Latin America has just got three more reasons to beat its chest. Unemployment has fallen to new or near-record lows in Brazil (4.6 per cent), Chile (6 per cent) and Colombia (10 per cent). No wonder the region’s domestic economies are powering along: have job, will spend. No wonder, also, that so many Europeans are beating a path to the new world in search of a job. Unemployment levels in Spain and Portugal are 26 per cent and 16 per cent respectively. Eat your heart out former “colonial masters”!

Still, it is not a uniform improvement. Take the famous “Misery Index” – which adds unemployment to inflation – and Venezuela and Argentina are among the world’s most miserable countries to live in. Employment levels there may be high, in official terms. But, thanks to inflation, workers are also earning less in real terms every day. Venezuela’s misery rate is 25 per cent, Argentina’s is 18, while the eurozone’s as a whole is 14.

Even in more prosperous and better run Latin countries there are valid questions about the sustainability of the jobs boom. Take one of the most remarkable and promising aspects of Latin America’s changing fortunes over the past decade: its pan-continental decline in inequality. No other region has enjoyed the same. Why it has happened in Latin America remains a puzzle.

One possibility is that unskilled workers are now being paid proportionally more than they used to be. That is no bad thing in itself: it lies behind the rise of the region’s “new middle classes”. But it may also reflect the fact that the demand for unskilled workers – who predominate in services (such as shops) and the commodity sector (such as mining) – has increased. This in turn may be because of increasing commodity specialisation (so-called “Dutch disease”), plus a turbocharged consumer credit boom. Given that both of these often end in tears, this is a development worth paying close attention to.

The World Bank put it thus in its October 2012 report, “The Labor Market Story behind Latin America’s Transformation”:

What appears as a fundamentally positive trend, the decline in household income and wage inequality, may hide a worrisome phenomenon, namely, the tendency in the region’s commodity exporting countries to specialize in sectors that are relatively less intensive in skills. This of course highlights the importance for reforms oriented at raising productivity in all sectors, including the non-tradable ones.

Evidence of such reform being enacted is scarce, Chile apart. Mexican productivity, for example, is now only back to 1994 levels, according to OECD statistics. As for Brazil, productivity continues to be shackled by the high taxes, inflexible labour markets and poor infrastructure which, bundled together, make up the “Brazil cost”. Eventually, so theory goes, these costs become so high that companies stop investing, businesses become more uncompetitive and then start to shed labour. That’s when the great Latin American boom begins to unwind.

Debates about productivity rarely get the pulse going, but they inevitably determine the wealth and work of a country’s labour force. So when it comes to employment, the region may be winning battles but it has not yet won the war.

Related reading:
Life skills: Latin-American scheme offers hope for future, FT
Guest post: the global hunt for talent, beyondbrics
Want a job? Move to Panama, beyondbrics

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