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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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Changing Labour Market Indicators and the Rate of Economic Growth in Latin America during the 2000s

Changing Labour Market Indicators and the Rate of Economic Growth in Latin America during the 2000s

Chapter:
(p.31) 3 Changing Labour Market Indicators and the Rate of Economic Growth in Latin America during the 2000s
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/9780198801085.003.0003

Abstract and Keywords

The Latin American region exhibited an increase in gross domestic product per capita during the 2000s, an improvement in all employment and earnings indicators, and poverty and inequality reductions. On a country-by-country basis, all Latin American countries exhibited positive GDP per capita growth rates during the 2000s. Most countries experienced substantial improvements in labour market conditions over the period, Honduras being the only exception to this general pattern. Finally, the growth rates of most countries in the region were negatively affected by the international crisis of 2008, which also affected several labour market indicators in the worsening direction. Most labour market indicators had fully or partially recovered by 2012–13.

Keywords:   Latin America, gross domestic product, employment, poverty, inequality, labour market indicators

3.1 Economic Growth Rate and Changes in Labour Market Indicators in the Latin American Region as a Whole

The Latin American region exhibited an outstanding performance in terms of GDP per capita growth and improvements in labour market indicators over the 2000s. Figure 3.1 provides the evolution over time of the unweighted average (counting each country with a weight of 1 regardless of the size of its population) of GDP per capita at 2005 PPP, and of each of the sixteen labour market indicators, from 2000 to 2012.

Changing Labour Market Indicators and the Rate of Economic Growth in Latin America during the 2000sChanging Labour Market Indicators and the Rate of Economic Growth in Latin America during the 2000s

Figure 3.1 Evolution of GDP per capita and labour market indicators in the Latin American region: Unweighted average 2000–12

Note: All series represent the unweighted averages across the sixteen Latin American countries in our sample. In the years when we do not have data for a particular country, we use a linear extrapolation. In the cases where we do not have data for the initial or final year, we impute the value of the following or previous year.

Source: Authors’ calculations based on SEDLAC (CEDLAS and World Bank 2014) and World Development Indicators (World Bank 2014).

Between 2000 and 2012, average GDP per capita grew by 35.2 per cent in the Latin American region, a growth rate nearly three times larger than in developed countries. The corresponding figures for OECD countries and the United States in particular were 12.4 and 10.7 per cent respectively (World Bank 2014). All employment and earnings indicators improved for the average of the region during the 2000s. Just to mention a few examples, the average unemployment rate across the sixteen countries fell from 8.7 per cent in 2000 to 5.7 per cent in 2012, the share of registered workers increased from 40.2 to 46.9 per cent over the same period, and the share of unpaid family workers in total employment declined from 6.8 to 5.5 per cent. All poverty and income inequality indicators improved as well. The moderate and extreme poverty rates exhibited sharp reductions from 2000 to 2012. The 4 dollars-a-day poverty rate fell from an average of 40.4 per cent in 2000 to 20.4 per cent in 2012, while the 2.5 dollars-a-day poverty rate decreased from 23.9 to 12.8 per cent over the same period. The Gini coefficient of household per capita income decreased from 0.531 in 2000 to 0.477 in 2012 and the Gini coefficient of labour earnings from 0.515 to 0.468. (p.32)

(p.33) (p.34) Other studies have also documented these trends. Weller (2014) studies the experience of most countries in Latin America and the Caribbean for the years 2003–12. The author documents the remarkable growth experience of the region, as well as improvements in labour market outcomes over the same period: an important reduction in the unemployment rate; an improvement in employment quality indicators, such as wages, share of workers registered with social security, share of self-employed and wage/salaried employees, sectoral composition of employment, and level of education of employed workers; and a reduction in the wage gap between highly and low-educated workers. The World Bank (2015) report documents similar trends in GDP and labour market indicators (labour earnings, educational level of the workforce, and employment position for the sample of low-educated workers). ECLAC-ILO (2015) also relates the remarkable progress in reducing poverty during 2002–12 in the Latin America region to labour market trends, highlighting the importance of strong job creation (especially in wage/salaried positions) and public policies, such as minimum-wage increases, formalization of workers, and expanding coverage of education and social protection systems.

In summary, from beginning to end in the region as a whole, GDP per capita grew, all employment and earnings indicators improved, and poverty and inequality indicators fell remarkably.

3.2 Economic Growth Rate and Changes in Labour Market Indicators Country by Country

The growth experience during the 2000s was positive for all Latin American countries: all countries in the region experienced an increase in their GDP per capita. Each of the country chapters presents an overview of other studies covering national growth trajectories over this period. Table 3.1 presents annualized growth rates of GDP per capita for each country in our sample for the years for which we have detailed labour market indicators (starting in c.2000 and up to c.2012). The figures in the table indicate positive growth rates overall, with most countries close to the region’s average growth rate of 2.9 per cent per year. However, a small number of countries grew at comparatively modest rates (0.8 per cent per year in Mexico, 1.4 per cent per year in El Salvador, and 1.7 per cent per year in Venezuela), while others experienced particularly large growth rates by Latin American standards (5.6 per cent in both Panama and Peru).

