High labor inactivity reflects the lack of jobs - IDESA

Report Nº: 100726/03/2023

High labor inactivity reflects the lack of jobs

The president claimed that 21 provinces have full employment because unemployment rates are very low. This statement incurs in a frequent misinterpretation of labor statistics. Full employment is achieved when there is low unemployment and high labor participation, which is not the case in Argentina.     

The President of the Nation, in his speech at the Legislative Assembly opening, made a strong statement regarding the state of the labor market. He said that in 21 provinces there is full employment. Although he did not clarify the criteria used to define “full employment”, it is likely that he considers as such those urban agglomerates which, according to INDEC’s household survey, have unemployment rates below 5%.

It is a common mistake –even among economists– to associate full employment with low unemployment rates. This overlooks that the first relevant labor market indicator is not the unemployment rate, but the labor participation rate. This measures the Economically Active Population (EAP), i.e. people working or actively looking for a job out of the total population. Then, the unemployment rate is the proportion of the EAP that is actively looking for a job and cannot find one.

To analyze the labor market, both the activity and unemployment rates must be analyzed together. For example, according to INDEC household survey data it is observed that:

  • In Greater Buenos Aires the unemployment rate is 8% and the EAP reaches 49% of the population.
  • In Cordoba and Rosario the unemployment rate is 7% and the EAP reaches 50% of the population.
  • In Formosa, Santiago del Estero and Viedma the unemployment rate is below 2% but the EAP reaches barely 40% of the population.  

These data show that Formosa, Santiago del Estero and Viedma have very low unemployment rates. But this is because they also have fewer people participating in the labor market. If in these three agglomerates people went out to look for work as they do in Greater Buenos Aires, Córdoba or Rosario, where half of the population participates in the labor market, the unemployment rate would not be 2% but 20%. Formosa, Santiago del Estero and Viedma are far from “full employment”. The lack of employment is reflected in the low labor participation rate. This phenomenon is called “hidden unemployment”. 

The low labor participation rate is basically explained by three reasons. The first is the scarcity of available jobs, which means that many people of working age do not go out to look for work because they perceive that they will not find it. The second is people’s lack of employability, which discourages them from looking for a job because their skills are far below what companies are looking for. The third is the low remuneration of available jobs, which makes many adults –generally women who take on household tasks– not see it convenient to take a job because it does not compensate the cost of delegating household tasks to third parties. These three dimensions should guide the labor policy agenda. 

Good macroeconomic policies are essential to encourage investment and production. But they are insufficient to generate quality jobs if they are not framed within a more comprehensive set of policies involving the labor modernization of labor, education and early childhood care institutions to free women from household duties. With sound macroeconomic policies the unemployment rate can be lowered. But to achieve full employment, that is, to eliminate the unemployment hidden behind low labor participation, more comprehensive actions are needed.

Full employment requires an integral ordering of the public sector. The role of the national state is to apply sound macroeconomic policies and modern labor institutions. The role of the provinces and their municipalities is to provide high quality health, education and childcare services that enable people to enter the labor market in quality jobs. These are disruptive changes from the current situation in which the Nation applies lousy macroeconomic and labor policies to meddle in local functions such as health, education and early childhood care. 


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