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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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Argentina

Argentina

Chapter:
(p.143) 7 Argentina
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/9780198801085.003.0007

Abstract and Keywords

Argentina experienced a decline in the early years of the 2000s, from 2000 to 2002, in gross domestic product and in most labour market indicators, followed by improvements in nearly all of them, tracing out a U-shaped pattern. The international crisis of 2008 impacted negatively only on the unemployment rate and the share of paid employees, but both returned to their pre-crisis levels by 2010. The chapter finds that notwithstanding Argentina’s massive downturn from 2000 to 2002 and the international crisis of 2008, labour market conditions were in a better state in 2012 than they were at the start of the millennium.

Keywords:   Argentina, gross domestic product, initial downturn, international crisis, labour market indicators

7.1 Introduction

This chapter on labour markets and growth in Argentina 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 Argentina 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 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 Permanente de Hogares (EPH) for the years 2000–2, and Encuesta Permanente de Hogares-Continua (EPH-C) for the years 2003–12. In the year 2003, Argentina implemented a change in its household surveys as it moved from the EPH to the EPH-C; the two surveys—both of which are urban in scope and represent approximately two thirds of the population—are fully (p.144) comparable. From 2000 to 2002 we use the October wave of the EPH, and from 2003 to 2012 we use data from the second semester with the exception of the year 2007 which has data only for the fourth quarter. The surveys were processed following a harmonization methodology and incorporated into the SEDLAC—Socio-Economic Database for Latin America and the 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 Argentina’s household surveys, and on comparability issues of these surveys over time.

7.2 Economic Growth

Argentina experienced rapid economic growth during the 2000s overall, despite a devastating crisis at the beginning of the 2000s. The country underwent a mild recession following the international crisis of 2008, but it had completely recovered by 2010. (Cruces et al. 2015: figures 1 and 2)

From 2000 to 2012, the Argentine economy grew at an above average rate by Latin American standards. GDP per capita increased by 52.3 per cent, while the average for the region’s eighteen countries was 36.2 per cent during the same period. GDP (measured in 2005 PPP dollars) grew by 69.6 per cent, and GDP per employed person rose by 17.5 per cent. While GDP per capita grew at an annual rate of 3.3 per cent, the progress of that indicator was erratic, with a minimum of −11.7 per cent in 2002 and a maximum of 8.2 per cent in 2005 and 2010 (Table 7.1).

The evolution of GDP in Argentina had a marked U-shape. At the beginning of the 2000s, Argentina underwent a major recession that ended in a severe economic, banking, and financial crisis in December 2001. Prior to the crisis, Argentina was suffering a deep recession, large levels of debt, and deficits in the fiscal and current accounts. The peso was overvalued, but devaluation was not an option without breaking the convertibility law that pegged the peso to the dollar. The country tried to restore its competitiveness through domestic deflation and by improving its fiscal accounts, but none of the efforts worked. The trigger for the crisis in Argentina was a run on the banking system which functioned mainly in dollars but lacked a lender of last resort. In the end, the (p.145) fixed exchange rate regime collapsed and the country defaulted on its sovereign debt (Kiguel 2011). GDP per capita diminished by 16.3 per cent from 2000 to 2002. In 2002, a new macroeconomic scheme was put into effect; that scheme included a high and stable real exchange rate, fiscal and current account surpluses, and a monetary policy that kept the exchange rate at high levels and re-established the health of the banking system (Cetrángolo et al. 2007). As a consequence, the Argentine economy grew substantially.

Following Argentina’s crisis of 2000–2, the economy grew rapidly, registering a GDP per capita growth rate of 82.3 per cent between 2002 and 2012. The bulk of this increase took place before 2008. The years from 2002 to 2008 were characterized by rapid economic growth, with an average annual rate of 8.6 per cent. In 2007, the economic situation started to deteriorate due to the increase in the inflation rate and the expansionary fiscal policy that progressively reduced the primary surplus. The government failed to put into effect a programme of price stabilization. On the contrary, through several discretionary interventions, the government changed the way the consumer price index was calculated, damaging the credibility of its statistics (World Bank 2014a).

