Latin America's rising unemployment bucks nearly decade long trend

Urban unemployment rose at the fastest rate in over 20 years last year

The deepening economic crisis in Latin America was evident last year, which marked the second consecutive year of contraction in the labor market with the urban unemployment rate rising from 7.3% in 2015 to 8.9%. This is the largest annual increase in more than two decades, influenced in particular by the deterioration of the Brazilian labor market, according to the report Coyuntura Laboral en América Latina y el Caribe from the Economic Commission for Latin America and the Caribbean (ECLAC) and the International Labor Organization (ILO). However, despite the poor data, levels of unemployment are still lower than in the late 1990s and early 2000s.

Following the economic growth of recent years, which had been characterized by an expansion in job creation and falling unemployment, the contraction observed in 2015 and 2016 corresponded to a phase of contraction in the labor market. While the economy resumed its rapid growth rate following the recent financial crisis, thanks mainly to the recovery of commodity prices, the current market scenario does not foresee a rapid increase in prices— while there was a slight rebound this year, no major improvement is expected in the short or medium term due to China's moderate growth and a more uncertain international environment.

According to the report, between 2006 and 2014, with the exception of 2009, employment rates either grew more or fell less than participation rates, which was reflected in a decreasing trend in the unemployment rate. The effect of the economic slowdown was lessened by the fact that a procyclical effect was registered in participation rates. But in 2015, and especially in 2016, this trend changed; as the employment rate continued to fall, the regional participation rate fell less than the employment rate in 2015, and then grew in 2016.

At the country level, there are differences in the performance of the region’s respective labor markets. In 2015, of the 33 countries included in the report, 8 saw an increase in unemployment, while in 2016 the number grew to 13 countries. In addition, most are South American countries and have proportionally much more weight than those of the Caribbean, both in terms of their economies as well as the regional labor market.

Not only was last year characterized by an increase in regional unemployment, Latam also saw a deterioration in general labor market conditions. This, according to the report, "was expressed in a readjustment in employment composition toward more informal categories with more structurally-precarious working conditions, such as self-employed workers." This type of work, therefore, became an alternative for income generation for many wage earners who would had lost their jobs. This countercyclical behavior, to a certain extent, cushioned the loss of higher-quality jobs.

*Guest blog post from Latinoamerica21. 

Jeronimo Giorgi is an Uruguayan journalist dedicated to international issues. He has collaborated with various media in Latin America and Europe, and has received distinctions such as the 2016 King of Spain International Journalism Award. Giorgi is currently pursuing a master's degree in Latin American Studies.

Latinoamerica21 is a blog about current economic, political and social topics in Latin America that is currently published within the newspaper El Observador de Uruguay and will soon be published in other media outlets within the region. The original version of this blog post is available in Spanish: ¿De dónde provendrá el crecimiento en América Latina? Retos y prioridades

Follow Latinoamerica21 on Facebook and Twitter.

*Guest blog posts do not reflect the views of FocusEconomics. 

Date: May 22, 2017