Itaú BBA - COLOMBIA – Self-employment driving labor market gains in November

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COLOMBIA – Self-employment driving labor market gains in November

December 30, 2020

Incipient signs of improvement in employment could be countered by social distancing measures and the minimum wage increase.

The urban unemployment rate came in at 15.4% in November, still up 5.0pp from one year ago (10.4%), but far milder than the 11.0pp average increase over the prior seven months (since the start of the crisis), as the economy gradually recovers amid the economic reopening. The unemployment rate came in close to our 15.5% call, while surprising the market to the downside (15.8%). The participation rate in urban areas is showing signs of stabilizing close to 65%, still 2.1pp below last year’s but far higher than the cycle low of 53.8% in April, reflecting jobs gains (1.2% MoM/SA) are driving the lower unemployment rate. Overall, the national unemployment rate came in at 13.3% in November, up a milder 4.1pp from last year and indicative that the bulk of the labor market weakness unfolded in key metropolitan areas.

In the quarter ending in November, the national unemployment rate rose 4.8pp over twelve months to 14.6%, with the urban component picking up 6.9pp to 16.8%. While still significantly above last year rates, unemployment has corrected notably from the peaks of over 20% reached around mid-year. Leading the recovery is self-employment, shrinking by a far milder 1.8% yoy in the quarter (down 17.9% in 2Q20) and explaining around half of the new jobs gained since the crisis low. Additionally, public employment returned to growth (+2.3% yoy in the quarter, versus the peak decline of 8.1%). On the private salaried front, job recoveries are expectedly unfolding at a somewhat more circumspect pace given the still elevated levels of uncertainty. Private salaried posts fell by a meaningful double-digit rate of 12.6% yoy in the quarter (18.4% down in 3Q20 and 25.5% in 2Q20). Hospitality services, commerce, and the public administration remain a key job drags versus last year’s levels.

Amid the significant economic shock, the average unemployment rate for 2020 will be well above the 10.5% recorded in 2019. Recent surprises point to a rate somewhat below our 16.5% current estimate. The gradual activity reactivation, along with fiscal and monetary stimulus, is expected to help consolidate the labor market recovery going forward. However, the incipient signs of improvement in employment could be countered by the more stringent social distancing measures at the close of the year and the announced minimum wage increase of 3.5% for 2021, above labor productivity and the expected inflation by the yearend (Itaú: 1.5%).

Miguel Ricaurte
Carolina Monzón

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