The Argentine economy was affected by the international crisis of 2008. GDP per capita grew by 5.8 per cent in 2008 but stopped growing completely in 2009 (0.0 per cent). At the time of the international crisis, the Argentine economy had a relatively large level of international reserves, a trade surplus, and a fiscal surplus. Additionally, the country was in a situation of financial isolation with a small volume of domestic financial intermediation. All these factors contributed to mitigate the impacts of the international crisis. However, the country suffered some negative effects from the Great Recession. First, Argentina was affected by the reduction in the international demand for its products. This impacted mainly the industrial sector, which had been the driving force of the growth period 2002–8. Second, the country suffered from the flight of capital generated by the inflationary pressures, the uncertainty resulting from the conflict between the government and the agricultural sector with regard to export taxes, and the manipulation of the official inflation statistics (Damill and Frenkel 2009). The space to apply countercyclical policies was limited after the international crisis because of the weakening of the economy. The government decided to apply trade and exchange rate restrictions to control the weakening of external balances and to nationalize the pension system in order to increase its resources. The government also raised its resources through increases in overall tax collection, which represented 18.1 per cent of GDP in 2008 and 20.8 per cent in 2012 (CEPALSTAT 2015). That allowed for increases in social expenditure, like the creation (and subsequent rise in levels) of the Asignación Universal por Hijo cash transfer programme, reductions in the tax burden for medium- and high-income (p.146) earners, and public works (Damill and Frenkel 2009). It also allowed for an increase in public employment. The number of people employed in the public sector grew by 3.5 per cent annually between 2008 and 2012 (INDEC 2015). The pre-crisis upward growth trend resumed in 2010 and 2011, though there was a slowdown in 2012. After the crisis, annual GDP per capita growth rates were 8.2 per cent, 7.9 per cent, and 1.0 per cent in 2010, 2011, and 2012 respectively.

7.3 Unemployment

The 2000–12 period witnessed a significant drop in the aggregate unemployment rate and in the unemployment rate for all population groups. Within this period, the unemployment rate increased in the early years of the period and diminished until 2007. It remained constant afterwards, except for a brief rise in 2009 and an equal drop in 2010.(Cruces et al. 2015: figure 3)

The unemployment rate (measured as the ratio of unemployment to labour force) decreased overall over this period, dropping from 14.8 per cent in 2000 (1,473,288 unemployed persons) to 7.3 per cent in 2012 (856,754 unemployed persons) (Table 7.1). Initially, the unemployment rate increased in conjunction with a fall in GDP from 2000 to 2002. During the economic crisis of 2001–2, unemployment increased substantially, peaking at 18.4 per cent (1,835,698 unemployed persons). The unemployment rate then fell steadily from 2002 to 2007, when it stood at 7.5 per cent. It remained at that level until 2008. The reduction in the unemployment rate was marked both by a drop in the average duration of unemployment spells and by a reduction in the rate of entry into unemployment (Beccaria and Maurizio 2008). During the Great Recession, and as GDP growth slowed, the unemployment rate increased to 8.6 per cent in 2009 (127,778 new unemployed persons). Both the number of persons in the labour force and the number of employed persons increased between 2008 and 2009 by 194,723 and 66,945 respectively. These figures suggest that the increase in the unemployment rate during the international crisis was brought about by the entry of new people into the labour market who could not find a job. A full recovery took place by 2010, when the unemployment rate returned to its pre-crisis level (7.4 per cent), where it remained in 2011 and 2012.