Table 3.1 Annualized growth rates of GDP per capita (at PPP 2005) for different time periods by country

Country

Initial year

Final year

Annualized growth rate of GDP per capita

Initial–final

2000–12

2000–8

2008–9

2009–12

AR

2000

2012

3.57

3.57

3.25

−0.03

4.22

BO

2000

2012

2.24

2.24

1.98

1.71

2.33

BR

2001

2012

2.41

2.20

2.42

−1.22

2.07

CL

2000

2011

2.96

3.10

3.13

−1.97

3.55

CO

2002

2013

3.18

2.76

2.79

0.21

2.63

CR

2001

2009

2.92

2.69

3.11

−2.49

2.49

DO

2000

2012

3.62

3.62

3.68

2.05

2.99

EC

2003

2012

2.96

2.63

2.74

−1.10

2.68

HN

2001

2012

2.14

2.01

2.94

−4.36

1.30

MX

2000

2012

0.85

0.85

0.92

−5.89

2.23

PA

2001

2012

5.59

5.12

4.50

2.06

5.81

PE

2003

2012

5.56

4.58

4.63

−0.15

4.51

PY

2001

2013

2.40

1.22

1.29

−5.65

2.56

SV

2000

2012

1.45

1.45

2.19

−3.63

0.91

UY

2000

2012

3.13

3.13

2.19

1.89

4.53

VE

2000

2012

1.67

1.67

2.71

−4.77

0.85

Average

2.92

2.68

2.78

−1.46

2.85

Note: The column Initial–Final shows the annualized growth rate for the period we have household surveys data available for each country. The following columns provide the annualized growth rate for comparable periods across countries.

Source: Authors’ calculations based on World Development Indicators (World Bank 2014).

Increases in GDP per capita were accompanied by generalized improvements in labour market indicators over time for most countries in our sample. The rest of this section details these improvements: we succinctly describe the (p.35) evolution of each of the sixteen labour market indicators in each country. We do so in two ways, first by presenting the changes in the indicators one by one (%Δ‎Yik or Δ‎Yik, i=AR, BO,…,VE and k=1,…,16) and then by aggregating them into an index Zi.

Table 3.2 presents the qualitative changes over time in each of the sixteen selected labour market indicators for each country. We define these changes so that a positive value always signifies a welfare improvement (e.g. decrease in unemployment rate instead of change in the unemployment rate). The ‘+’ sign in a cell indicates that for that indicator and country, there was a change in the welfare-improving direction from the first survey year to the last and this change was statistically significant at the 5 per cent level. The ‘−’ sign indicates the opposite, that is, the labour market indicator changed in the welfare-worsening direction for that country over the years under study, and that change was statistically significant at the 5 per cent level. Finally, the ‘NC’ in a cell refers to no statistically significant change.

Table 3.2 Qualitative changes in labour market indicators from initial to final year by country

Indicator

AR

BO

BR

CL

CO

CR

DO

EC

HN

MX

PA

PE

PY

SV

UY

VE

Unemployment

Decrease in the unemployment rate

+

+

+

+

+

NC

+

+

+

+

+

+

+

+

Occupations

Decrease in the share of low-earnings occupations

+

+

+

+

+

NC

+

+

+

+

+

+

+

Increase in the share of high-earnings occupations

+

+

+

+

+

+

+

NC

+

+

+

NC

+

+

Occupational position

Increase in the share of wage/salaried employees

+

+

+

+

+

+

+

+

+

NC

+

+

Decrease in the share of self-employment

+

+

+

NC

+

NC

+

+

+

+

+

NC

Decrease in the share of unpaid family workers

+

+

+

+

NC

+

NC

NC

+

NC

+

+

+

+

Economic Sector

Decrease in the share of workers in low-earnings sectors

NC

+

+

+

+

+

+

+

+

+

+

+

+

Increase in the share of workers in high-earnings sectors

+

+

+

+

+

+

+

+

NC

+

+

+

+

NC

NC

+

Education

Decrease in the share of low-educated workers

+

+

+

+

+

+

+

+

+

+

+

+

+

+

+

+

Increase in the share of high-educated workers

+

+

+

+

+

+

+

+

+

+

+

+

+

+

+

+

Workers registered with SS

Increase in the share of workers registered with SS

+

+

+

+

+

+

+

+

+

+

+

+

NC

Earnings

Increase in mean labour earnings

+

+

+

+

+

+

+

+

+

+

+

Poverty

Decrease in 4 dollars-a-day poverty

+

+

+

+

+

+

+

+

+

+

+

+

+

+

+

Decrease in 2.5 dollars-a-day poverty

+

+

+

+

+

+

+

+

+

+

+

+

+

+

+

Inequality

Decrease in GINI of household per capita income

+

+

+

+

+

NC

+

+

+

+

+

+

+

+

+

Decrease in GINI of labour earnings

+

+

+

+

+

NC

+

+

+

+

+

+

+

+

+

Number of improving indicators

13

16

16

13

12

13

10

13

3

12

15

16

15

10

14

14

Total number of indicators

14

16

16

16

16

16

16

16

16

16

16

16

16

16

16

16

% of improving indicators

93

100

100

81

75

81

63

81

19

75

94

100

94

63

88

88

Note: The table summarizes the changes in each labour market indicator from initial to final year of the period indicated in Table 3.1, except for some countries where the classification of occupations and/or the definition of registered workers are not comparable over the entire period. See each country chapter for more details. References: + denotes improvement; − denotes worsening; NC denotes no changes. All the improvements and worsenings are statistically significant at 5 per cent level.

