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A notable rise in the minimum wage contribute to the weakening of the labor market

Joao Pedro Resende, Andrés Pérez M., Vittorio Peretti & Carolina Monzón


The unemployment rate surprised to the upside during the final month of 2022, returning to double digits. The national unemployment rate of 10.3% was 0.8pp down over one year, while the urban unemployment rate reached 10.8%, down 0.6pp from last year, but well above the Bloomberg market consensus of 9.6% and our 8.8% call. Total employment expanded 4.5% yoy in December (5.7% previously), while the participation rate rose 1.3pp from December last year to 63.8% (yet still remains 1.2pp below the rate in 2019). At the margin, total employment expanded only a mild 0.1% MoM/SA from November, but fell 0.8% from 3Q to 4Q22 as the labor market gradually loosens from elevated levels (total employment sits 3.6% above pre-pandemic levels). For the full year, the consolidation of the economic reopening, along with the robust dynamics of domestic demand resulted in the urban unemployment rate averaging 11.4%, down from 15.2% in 2021, and in line with the unemployment rate from 2019. The national unemployment rate fell 2.6pp to 11.2% in 2022.

Private sector led job growth in 4Q22. In the final quarter of last year, employment increased 5.8% yoy (8.0% in 3Q and 10.6% in 2Q22), pulled up by private salaried posts (14.2% yoy; 14.1 in 3Q22) while government employment fell 9.6% yoy (6.4% drop in 3Q) and self-employment decreased 0.64 yoy (+4.9% in 3Q).

We expect the average unemployment rate to reach 11.8% this year (11.2% in 2022; 10.9% in 2019) as tight monetary policy, a notable rise in the minimum wage and elevated economic policy uncertainty contribute to the weakening of the labor market.