Table 7.1 Argentina: 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

10,290

9,739

8,596

9,271

10,019

10,843

11,658

12,556

13,288

13,285

14,376

15,515

15,672

Argentina

GDP per capita growth rate

−1.83

−5.36

−11.73

7.85

8.07

8.22

7.52

7.71

5.83

−0.03

8.21

7.92

1.01

Argentina

Employment and Earnings Indicators

Employment-to-population ratio

49.50

46.44

47.60

52.67

54.35

55.36

56.06

55.85

56.25

55.68

55.89

56.58

56.49

Argentina

Unemployment rate

14.78

18.40

17.88

15.41

12.58

10.60

9.30

7.53

7.61

8.60

7.41

7.17

7.25

Argentina

Share of employers

4.60

4.38

3.98

3.76

4.13

4.14

4.19

4.41

4.60

4.33

4.46

4.35

4.17

Argentina

Share of wage/salaried employees

72.13

71.29

72.07

74.06

74.24

74.40

75.79

76.70

76.28

75.88

76.97

77.08

77.25

Argentina

Share of self-employed workers

22.07

23.41

22.98

20.78

20.46

20.36

19.01

17.99

18.50

19.07

17.79

17.93

18.04

Argentina

Share of unpaid family workers

1.19

0.92

0.98

1.40

1.17

1.10

1.02

0.90

0.62

0.73

0.78

0.64

0.54

Argentina

Share of workers in low-earnings sectors

39.7

39.0

35.4

38.3

39.3

39.7

41.0

39.8

40.4

39.9

39.6

39.9

39.5

Argentina

Share of workers in mid-earnings sectors

42.0

42.5

43.8

42.3

42.2

41.8

40.6

41.1

40.4

40.2

40.5

40.4

40.0

Argentina

Share of workers in high-earnings sectors

18.3

18.5

20.8

19.5

18.4

18.5

18.4

19.0

19.2

19.9

19.9

19.6

20.5

Argentina

Share of low educated workers

37.04

36.17

35.51

34.55

33.59

32.76

31.18

29.09

28.37

27.58

26.38

26.13

24.93

Argentina

Share of medium educated workers

38.78

37.94

39.25

39.38

39.51

39.44

40.36

42.39

42.31

42.44

42.78

42.38

43.94

Argentina

Share of high educated workers

24.18

25.89

25.24

26.07

26.90

27.80

28.46

28.52

29.33

29.98

30.83

31.49

31.13

Argentina

Share of workers registered with SS

61.59

61.40

55.95

50.62

52.01

54.42

57.27

60.59

62.96

64.11

65.40

65.55

65.01

Argentina

Mean labour earnings

761.7

736.0

497.8

578.4

646.1

705.8

732.6

718.5

747.4

756.8

799.0

781.0

Argentina

Poverty and Inequality Indicators

Official extreme poverty rate

12.86

17.21

33.18

24.71

18.81

15.06

11.01

8.43

5.30

4.28

2.88

1.89

1.77

Argentina

Official moderate poverty rate

39.58

44.86

64.54

52.53

45.05

39.33

32.76

27.55

18.04

15.50

12.00

8.37

6.88

Argentina

Poverty rate 2.5 dollars-a-day

14.16

18.64

29.17

22.02

16.96

13.32

10.32

8.75

8.21

8.04

6.14

4.60

4.69

Argentina

Poverty rate 4 dollars-a-day

27.46

32.86

45.54

36.44

30.96

25.80

20.62

19.54

17.26

16.31

14.07

11.55

10.84

Argentina

GINI of household per capita income

0.504

0.522

0.533

0.526

0.496

0.488

0.475

0.469

0.459

0.449

0.442

0.433

0.423

Argentina

GINI of labour earnings

0.459

0.476

0.498

0.481

0.463

0.459

0.440

0.434

0.416

0.412

0.403

0.400

0.388

Argentina

Note: The shaded labour market indicators’ figures 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 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).

Looking at the disaggregated patterns and comparing 2000 with 2012, the unemployment rate decreased for youth, adults, men, and women, though it peaked in 2001–2. All groups of workers were affected negatively by the international crisis. However, the effect of the crisis on the unemployment (p.147) rate was generally short-lived. The unemployment rates of all workers, regardless of age and gender, began declining in 2010, though at different paces. The rate for adults and women had returned to pre-crisis levels by 2010, whereas the rate for men did not return to pre-crisis levels until 2011; full recovery for young workers did not take place until 2012.

