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Labor market deterioration should help to correct macro imbalances.

Andrés Pérez M. & Vittorio Peretti


During the final quarter of 2022, employment rose 0.1% QoQ/SA, partly offsetting the 0.2% QoQ/SA drop in 3Q22 as the gradual deterioration of the labor market continues.In annual terms, total employment increased 3.3% YoY (6.0% in 3Q) lifted by salaried private posts while self-employment fell. The labor force grew 4.1% YoY (5.5% in 3Q), leading to a 70bps YoY increase in the unemployment rate to 7.9% (-40bps in 3Q22). The unemployment rate was in line with the Bloomberg market consensus, while slightly below our 8% call. For the full year, the unemployment rate fell to 7.9% (8.9% in 2021; 10.8% in 2020). Employment sits around 1.2% below pre-pandemic levels (SA; -4.4% in 4Q21) while the labor participation rate ticked up to 60.3% (but still 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 6.0% YoY (7.5% in 3Q), lifting total employment growth (3.3% YoY). Self-employment fell 2.3% YoY (+3.8% in 3Q). Formal employment increased 4.6% YoY, decelerating from previous months (6.8% in 3Q) while informal jobs were flat over one year (+3.7% in 3Q22). Formal employment has been supported by the job-creation program (IFE Laboral), which has contributed slightly more than 50,000 new jobs, on average per month, over the last four months. By sector, construction remains a key drag but is showing signs of bottoming out. The informality rate rose slightly at the margin to 27.4% from 27.3%, nearly 1pp below 4Q21.

We expect the gradual deterioration of the labor market to continue, with an important adjustment in wages.With the economy cooling, labor demand (as reflected by the Central Bank's online job vacancies survey) registered a 44% YoY drop during December, taking labor demand below pre-Covid levels. Importantly however, complementary administrative data do not yet show a material increase in formal job losses. The adjustment in the labor market seems more pronounced in wages, with high inflation leading to fourteen consecutive months of contraction in real wages (-2.3% yoy in November), eroding the purchasing power of real wages back to the levels of end-2018. We expect the unemployment rate to average 9% this year, up from the 7.9% 2022 average.

Andrés Pérez M.
Vittorio Peretti 
Ignacio Martinez Labra