Source: Authors’ calculations based on SEDLAC (CEDLAS and World Bank 2014).

Figure 3.2, in turn, depicts the evolution over time for each specific labour market indicator in each country. Here, the data are presented untransformed, so that for example the unemployment rate in Argentina first rose and then fell, ending up much lower at the end of the period than at the beginning. (p.36) (p.37) (p.38) (p.39) Adding yet further detail, we include the underlying time series to each graph; please see Appendix 1 for country-by-country presentations.

Changing Labour Market Indicators and the Rate of Economic Growth in Latin America during the 2000sChanging Labour Market Indicators and the Rate of Economic Growth in Latin America during the 2000s

Figure 3.2 Evolution of labour market indicators over time by country

Note: Shaded figures indicate that there was an improvement from initial to final year that was statistically significant at 5 per cent level. Vertical lines indicate that the series to the left and the right are not fully comparable. In these cases, the shadow corresponds to the larger comparable period for each indicator–country cell.

Source: Authors’ calculations based on SEDLAC (CEDLAS and World Bank 2014).

3.2.1 Analysis of the Labour Market Indicators One by One (Yk)

Looking at the employment and earnings indicators, here is how they changed over time.

Unemployment rates fell in most of the countries (thirteen out of sixteen countries over the 2000s); they were Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Honduras, Panama, Peru, Paraguay, El Salvador, Uruguay, and Venezuela. However, there were statistically significant increases in unemployment in Costa Rica and Mexico and no significant change in the Dominican Republic.

There was also a generalized improvement in the job mix in most countries in the sample for which these indicators are available (the distributions of workers among occupations, occupational positions, sectors, and educational levels). The most consistent changes in the job mix were the improvement in the educational level of the employed population and in the distribution of employment by economic sector. The educational level of the employed population improved in all countries in the sample: the share of employed workers with low educational levels diminished at the same time that the share of employed workers with high educational levels increased. The sectoral composition of employment improved in thirteen countries (Argentina, Bolivia, Brazil, Costa Rica, Dominican Republic, Ecuador, Mexico, Panama, Peru, Paraguay, El Salvador, Uruguay, and Venezuela): either the share of low-earnings sectors decreased (with no change in the share of high-earnings sectors) or the share of high-earnings sectors increased (with no change in the share of low-earnings sectors) or both. For ten countries (Bolivia, Brazil, Costa Rica, Dominican Republic, Ecuador, Mexico, Panama, Peru, Paraguay, and Venezuela), there was both a decline in the share of low-earnings sectors and an increase in the share of high-earnings sectors. For two countries, only the share of low-earnings sectors improved (El Salvador and Uruguay), and for one country (Argentina), there was only an increase in the share of high-earnings sectors. For the remaining three countries that did not follow the general trend, the changes were ambiguous for Chile and Colombia (where there were increases in both shares), and there was a deterioration for Honduras (there was an increase in the share of low-earnings sectors and no change in the share of high-earnings sectors).

The distribution of employment by occupation improved in eleven countries (Bolivia, Brazil, Colombia, Costa Rica, Ecuador, Mexico, Panama, Peru, Paraguay, Uruguay, and Venezuela): either the share of low-earnings occupations decreased (with no change in the share of high-earnings occupations) or the share of high-earnings occupations increased (with no change in the share of (p.40) low-earnings occupations) or both. For ten countries (Bolivia, Brazil, Colombia, Costa Rica, Ecuador, Mexico, Panama, Peru, Uruguay, and Venezuela), there was both a decline in the share of low-earnings occupations and an increase in the share of high-earnings occupations. For only one country (Paraguay) did the share of low-earnings occupations decrease with no change in the share of high-earnings occupations. For the remaining four countries, three exhibited a mixed change (Chile, Dominican Republic, and El Salvador), i.e. an improvement in one of the indicators jointly with deterioration in the other one, while in only one country (Honduras) there were no significant changes in the employment composition by occupation during the period.

The distribution of the employed population by occupational position improved significantly in ten countries in our sample (Argentina, Bolivia, Brazil, Chile, Costa Rica, Panama, Peru, Paraguay, Uruguay, and Venezuela): the share of wage/salaried employees increased and the shares of self-employed and unpaid family workers fell or did not change significantly. The distribution by occupational position deteriorated in four countries, with a fall in the share of wage/salaried employees and an increase (or no significant change) in the shares of the self-employed and of unpaid family workers (Colombia, Dominican Republic, Ecuador, and Honduras). The pattern of change was ambiguous for El Salvador, where the change in the share of wage/salaried employees was not statistically significant, the share of the self-employed fell, and that of unpaid family workers increased, and for Mexico where the share of wage/salaried employees increased, the share of unpaid family workers fell, but the share of self-employment grew.

In most of the countries in our sample (twelve out of sixteen countries: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Peru, Paraguay, and Uruguay), there was also an increase in the share of workers registered with the social security system. The evolution of this indicator, however, was negative in three countries in our sample—the registration of workers fell significantly in Honduras, Mexico, and El Salvador—and we do not observe a statistically significant change for Venezuela.