7.4 Job Mix

The employment structure by occupational position improved. The percentage of paid employees in total employment increased overall, for youth, adults, men, and women. In aggregate and for all population groups, the share of paid employees diminished during the recessionary years of the early 2000s, and increased during the period of rapid economic growth which followed. The international crisis of 2008 negatively affected the composition of employment by occupational position, but that setback proved short-lived.  (Cruces et al. 2015: figure 4)

The share of wage/salaried employees—the largest employment category—grew by 5.1 percentage points over the period, rising from 72.1 per cent in 2000 to 77.2 per cent in 2012. The share of the self-employed, on the other hand, decreased by 4.0 percentage points, dropping from 22.1 per cent in 2000 to 18.1 per cent in 2012. The shares of employers and of unpaid workers in total employment were small (around 4.3 and 0.9 per cent respectively) and neither one changed substantially during the 2000–12 period (Table 7.1). During the economic crisis of 2001–2, the share of wage/salaried employees hit its lowest point (71.3 per cent) and the share of self-employed workers reached its maximum (23.4 per cent). In a context of increasing and high unemployment, economic necessity may have compelled workers to take up free-entry self-employment activities. Afterwards, as the economy recovered, the share of wage/salaried employees increased steadily, reaching 76.7 per cent in 2007, almost the same level as in 2012. The share of self-employed workers decreased by up to 18.0 per cent in 2007 and kept around that level until the end of the period.

The employment structure by occupational position improved from 2000 to 2012 for youth and adult workers, men, and women, as the share of paid employees grew and the shares of self-employed and unpaid workers dropped. Within the period, the employment structure by occupational position deteriorated in the early years of the 2000s when the share of paid employees decreased for all groups. It improved in the following years until 2007–8, when it suffered a slight deterioration during the international crisis. However, the recovery was quick for all population groups.

(p.148) (p.149) (p.150)

The employment composition by economic sector exhibited a slight improvement overall, as the share of high-earning sectors increased, the share of middle-earning sectors fell, and the share of low-earning sectors remained largely unchanged. The pattern of improvement in the sectoral composition of employment was not interrupted by the international crisis of 2008, but impacted on the relative shares of low- and mid-earning sectors. (Cruces et al. 2015: figure 5)

The period 2000–12 witnessed a stable pattern in the share of workers in low-earning sectors (domestic service, construction, and commerce) around 39.6 per cent both in 2000 and 2012. The share of workers in middle-earning sectors (low- and high-tech industry, utilities and transportation, and education and health) decreased from 42.0 to 40.0 per cent. Among middle-earning sectors, the share of the low-tech industry sector—the driving force of the growth period 2003–8—exhibited an increase in its share of total employment up to 2008 that was undone during the international crisis. Finally, the share in high-earning sectors (primary activities, skilled services, and public administration) rose from 18.3 to 20.5 per cent (Table 7.1).

From 2000 to 2012, the changes in the employment composition by economic sector resulted in a slight improvement for youth, adults, and men (increases in the shares of low- and high-earnings sectors coupled with reductions in the share of mid-earnings sector), while there was a full improvement for women (increase in the share of high-earnings sectors and reductions in the shares of low- and mid-earnings sectors).

The international crisis of 2008 did not affect the improving or slightly improving trend in the composition of employment by economic sector, but led to a change in the relative shares of low- and mid-earning sectors. Between 2008 and 2009, the share of low-earning sectors exhibited a larger reduction compared to the share of mid-earning sectors in the aggregate, for young workers, and for women, while the share of high-earning sectors continued to increase. For adults, the share of low-earning sectors stopped increasing and had a small reduction. For men, the pre-crisis trends in their employment composition by sector were not impacted by the international crisis.

The educational level of the Argentine employed population improved steadily over the period, overall and for all population groups. The international crisis of 2008 had no effect on this upward trend. (Cruces et al. 2015: figure 6)

The share of employed workers with low educational levels (eight years of schooling or less) dropped from 37.0 per cent in 2000 to 24.9 per cent in 2012, while the shares of workers with medium and high educational levels (nine to thirteen years of schooling and over thirteen years of schooling) grew from 38.8 per cent in 2000 to 43.9 per cent in 2012 and from 24.2 per cent to 31.1 (p.151) per cent respectively (Table 7.1).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, these 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 2000 and 2012 for all population groups, although with some differences between them. For the young and adult population, the reduction in the shares of workers with low educational levels was similar, but the corresponding increase in the share of high-educated workers was larger among adults. Disaggregating by gender, the reduction in the share of workers with low levels of education was larger among men, while in the increase in the share of workers with high levels of education was larger among women.

