Itaú BBA - COLOMBIA – Labor market on the back foot at the beginning of 2018

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COLOMBIA – Labor market on the back foot at the beginning of 2018

February 28, 2018

Falling urban participation and job destruction reflect a loosening labor market that could hamper the recovery ahead.

The January national unemployment rate of 11.8% was stable from one year earlier, but 0.3 percentage points above our expectation, explained by higher-than-anticipated rural unemployment. The urban unemployment rate was a steady 13.4%, falling in between the Bloomberg market consensus of 13.3% and our 13.5% expectation. But falling urban participation and job destruction continue to reflect a loosening labor market that could hamper the expected recovery ahead. The seasonally adjusted labor market series showed urban unemployment ticking up 0.1 percentage point from December to 10.5%, while further rural loosening led to total unemployment picking up to 9.5% (9.2% in December).

In the quarter ending in January, total employment growth ticked up to 0.3%, from 0.1% in 4Q17. This was despite the deterioration in urban employment (-1.0% year over year, following -0.8% in 4Q17 and +0.2% in 3Q17). Additionally, the urban labor participation rate dropped 1.4 percentage points over twelve months, offsetting the effects of job destruction, so the unemployment rate only inched up to 10.9%(10.6% one year before). Overall, the national unemployment rate lifted to 9.6%, 0.3pp higher than one year earlier. Once adjusted for seasonal factors, the unemployment rate in the quarter was 9.5%, stable from 4Q17.

Agriculture is driving employment growth, while urban job destruction intensifies. In the quarter, 72 thousand jobs were created nationwide from one year prior, led by agriculture (278 thousand jobs; 7.9% yoy), while commerce and social workers are the main national destroyers of employment (together shedding 284 thousand posts). Meanwhile, the net urban job destruction was 110 thousand, versus the 90 thousand shed in 4Q17 and the 25 thousand created in 3Q17, with manufacturing shedding 59 thousand jobs. Overall, this reaffirms the fragility of the labor market.

Fiscal consolidation continues. National job growth came primarily from employers (+165 thousand) and unpaid family workers (+82 thousand), while self-employment shed 85 thousand jobs. On the formal side, public employment destroyed 55 thousand jobs (-6.3% yoy, down from -4.8% in 4Q17 and +1.3% in 3Q17). Meanwhile, private salaried job expansion came in at 46 thousand, a 0.5% annual rise (0.7% in 4Q17 and 0.1% in 3Q17).

Urban job destruction and falling participation reflect a weak labor market and poses a risk to a private consumption recovery. Overall, we see an activity pick-up to 2.5% this year, from the 1.8% for 2017, aided by low interest rates, higher real wages (as inflation falls) and a favorable external environment.

Miguel Ricaurte
Vittorio Peretti

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