Average labour earnings increased in eleven out of sixteen countries, although they fell significantly for the remaining five. Increases in labour earnings took place in Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, Panama, Peru, Paraguay, and Venezuela, with decreases in labour earnings taking place in the Dominican Republic, Honduras, Mexico, El Salvador, and Uruguay. It should be noted, however, that this indicator evolved differently over time in different countries. For instance, average earnings fell at the beginning of the period under study and then grew steadily in Argentina, Chile, Costa Rica, Panama, Paraguay, Peru, and Uruguay, but the overall change was positive for all except Uruguay. On the (p.41) other hand, labour earnings grew over most of the period in Bolivia, Brazil, Colombia, and Ecuador, and fell steadily in El Salvador. Finally, labour earnings moved erratically over the period in the Dominican Republic, Honduras, Mexico, and Venezuela.

Turning now to the poverty and income inequality indicators, poverty rates measured by both the 2.5 and 4 dollars-a-day international lines declined in fifteen out of sixteen countries in our sample, with the sole exception of Honduras, where both indicators increased.

The poverty-reducing pattern in the region goes hand-in-hand with the upward trend in labour earnings and with the reduction in the unemployment rate in most countries. Interestingly, the reduction in poverty indicators occurred also in countries where mean labour earnings fell (Dominican Republic, Mexico, El Salvador, and Uruguay) and/or unemployment increased (Costa Rica and Mexico). This finding brings the role of public expenditure in social security systems as a potential factor to explain the reduction in poverty in Latin America. The relationship between changes in public expenditure in social security and in education and health, and changes in poverty indicators is analysed in section 3.4. In the same section, a detailed analysis of the relationship between changes in poverty and changes in employment and earnings indicators is also presented.

Inequality of household per capita income and of labour income fell in fourteen out of sixteen countries in our sample (Argentina, Bolivia, Brazil, Chile, Colombia, Dominican Republic, Ecuador, Mexico, Panama, Peru, Paraguay, El Salvador, Uruguay, and Venezuela). All countries exhibited significant reductions in the Gini coefficient of household per capita income and labour earnings with the exceptions of Costa Rica (where inequality of labour earnings increased and inequality of household per capita income remained unchanged) and Honduras (where both inequality indicators grew). The inequality-reducing pattern that took place in most countries indicates that increases in labour earnings, the main source of income of households in Latin America (as in other parts of the world), were accompanied by welfare-improving inequality changes. In sum, in the 2000s, in most of the countries nearly all labour market indicators improved, Honduras being the exception to this general trend. Unemployment rates fell in the majority of the countries, as did poverty and inequality. The job mix and labour earnings also improved in the great majority of countries.

3.2.2 Analysis of the Percentage of Labour Market Indicators that Changed in the Welfare-Improving Direction (Z)

As a way to summarize the evolution of the large number of indicators covered in each country study, we devised a measure based on how many of these (p.42) indicators exhibited a statistically significant improvement, calculated as a percentage of the available indicators for each country over the period of study.1 This measure provides a general direction of change in the labour market. The calculations using this measure are presented in the bottom row of Table 3.2. Our results indicate that 75 per cent or more of our selected labour market indicators improved in the following thirteen countries: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, Mexico, Panama, Peru, Paraguay, Uruguay, and Venezuela. Of the remaining countries, 62.5 per cent of indicators improved in the Dominican Republic and El Salvador. Honduras is the only Latin American country that experienced a generalized worsening of labour market indicators (an improvement in only three out of sixteen available indicators).2

3.2.3 Summary

In sum, our systematic evidence reveals that all countries in the region experienced an increase in their GDP per capita during the 2000s, and nearly all countries experienced substantial improvements over time in most labour market indicators.

3.3 The 2008 Economic Crisis and Changes in Labour Market Indicators

Up to now, we have analysed changes in GDP per capita and labour market indicators between the start of our data series (the year 2000 in most countries) and the end (most commonly, 2012). Of course, this period includes the international crisis of 2008. In this section, we analyse how this crisis affected labour markets in Latin American countries, whether they recovered fully or partially, and how speedy was the recovery (or how long-lasting was the crisis).

Throughout the world, the international economic crisis brought about negative economic growth of greater or lesser severity, followed by recovery. Focusing on a comparison between Latin America and some developed countries, the countries in our study suffered a reduction, on average, of 1.5 per cent in GDP per capita between 2008 and 2009. The average fall for the group of OECD countries was 3.95 per cent in GDP per capita, whereas the loss for the (p.43) United States was 3.65 per cent over the same period (World Bank 2014). The OECD countries as a whole and the United States in particular recovered the pre-crisis GDP per capita level in 2012.

The impact of the economic crisis on labour markets was heterogeneous across developed countries. In some European countries, such as Luxembourg, Denmark, and Germany, the effects were short-lived, while in others, such as Spain, Cyprus, Greece, and Ireland, dramatic losses of employment and increases in unemployment rates were observed, and by 2012 data tended to show a reintensification of the negative effects of the crisis (ECB 2012). The United States exhibited larger employment losses compared to Europe despite the similar reduction in GDP. In fact, the unemployment rate more than doubled in the United States during the crisis with a considerable increase in long-term unemployment (Elwell 2013). The increase in the unemployment rate in the United States was long-lived: it recovered its pre-crises level only by 2015 (Bureau of Labour Statistics 2015). Additionally, following the international crisis, labour markets became increasingly polarized with the share of low-earnings occupations increasing by more than the share of high-earnings occupations (Autor and Dorn 2013).

