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The sequential improvement in the labor market is unlikely to persist.
29/06/2023 | Andrés Pérez M., Vittorio Peretti & Ignacio Martinez Labra

During the quarter ending in May the unemployment rate unexpectedly edged further down from 1Q23 (SA), as employment growth continues to surprise sequentially. The unemployment rate came in at 8.5% (+0.7pp over one year), below both the market consensus of 8.8% and our 8.9% call. Over twelve months, employment increased 2.0% YoY (2.4% in 1Q23), supported by private salaried posts and public-salaried jobs. The labor force growth slowdown was more evident (from 3.5% YoY in 1Q23 to 2.8% YoY). On a seasonally adjusted basis, the unemployment rate fell 20bps from 1Q22 to 8.3% as employment increased 1.0% QoQ/SA (average quarterly employment growth during 2015-19 was 0.5% QoQ/SA), while the labor force increased by a milder 0.8% QoQ/SA (1.2% in 1Q23).


Job creation over twelve months was surprisingly driven by private salaried jobs posts. While self-employment and public posts had been key drivers to job growth in the recent past, May data points to a significant rebound of private salaried jobs. Such a development, along with the return to real annual wage growth, would boost the real wage bill and potentially moderate the expected activity downturn. The 2.0% YoY employment increase was supported by private salaried posts (+2.8% YoY; 1.0% in 1Q) and public-salaried jobs (4.6% YoY; 8.6% in 1Q), while self-employment was broadly stable. Formal employment increased 2.0% YoY (2.1% in 1Q23), while informal jobs grew 2.2% YoY (3.1% in 1Q23). The participation rate in the quarter reached 60.9% (up 0.7pp over one year, but down from the 1.0pp gain during 1Q23; 62.5% average during 2015-19).



Despite surprising employment dynamics, complementary indicators suggest the sequential improvement in the labor market is unlikely to persist. Proxies for labor demand trend well below pre-pandemic levels and administrative data on layoffs continue to rise. Private sector confidence remains weak, and labor costs are rising. We expect the unemployment rate to average 9.0% this year (7.9% in 2022), but recent dynamics put a downside bias to our call.