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Stalled labor force is preventing a higher unemployment rate

Andrés Pérez M. & Vittorio Peretti


During the quarter ending in November, employment contracted 0.2% MoM/SA, the third sequential drop over the last four months, consistent with a gradual loosening of the labor market. In annual terms, total employment increased 3.9% YoY (6.0% in 3Q) lifted by salaried private posts while self-employment fell. The labor force grew 4.3% YoY (5.5% in 3Q), thus leading to an unemployment increase over one-year of 40bps to 7.9%. Nevertheless, the print came in below the Bloomberg market consensus of 8% and our 8.1% call. Employment sits around 1.4% below pre-pandemic levels (SA) while the labor participation rate remained at 59.8%, well below the pre-pandemic levels of around 63% and preventing a swifter rise in the unemployment rate.

Job creation was pulled by formal posts. In annual terms, total private salaried posts rose by 6.8% YoY (7.5% in 3Q), lifting total employment growth (3.8% YoY). Self-employment fell 1.8% YoY (+3.8% in 3Q), the first annual decline since February 2021. Formal employment increased 5.1% YoY, continuing its moderation from previous months (6.8% in 3Q) while informal jobs grew a mild 0.4% YoY (down from 3.9% last month). The informality rate fell 0.4pp to 27.3% in the quarter, remaining below pre-pandemic levels.

As the economy continues to adjust, following the effects of contractionary monetary and fiscal policy, we expect a further deterioration of the labor market. Online job vacancies registered a drop of 39% YoY during November, similar to the rate of declines in previous months. In addition, high inflation has led to thirteen consecutive months of year-on-year contraction in real wages, denting consumer purchasing power and helping the economic correction underway. We expect the unemployment rate to average 9% next year, after likely concluding this year around 8%.

Andrés Pérez M.

Vittorio Peretti