Some recent studies for Latin America have analysed the impact of the Great Recession on growth and labour market outcomes. The World Bank (2015) report documents the fall in GDP and the relative worsening in several labour market indicators from 2008 to 2009, highlighting the difference between the subperiods, 2003–8 and 2008–13. While GDP increased (with the exception of 2008–9) and labour market outcomes improved during both subperiods, leading to reductions in poverty, the impact of improved labour market conditions on poverty was stronger during 2003–8 than during 2008–13. ECLAC-ILO (2015) also documents similar trends, and highlights the role of rising real wages in 2009, which the report considers to have been an important factor in stabilizing domestic demand and in turn fostering the rapid recovery from the impacts of the international crisis.

Our evidence also indicates the same underlying trends in Latin American countries. At the time of negative economic growth in 2008–9 (Table 3.1), GDP per capita fell on average by 1.5 per cent in the region, less than half of the reduction in the OECD countries. The impact of the crisis was heterogeneous across countries in Latin America. Mexico, Paraguay, Venezuela, Honduras, and El Salvador were all severely affected, with reductions in GDP per capita of 4 to 6 per cent. GDP per capita fell by 1 to 3 per cent in Brazil, Chile, Costa Rica, and Ecuador; it virtually remained unchanged in Argentina, Colombia, and Peru, while it still increased by about 2 per cent in Bolivia, the Dominican Republic, Panama, and Uruguay.

After 2008–9, recovery quickly ensued. In the post-crisis period, all countries once again achieved positive economic growth rates and recovered their (p.44) pre-crisis GDP per capita levels by 2010, two years earlier than most of the OECD countries. Table 3.1 shows that the annualized growth rates in the post-crisis period were positive for all Latin American countries, and for seven of the sixteen countries in our sample, the annualized growth rate in the post-crisis period (2009–12) was larger than in the pre-crisis period (2000–8).

How did labour market indicators change during the crisis and its aftermath in Latin America? As shown above, we know from studies from other regions that labour market indicators worsened and then recovered to a greater or lesser degree.

In Latin America, starting with the crisis period, labour markets in most countries of the region were affected adversely by the international crisis, with a great deal of heterogeneity across countries in the number of labour market indicators that worsened during the crisis. Table 3.3 summarizes the changes in indicators for each country between 2008 and 2009, using again the ‘+’, ‘−’, and ‘NC’ signs to denote changes in the welfare-improving direction, changes in the welfare-worsening direction, and non-significant changes, as in the previous tables. The most widespread negative change was the increase in the unemployment rate (for twelve out of sixteen countries), followed by a fall in the share of wage/salaried employees (seven out of sixteen countries) and an increase in self-employment (seven out of sixteen countries).

Table 3.3 Qualitative changes in labour market indicators during the international crisis of 2008 by country

Indicator

AR

BO

BR

CL

CO

CR

DO

EC

HN

MX

PA

PE

PY

SV

UY

VE

Unemployment

Decrease in the unemployment rate

NC

NC

NC

+

Occupations

Decrease in the share of low-earnings occupations

+

NC

NC

+

+

NC

NC

+

NC

Increase in the share of high-earnings occupations

NC

+

+

NC

NC

+

+

NC

+

+

Occupational position

Increase in the share of wage/salaried employees

NC

+

+

+

NC

NC

NC

NC

Decrease in the share of self-employment

NC

NC

NC

NC

NC

NC

NC

NC

Decrease in the share of unpaid family workers

+

+

+

NC

+

NC

NC

NC

NC

NC

+

Economic Sector

Decrease in the share of workers in low-earnings sectors

NC

NC

NC

NC

NC

+

NC

NC

NC

+

NC

NC

+

NC

Increase in the share of workers in high-earnings sectors

+

NC

NC

+

NC

NC

NC

+

+

+

NC

NC

NC

NC

Education

Decrease in the share of low-educated workers

+

+

+

+

+

+

NC

+

NC

NC

+

NC

+

+

Increase in the share of high-educated workers

+

+

+

+

NC

NC

+

NC

NC

NC

NC

+

+

Workers registered with SS

Increase in the share of workers registered with SS

+

NC

+

NC

+

NC

+

+

NC

+

+

Earnings

Increase in mean labour earnings

+

NC

+

+

+

+

+

NC

+

NC

NC

+

Poverty

Decrease in 4 dollars-a-day poverty

NC

+

+

+

+

+

+

+

+

+

+

Decrease in 2.5 dollars-a-day poverty

+

+

+

+

+

NC

+

+

+

+

+

+

+

+

NC

(p.46) Inequality

Decrease in GINI of household per capita income

+

+

NC

NC

NC

NC

+

+

+

NC

NC

+

+

NC

NC

Decrease in GINI of labour earnings

NC

+

NC

+

NC

NC

+

+

+

NC

NC

+

NC

+

+

Number of worsening indicators

3

0

1

3

10

3

5

8

10

5

3

0

4

5

0

5

Total number of indicators

14

16

16

16

16

16

16

16

16

11

16

16

16

16

16

16

% of worsening indicators

21.4

0.0

6.3

18.8

62.5

18.8

31.3

50.0

62.5

45.5

18.8

0.0

25.0

31.3

0.0

31.3

Note: The table summarizes the changes in each labour market indicator during 2008–9 except for Chile (2006–9) and Mexico (2006–10). In the case of Chile, there is no household survey in between the years 2006 and 2009. Mexico was already in recession in the year 2008, so we considered 2006 as the base year (there was no survey in 2007).