The pattern of improvement in the educational level of the employed population in Argentina was not abated on the aggregate or on the population group level by the international crisis of 2008.

The overall share of wage/salaried employees registered with the social security system increased between 2000 and 2012. While this indicator improved for adults, men, and women, it deteriorated for youth. Within this period, the registration rate fell in the early years of the period studied but increased in the later years. This upward trend, which started in 2004, held for all population groups; it was not interrupted by the international crisis of 2008. (Cruces et al. 2015: figure 7)

As detailed in ISSA (2014), the social security system in Argentina consists of a set of benefits covering health risks, old age pensions, unemployment insurance, family allowances, and job risks; these benefits are managed by agencies of the Ministerio de Trabajo, Empleo y Seguridad Social and the Ministerio de Desarrollo Social. There exist both contributory and non-contributory schemes. The contributory scheme is mandatory for wage/salaried employees and self-employed persons. For other workers, like persons insured under professional provincial systems and housewives, participation is voluntary. The non-contributory scheme covers persons with income below a subsistence level who are not receiving any social security benefit or support from (p.152) family members. The non-contributory scheme is funded fully by the government.

Social security records show an increase in the percentage of wage/salaried employees registered with the contributory schemes of the system from 2000 to 2012, which rose from 61.6 per cent in 2000 (3,769,596 registered workers) to 65.1 per cent in 2012 (5,504,925 registered workers) (Table 7.1). The change, though, was not smooth. From 2000 to 2003, a period that included the severe crisis of 2001–2, the percentage of workers registered with the social security system dropped from 61.6 per cent to 50.6 per cent. The share of wage/salaried employees who were registered with the social security system then increased steadily from 2003 to 2011. This upward trend was related to several factors such as: the profitability and productivity increases of local firms driven by the high real exchange rate of the macroeconomic scheme established after the 2001–2 crisis; the set-up of a labour inspection system with the objective of monitoring compliance with labour and social security regulations; the simplification of the administrative procedures needed to register workers with the social security system; the reduction in the social security contributions paid by employers; and the implementation of specific policies for those workers most affected by unregistered employment, such as domestic workers (Novick et al. 2008; Bertranou et al. 2013). Finally, the period 2011–12 witnessed a slight decrease in the share of registered wage/salaried employees.

The rate of registration with the social security system decreased for youths and increased for adults, men, and women over the period. All population groups reached the lowest rate of registration during the period in 2003.

The international crisis did not immediately slow down the upward trend in the share of wage/salaried employees registered with the social security system among youth or adults, or among men or women. The number of registered workers increased in the aggregate by 104,751 between 2008 and 2009, while the number of unregistered workers contracted by 82,881 over the same period. However, the share of workers registered with the social security system dropped slightly from 2010 to 2012 due to the increase in the number of unregistered workers, which climbed by 135,979 workers.

7.5 Labour Earnings

Two years of falling labour earnings from 2000 to 2002 were followed by ten years of rising labour earnings from 2002 to 2012. The increases were large enough so that labour earnings were slightly higher in 2012 than in 2000 in real terms. The pattern of falling labour earnings during 2000–02 and rising labour earnings during 2002–12 held for all population groups, (p.153) but youth and female workers were the ones who benefited the most. In general, workers in low-earning categories experienced a larger increase in labour earnings than did workers in high-earning categories, whose labour earnings even fell for some groups. Labour earnings were not affected negatively by the 2008 crisis. (Cruces et al. 2015: figure 8)

Average monthly earnings expressed in dollars at 2005 PPP increased by 2.5 per cent, climbing from 761.7 in 2000 to 781.0 in 2012 (Table 7.1). However, the experiences within the period varied substantially. Argentina suffered an inordinate decline in average real labour earnings (−5.6 per cent) during the economic recession at the beginning of the period—that is, from 2000 to 2002; this drop was brought about by a large increase in domestic prices after the devaluation of the peso coupled with the lack of adjustment of nominal earnings in a context of high unemployment and weak unions (Gasparini and Cruces 2010). After that period, a long and steady recovery set in that brought with it an increase in labour earnings during most of the subsequent years. Starting in 2003, the government favoured successive increases in the minimum wage, and labour earnings continued to increase in a context of employment growth; by 2011, the level of labour earnings surpassed the 2000 level. The upward trend post-2002 was interrupted in 2008 when labour earnings fell by 2.0 per cent. In 2009, real earnings resumed their upward trend until 2011. Finally, labour earnings fell by 2.3 per cent in 2012.

