government implemented after the 2000–1 crisis, like the creation of fiscal and international reserve buffers, and the implementation of timely countercyclical policy responses that were not available in the first recessionary episode.

Young workers and women had worse labour market outcomes over the period compared to adults and men respectively, and while women seem to be more vulnerable to macroeconomic crises compared to men, young workers and adults were slightly and equally affected by the crises. The unemployment rate was higher for young compared to adult workers, the shares of young employed workers in low-earning occupational groups and economic sectors were larger than the shares of adult workers, the percentage of young workers registered with the social security system was lower when compared to adults, and labour earnings of young workers were below those of adults. On the other hand, the share of young workers in low-earning occupational positions was lower compared to adults. Despite the generally inferior situation of young workers in the labour market compared to adults, youth were slightly affected by the episodes of crises and the same was true for adult workers. Disaggregating by gender, we found that men had better labour market outcomes than women, with the only exception being the share of workers in low-earning occupations that was larger among men. Both men and women were slightly affected by the macroeconomic crises. The negative impacts were larger for women compared to men, as they suffered a larger increase in the unemployment rate and in the shares of workers in low-earning positions and economic sectors.

In summary, all population groups were quite resilient to macroeconomic crises, and labour market conditions were in a better state in 2012 than they were at the start of the millennium.

(p.395) References

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Notes:

(1) See Cruces et al. (2015: table 1) for details on the size of Peru household surveys.

(2) The most frequent value of years of education for employed workers in Peru was eleven during the entire period (around 24.6 per cent of employed workers had eleven years of education).

(3) The improvement in the employment structure by educational level is related to changes in the relative demand and supply of workers with high educational levels with corresponding implications for the wage gap by educational groups and the unemployment rate of each educational level. We introduce a discussion about the role of these factors in Peru in section 20.5.