References: + denotes improvement; − denotes worsening; NC denotes no changes. All the improvements and worsenings are statistically significant at 5 per cent.

Source: Authors’ calculations based on SEDLAC (CEDLAS and World Bank 2014).

The evidence in Table 3.3 indicates that Colombia and Honduras were the most affected, with negative changes in ten labour market indicators. In Bolivia, Peru, and Uruguay, we do not observe a deterioration in any of the labour market indicators, although they experienced a slowdown in the improving trend in most of them. The rest of the countries suffered a deterioration in at least one labour market indicator during the international crisis, with different degrees of exposure. For instance, in Brazil and Paraguay only the unemployment rate increased substantially, whereas Ecuador and El Salvador experienced negative changes in several other indicators.

Figure 3.3 illustrates the relationship between the percentage of labour market indicators that worsened during the crisis and the change in GDP per capita between 2008 and 2009. There is a negative relationship (reductions in GDP per capita are associated with a larger percentage of indicators moving in the worsening direction), but only marginally significant between the two variables, with an R-squared of only 0.11. The patterns are, again, heterogeneous across countries. The three countries in which labour market indicators were not affected by the crisis (Bolivia, Peru, and Uruguay) experienced positive levels of growth. The Dominican Republic grew at similar rates, but suffered a deterioration of several labour market indicators during the crisis. At the other extreme, the countries with the largest fall in GDP per capita (Panama, Paraguay, and Venezuela) suffered a deterioration in about the same (p.45) (p.47) number of labour market indicators as the Dominican Republic, but far from the generalized deterioration in Colombia, with almost no change in GDP per capita during the crisis.

Changing Labour Market Indicators and the Rate of Economic Growth in Latin America during the 2000s

Figure 3.3 Cross-country relationship between the percentage of labour market indicators moving in the welfare-worsening direction and growth rate of GDP per capita during the international crisis

Note: This figure displays the percentage of labour market indicators that change in the welfare-worsening direction according to Table 3.4 and the growth rate of GDP per capita during the international crisis. The economic crisis period is 2008–9, except for Chile (2006–9) and Mexico (2006–10). The line represents the linear regression specified at the bottom of the figure. Robust standard error of the slope coefficient between parentheses.

Source: Authors’ calculations based on SEDLAC (CEDLAS and World Bank 2014).

Paying particular attention to the growth–employment–poverty nexus, it is interesting to observe that poverty rates increased in only a few countries during the crisis: moderate poverty (computed with the 4 dollars-a-day poverty line) increased in five countries, and extreme poverty (computed with the 2.5 dollars-a-day poverty line) increased in only one country. The small effect of the crisis on poverty rates can be related to the small effect the crisis had on labour earnings. Table 3.3 shows that only four countries suffered a reduction in labour earnings during the crisis (Ecuador, Honduras, Mexico, and Venezuela). To see more clearly the connection between labour earnings and poverty, of the four countries where labour earnings fell during the crisis, three also exhibited increases in their poverty rates (Ecuador, Mexico, and Venezuela). However, unemployment rates increased in twelve out of sixteen countries, indicating that during the crisis, employment declined with a small effect on wages. Section 3.4 presents a more in-depth analysis of the relationship between (p.48) poverty indicators and employment and earnings indicators. Most countries reacted quickly during the crisis, implementing or expanding cash transfers and emergency programmes, thereby mitigating the effect of the increase in unemployment on poverty (Veras Soares 2009; Cecchini and Madariaga 2011). The accompanying country case studies describe some of the interventions of the governments in the region during the aftermath of the crisis. Just to mention a few of them: Argentina increased social expenditure during and after the international crisis through the creation (and subsequent rise in levels) of the Asignacion Universal por Hijo cash transfer programme, and also increased public works and public employment; Costa Rica expanded the coverage of the cash transfer programme Avancemos and also increased non-contributory pensions; El Salvador implemented cash and in-kind transfers and financial support to local producers; Mexico introduced and expanded employment programmes such as Programa de Preservación del Empleo and Programa Temporal de Empleo, and also expanded the Oportunidades cash transfer programme. The only two countries which did not implement any countercyclical policy during the international crisis were Honduras (which was facing political instability) and Venezuela (which suffered reduced oil revenues during the crisis).

Turning now to the post-crisis period, labour market indicators fully or partially recovered in most countries. Table 3.4 presents the post-crisis evolution of the labour market indicators that deteriorated during the crisis. We distinguish between total and partial recoveries: total recoveries (‘++’ sign in the table) signify that the indicator surpassed its pre-crisis level; partial recovery (‘+’) indicates that the indicator improved from the worst year of the crisis, but not by enough to achieve its pre-crisis level. Figure 3.4 shows for each country the distribution of labour market indicators that were affected and not affected during the crisis.3 Most labour market indicators had fully or partially recovered in most countries by 2012–13. The share of low-earnings occupations, the share of low-educated workers, and the moderate and extreme poverty rates recovered fully or partially in all countries which suffered a deterioration in these indicators during the crisis. Other labour market indicators recovered in at least half of the countries that faced a worsening during the crisis. These indicators were the unemployment rate, the share of high-earnings occupations, the shares of wage/salaried employees, self-employment, and unpaid family workers, the share of low-earnings sectors, the share of high-educated workers, the share of registered workers, mean labour earnings, and the Gini coefficient of labour earnings. The only labour (p.49) (p.51) market indicator that did not recover in the aftermath of the crisis was the share of workers in high-earnings sectors.