When the analysis is broken down by population groups, women and young workers are found to be the ones who benefited the most during 2000–12. Other groups whose earnings increased substantially were wage employees, mid-earning economic sectors, and workers with low educational levels. Employers and the self-employed, workers in high-earning sectors, and workers with high educational levels experienced a drop in their labour earnings over the period.

The evidence of falling labour earnings for workers with high educational levels and increasing labour earnings for those with low and medium educational levels can be interpreted in light of previous findings of slight improvement in the employment structure by economic sector and improvement in the educational level of the employed population over the period. Changes in the employment structure by economic sector implied a reduction in the total share of sectors that can be expected to use workers with low and medium educational levels such as utilities and transportation, domestic service, high-tech industry, and commerce, and an increase in the total share of sectors that employ workers with high educational levels, such as skilled services and public administration. This evidence indicates that the demand for workers with high educational levels relative to those with low and medium educational levels increased during 2000–12. On the other hand, the educational (p.154) level of people in the labour force improved over the same period, leading to an increase in the relative supply of workers with high and medium levels of education (Cruces et al. 2015: table 7). The prediction of a supply and demand analysis is that the relativewages of workers with high educational levels relative to those with low and medium educational levels will rise or fall depending on which effect dominates (increase in the relative demand versus increase in the relative supply). In the Argentinean 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 6). The adjustment process also led to a reduction in the unemployment rate of all educational groups, with a larger reduction for workers with low levels of education (Cruces et al. 2015: table 8).

During the international crisis of 2008, and after they experienced a small decrease in 2008, labour earnings continued to grow overall and for all population groups. Some workers in specific economic sectors were negatively affected by the crisis. Labour earnings rose, on average, by 4.0 per cent during 2008–9, the year of the crisis. Increases were similar among most groups analysed, except for workers in high-tech industry (no change) and in the utilities and transportation sector (3.5 per cent decline). The crisis, then, had a mild effect on labour earnings.

7.6 Poverty and Inequality

Despite large increases in the early 2000s, the poverty rate and the rate of working poor households decreased substantially from 2000 to 2012.(Cruces et al. 2015: figure 9)

The 4 dollars-a-day poverty rate fell from 27.5 per cent in 2000 to 10.8 per cent in 2012, after climbing to 45.5 per cent in 2002; the 2.5 dollars-a-day poverty rate dropped from 14.2 per cent to 4.7 per cent from 2000 to 2012, with a peak of 29.2 per cent in 2002; the percentage of the working poor (defined as the proportion of persons in the population living in poor households, according to the 4 dollars-a-day poverty line, where at least one member works) decreased from 14.8 to 5.7 per cent over the same period, with the highest point equal to 27.0 per cent in 2002 (Table 7.1). The downward trend in all poverty indicators was not affected by the international crisis of 2008.

Thus, poverty rates increased substantially from 2000 to 2002, a period that included the local crisis, and then decreased steadily until 2012, even during the international crisis. The poverty patterns exhibited by Argentina can (p.155) be understood by examining incomes from various sources as well as government programmes. Household labour earnings, pensions, government transfers, and capital income fell substantially between 2000 and 2002 (Cruces et al. 2015: figure 10). The reduction in real earnings after the devaluation of the domestic currency at the beginning of the decade is the most important factor to explain the increase in the poverty rates to unprecedented levels for the country between 2000 and 2002 (Gasparini and Cruces 2010). The reduction in poverty indicators from 2002 to 2011 was related mainly to increases in labour earnings and employment levels. Higher labour earnings and employment levels accounted for nearly 70 per cent of the decline in the poverty rate based on the 4 dollars-a-day poverty line from 2004 to 2012. The remaining 30.0 per cent of the decline in the poverty rate was accounted for by the increase in non-labour incomes like pensions and private and public transfers (World Bank 2014a). Pensions increased steadily from 2002 to 2012, while the number of beneficiaries from government transfers exhibited a substantial increase with the implementation of the Asignación Universal por Hijo targeted cash transfer programme in 2008. Indeed, it is estimated that poverty measured by the 2.5 dollars-a-day poverty line in 2009 was nearly half what it would have been in the absence of progressive social spending (World Bank 2014a).