Table 3.4 Qualitative changes after the international crisis of 2008 in labour market indicators which worsened during the crisis by country

Indicator

AR

BO

BR

CL

CO

DO

EC

HN

MX

PA

PE

PY

SV

UY

VE

Unemployment

Decrease in the unemployment rate

++

++

+

++

++

+

++

++

+

+

Occupations

Decrease in the share of low-earnings occupations

++

+

+

++

+

Increase in the share of high-earnings occupations

++

++

Occupational position

Increase in the share of wage/salaried employees

+

++

++

+

++

Decrease in the share of self-employment

++

+

++

+

Decrease in the share of unpaid family workers

++

+

++

++

Economic Sector

Decrease in the share of workers in low-earnings sectors

+

Increase in the share of workers in high-earnings sectors

Education

Decrease in the share of low-educated workers

++

++

Increase in the share of high-educated workers

++

+

Workers registered with SS

Increase in the share of workers registered with SS

++

++

+

Earnings

Increase in mean labour earnings

++

+

++

Poverty

Decrease in 4 dollars-a-day poverty

++

++

++

++

Decrease in 2.5 dollars-a-day poverty

+

(p.50) Inequality

Decrease in GINI of household per capita income

Decrease in GINI of labour earnings

++

Total number of indicators affected by the crises

3

0

1

3

10

5

8

10

5

5

0

3

5

0

5

Number of continued deterioration

0

0

0

0

0

3

2

6

1

1

0

0

2

0

1

Number of partial recoveries

0

0

0

1

4

2

0

3

3

0

0

0

3

0

1

Number of total recoveries

3

0

1

2

6

0

6

1

1

4

0

3

0

0

3

% of total recoveries

100.0

100.0

66.7

60.0

0.0

75.0

10.0

20.0

80.0

100.0

0.0

60.0

Note: The table summarizes the changes in labour market indicators that worsened during the crisis according to Table 3.3. Estimations correspond to: Argentina 2008–12, Bolivia 2008–12, Brazil 2008–12, Chile 2006–11, Colombia 2008–13, Dominican Republic 2008–12, Ecuador 2008–12, Honduras 2008–12, Mexico 2006–12, Panama 2008–12, Peru 2008–12, Paraguay 2008–13, El Salvador 2008–12, Uruguay 2008–12, and Venezuela 2008–12. In Paraguay, the classification of occupations during 2010–13 cannot be compared with the classification before 2010. Costa Rica does not appear in this table since from 2010 onwards household surveys are not comparable to previous surveys.

References: ++ denotes total recovery: the indicator improved after 2009 above the pre-crisis level of 2008; + denotes partial recovery: the indicator improved after 2009 but did not recover its pre-crisis level of 2008; − denotes continued deterioration: the indicator continued worsening after 2009. All the improvements and worsenings are statistically significant at 5 per cent.

Source: Authors’ calculations based on SEDLAC (CEDLAS and World Bank 2014).

Changing Labour Market Indicators and the Rate of Economic Growth in Latin America during the 2000s

Figure 3.4 Distribution of labour market indicators according to the post-crisis path by country

Note: ‘Not affected’ indicates the percentage of indicators that did not worsen during the international crisis. ‘Total recoveries’ denotes the percentage of indicators that improved after 2009 surpassing the pre-crisis level. ‘Partial recoveries’ denotes the percentage of indicators that improved after 2009 but the recovery was not enough to reach its pre-crisis level of 2008. ‘Continued worsening’ denotes the percentage of indicators that continued to worsen after the crises.

Source: Authors’ calculations based on SEDLAC (CEDLAS and World Bank 2014).

Besides the three countries whose labour market indicators were not affected by the crisis (Bolivia, Peru, and Uruguay), three other countries (Argentina, Brazil, and Paraguay) recovered completely from the deterioration suffered during the crisis (i.e. the indicators were better in the final year than in the pre-crisis year). Chile and Colombia experienced a mix of total and partial recoveries in their indicators (i.e. the situation was better than during the crisis but not always better than in the pre-crisis year). Honduras continued to have a generalized deterioration in its labour market indicators following the crisis. The bad performance of Honduras during and after the crisis was related to the political instability (the country suffered a military coup in 2009) that prevented the country from adopting the measures needed to counteract the effects of the (p.52) global recession. The remaining seven countries experienced a mixed evolution, with a deterioration and some partial or total recoveries in different indicators.

In sum, most of the countries in the region experienced a reduction or a stagnation in their GDP per capita during 2008–9 and a recovery thereafter. Following an initial worsening of labour market indicators in most Latin American countries, the majority recovered or surpassed their pre-crisis levels by the end of the period for which we have data (typically 2012).4 In the majority of countries, poverty rates did not increase, even during the crisis period; changes in labour market earnings and the introduction or expansion of government transfer programmes to mitigate the temporary increases in unemployment were related to the small effect on poverty indicators. Thus, contrary to the experiences of the OECD countries, the effects of the crisis in Latin America were generally short-lived.