Household per capita income inequality and labour earnings inequality increased at the beginning of the period and then started a sustained downward trend, with the result that inequality was much lower at the end of the period (2012) than it had been at the beginning (2000). The international crisis of 2008 did not affect the downward trend in inequality indices that was observed in the last ten years of the period. (Cruces et al. 2015: figure 11)

The Gini coefficient of household per capita income increased from 2000 to 2002, reaching a maximum of 0.533, and then decreased steadily to 0.423 in 2012, a much lower value than in the year 2000 (0.504). Throughout the period, the Gini coefficient of labour earnings among employed workers was lower than that of household per capita income. Its evolution mirrored the changes in the Gini coefficient of household per capita income, going from 0.459 in 2000 to 0.498 in 2002 and falling every year after, reaching 0.388 in 2012 (Table 7.1). The overall reduction in labour earnings inequality is in accord with the evidence presented in section 7.5, showing larger income increases for workers in low-earning employment categories compared to workers in high-earning categories, whose labour incomes even fell for some groups. Consequently, the reduction in labour earnings inequality in Argentina occurred at the expense of income losses for some categories.

Considering that labour earnings are the main source of income for Argentine households, its evolution could be behind the decline in household per capita (p.156) income inequality. That is confirmed by Bergolo et al. (2011), who used a non-parametric decomposition method to find that the reduction in labour income inequality accounted for around three quarters of the decline in household per capita income inequality between 2001 and 2009, and the remaining 25.0 per cent was accounted for by the decline in non-labour income inequality. The decline in non-labour income inequality was caused by a more progressive fiscal policy. The initially negative (and disequalizing) effect of the devaluation of the domestic currency on real wages was in part compensated for by the expansion of progressive export taxes, which were used to finance large anti-poverty programmes like Jefes y Jefas de Hogar Desocupados in 2002 (Gasparini and Cruces 2010). The excise taxes also had an indirect redistributive impact because they kept domestic prices of traded goods below their international level; this was particularly important for food prices. Within the period 2002–12, the contribution of the increase in the size and progressivity of social spending to the reduction in household income inequality was more important between 2006 and 2009 compared to the period 2003–6. The reason was the introduction of a new non-contributory pension programme, the pension moratorium, in 2004 (Lustig and Pessino 2013).4

The literature on labour earnings inequality in Argentina provides some explanations for its decline during the 2000s. Gasparini and Cruces (2010) argue that the fall in labour income inequality over the 2000s can be accounted for by: the expansion of employment generated by the fast economic recovery; the shift of the employment structure in favour of more low-skilled labour-intensive sectors as a result of the devaluation of the Argentine peso at the beginning of the decade; the fading out of the effect of skill-based technical change on the demand for labour in the 1990s; and the rise in the influence of labour unions. All these factors caused the skills premium, measured as relative returns to tertiary education by the authors, to fall. Gasparini et al. (2011) found evidence consistent with the conclusions of Gasparini and Cruces (2010). Their analysis indicates that during the 2000s, demand and institutional factors like the minimum wage were more important for the decline in the skill premium in Argentina than the increase in the relative supply of skilled workers. Other papers analysed the contribution to the declining earnings inequality of changes in the distribution of workers’ characteristics and changes in the returns to those characteristics. Azevedo et al. (2013) applied a parametric decomposition method and found that between 2000 and 2010, the changes in the distribution of workers’ characteristics like (p.157) education and experience (or the ‘quantity effect’) and the changes in the returns to those characteristics (or the ‘price effect’) were inequality-reducing. However, the results of Battistón et al. (2014), who used a microsimulation approach for the period 2004–9, indicate that the quantity effect was equalizing only when levels of education are used but inequality-increasing when education is measured by years of schooling, as in Azevedo et al. (2013).

7.7 Conclusions

By Latin American standards, Argentina experienced high economic growth during the 2000s. Within the period, the pattern of economic growth was U-shaped: GDP fell dramatically during 2000–2 and then grew rapidly during 2003–12. Though the economy of Argentina stopped growing during the international crisis of 2008, it recovered the previous growth pattern by 2010.

Most labour market indicators followed the U-shaped pattern of economic growth over the period. The unemployment rate exhibited an increase in the early years of the period and a downward trend in the later years, falling overall between 2000 and 2012. The employment structure by occupational position deteriorated at the beginning of the period and then improved steadily as the share of wage/salaried employees increased and the share of self-employed and unpaid workers decreased. The educational level of the employed population increased steadily between 2000 and 2012. A reduction in the percentage of registered workers at the beginning of the period was followed by a steady upward trend after 2003. The sectoral composition of employment exhibited small changes that can be interpreted as a slight improvement. Labour earnings fell dramatically in the early years of the period and then started an upward trend. The increases were large enough in 2012 to raise labour earnings above where they had been in 2000. Workers in low-earning categories were the ones who benefited the most, while labour earnings even fell for some high-earning categories.

In accordance with the pattern of GDP growth, poverty indicators grew by a large amount at the beginning of the period and then started a downward trend. This fall was large enough to bring about a substantial reduction in poverty rates from 2000 to 2012. The Gini coefficients of household per capita income and of labour earnings decreased over the period. Inequality indices increased in the early years of the period and fell in the later years.

Some labour market indicators were affected negatively by the international crisis of 2008: the unemployment rate increased and the composition of employment by occupational position worsened. Both indicators had returned to pre-crises levels by 2010. The comparison between the effects of the international crisis of 2008 on labour market indicators and (p.158) the effects generated by the 2001–2 crisis reveals that the crisis at the beginning of the 2000s impacted Argentina more strongly. The crisis of 2001–2 generated a larger reduction in GDP, a larger increase in the unemployment rate, and a larger decrease in labour earnings compared to the Great Recession. Moreover, the poverty rates measured by the international poverty lines increased during the first recessionary episode, while they continued to decrease after the international crisis of 2008. The reasons behind the smaller negative impacts of the international crisis compared to the recession at the beginning of the decade were that at the time of the international crisis, the Argentine economy had a relatively high amount of international reserves, a trade and a fiscal surplus, and the country was in a situation of financial isolation.

Young workers and women had worse labour market outcomes over the period compared to adults and men respectively, and while young workers seem to be more vulnerable to macroeconomic crises compared to adults, men were more negatively affected by the crises compared to women. The unemployment rate was higher for young compared to adult workers, the share of young employed workers in low-earning economic sectors was larger than the share 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. In addition to the generally inferior situation of young workers in the labour market compared to adults, youth labour market indicators were more adversely affected by the episodes of crises. 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 positions which was larger among men. However, men were hit hardest by both crises in most labour market indicators, with the labour earning reduction during the crisis at the beginning of the period being the only exception to this pattern.

In summary, notwithstanding Argentina’s massive downturn from 2000 to 2002 and the international crisis of 2008, Argentine labour market conditions were in a better state in 2012 than they were at the start of the millennium.

References

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Notes:

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

(2) The most frequent value of years of education for employed workers in Argentina was seven during 2000–3 (around 24.7 per cent of employed workers had seven years of education) and twelve during 2004–12 (around 26.1 per cent of employed workers had twelve 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 group and the unemployment rate of each educational level. We introduce a discussion about the role of these factors in Argentina in section 7.5.

(4) The Moratoria Previsional, which has been translated into English as ‘pension moratorium’, allowed workers of retirement age to receive a pension regardless of whether they had completed the full thirty years of required social security contributions through formal employment (Lustig and Pessino 2013).