3.4 In Summary

Summing up, the review of our aggregate evidence reveals three main results. First, GDP per capita grew in the Latin American region as a whole during the 2000s, all employment and earnings indicators improved, and poverty and inequality indicators fell.

Second, on a country-by-country basis, all Latin American countries exhibited positive GDP per capita growth rates during the 2000s. Most countries experienced substantial improvements in labour market conditions over the period, Honduras being the only exception to this general pattern. The unemployment rate fell in thirteen out of sixteen countries. There was a generalized improvement in the distribution of employed workers by occupations, occupational positions, sectors, and educational levels. The share of workers registered with the social security system increased in twelve out of sixteen countries. Labour earnings increased in eleven out of sixteen countries, although they fell significantly for the remaining five. Poverty and extreme poverty fell significantly in all countries but one. Inequality of household per capita income and of labour income also fell in fourteen out of sixteen countries.

Finally, the growth rates of most countries in the region were negatively affected by the economic crisis of 2008, which also affected several labour market indicators in the worsening direction: most notably, a generalized increase in the unemployment rate, a fall in the share of wage/salaried (p.53) workers, and an increase in self-employment. A remarkable finding about the crisis is that poverty rates increased in only five of the sixteen countries, and extreme poverty rates in only one. In light of the evidence presented in this section and in the country studies, the small effect of the crisis on poverty rates can be related, first, to the small effect of the crisis on labour earnings. In fact, three of the countries that suffered an increase in the moderate poverty rate during the crisis are among the four countries in our sample that exhibited a reduction in labour earnings (Ecuador, Mexico, and Venezuela). Second, most of the countries in the region implemented countercyclical policies to reduce the negative impacts of the crisis, including the implementation and expansion of cash transfer programmes, mitigating the adverse effect on poverty of the increase in unemployment. The effect of the crisis on labour market indicators was short-lived: most countries’ labour market indicators had fully or partially recovered by 2012–13.

References

Bibliography references:

Autor, D. H. and D. Dorn (2013). ‘The Growth of Low-Skill Service Jobs and the Polarization of the US Labour Market’, American Economic Review 103 (5): 1553–97.

Bureau of Labour Statistics (2015). United States Department of Labour. Available at <http://www.bls.gov/>, accessed June 2015.

Cecchini, S. and A. Madariaga (2011). ‘Conditional Cash Transfer Programs: The Recent Experience in Latin America and the Caribbean’. Cuadernos de la CEPAL 95. Santiago de Chile: Economic Commission for Latin America and the Caribbean.

CEDLAS and World Bank (2014). SEDLAC—Socio-Economic Database for Latin America and the Caribbean. Centro de Estudios Distributivos, Laborales y Sociales, Facultad de Ciencias Económicas, Universidad Nacional de La Plata and World Bank Poverty Group LCR. Available at <http://sedlac.econo.unlp.edu.ar/eng/index.php>, accessed 2014.

ECB (2012). ‘Euro Area Labour Markets and the Crisis’. Ocasional Paper Series 138. Frankfurt am Main: European Central Bank.

ECLAC-ILO (2012). ‘The Employment Situation in Latin America and the Caribbean’. Number 6. Santiago de Chile: Economic Commission for Latin America and the Caribbean.

ECLAC-ILO (2015). ‘Employment Situation in Latin America and the Caribbean: Universal Social Protection in Labour Markets with High Levels of Informality’. Santiago de Chile: Economic Division of the Economic Commission for Latin America and the Caribbean and Office for the Southern Cone of Latin America of the International Labour Organization.

Elwell, K. C. (2013). ‘Economic Recovery: Sustaining U.S. Economic Growth in a Post-Crisis Economy’. CRS Report for Congress. Washington, DC: Congressional Research Service.

(p.54) Veras Soares, F. (2009). ‘Do CCTs Lessen the Impact of the Current Economic Crisis? Yes, but…’. One Pager 96. Brasilia: International Policy Center for Inclusive Growth.

Weller, J. (2014). ‘Aspects of Recent Developments in the Latin American and Caribbean Labour Markets’, CEPAL Review 114: 8–28.

World Bank (2012). The Labour Market Story behind Latin America’s Transformation. Washington, DC: World Bank.

World Bank (2014). World Development Indicators. Available at <http://data.worldbank.org/data-catalog/world-development-indicators>, accessed April 2014.

World Bank (2015). ‘Working to End Poverty in Latin America and the Caribbean: Workers, Jobs, and Wages’. Document of the World Bank. Washington, DC: World Bank.

Notes:

(1) We express this as a percentage instead of the actual number of indicators that increased because not all indicators are available for all countries in every year.

(2) Most of the worsening changes in Honduras took place during and after the international crisis and coincided with a military coup. See Chapter 16 on Honduras for more details and references.

(3) Some labour market indicators improved during the crisis and deteriorated in the post-crisis period. Since the purpose of this section is to assess the impact of the crisis and the ensuing recovery, in Figure 3.4 we classified these cases as indicators that were not affected by the crisis.

(4) The limited impact of the international crisis on Latin American labour markets was also reported in World Bank (2012) and ECLAC-ILO (2012).