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ARGENTINA: Unemployment Falling Faster than Poverty

Marcela Valente

BUENOS AIRES, Jul 26 2006 (IPS) - The cycle of high unemployment which began in Argentina in the mid-1990s is apparently drawing to a close. However, the creation of new jobs has still not reduced the indices of poverty, extreme poverty and inequality to the levels of 10 or 12 years ago.

“The key to understanding the apparent lack of correlation between the drop in unemployment and the unsatisfactory evolution of other social indicators is the growth of the informal labour market,” explained sociologist Ernesto Kritz of the Sociedad de Estudios Laborales (SEL), an employment research consultancy.

At present, 44 percent of the economically active population works in the informal economy, without the benefits of health insurance or pension contributions. In 1994, when the unemployment rate was at a similar level, the proportion of the working population in the informal sector was 30 percent.

“Informal jobs are highly concentrated in small businesses, which find it difficult to compete without resorting to low wages paid ‘under the counter’ because their productivity is so low,” Kritz told IPS. “We should at least get back to the 30 percent figure that we had before the economic crisis,” he said.

Unemployment in Argentina had historically remained below 10 percent until May 1994, when it rose to 10.7 percent and continued to rise for nearly a decade. This was the period when free market policies espoused by Washington and implemented by the administration of Carlos Menem (1989-1999) were at their height.

In May 2002, the percentage of people without work in spite of actively seeking jobs hit a record 21.5 percent, as a result of the economic, social and political collapse which led to a popular uprising and the resignation of President Fernando de la Rúa only half-way through his four-year term of office.

Since that peak, unemployment began to fall, dropping by almost half to 11.4 percent in the first quarter of this year.

Better yet, President Néstor Kirchner recently announced, in advance of official economic reports, that in May unemployment stood at 9.8 percent of the economically active population, a level similar to that seen before the wave of privatisations and deregulation of the economy under Menem.

A number of the unemployed are not included in the statistics because they receive small stipends for the jobless. Taking them into account would raise the unemployment rate to 12 percent, but in any case, Kritz noted there was “a markedly decreasing trend. Argentina clearly has a chance to end this cycle,” the SEL director predicted.

However, Kritz pointed out that job creation associated with economic growth has not led to equivalent improvement in other social indicators, such as poverty, extreme poverty, informal employment and unequal income distribution.

Despite the same level of unemployment, “social inequality is worse than it was in 1994,” he said. Although these indicators are also recovering, they are doing so at a slower pace.

Although poverty has diminished considerably, 33.8 percent of the Argentine population of 38 million was still living below the poverty line at the end of last year. The poverty level reached a record of 52.4 percent in the first quarter of 2003, and is still far above its 20.4 percent level in 1994.

Also according to the National Institute of Statistics and Censuses (INDEC), 12.2 percent of the population was living in extreme poverty at the end of 2005, 15.4 percentage points less than at the height of the crisis in 2003. But this major reduction has still not dropped to the 4.4 percent level of extreme poverty existing in 1994, when the unemployment rate first reached double digits.

With regard to inequality, a June report by SEL states that “not only is it considerably greater that at the start of the cycle of high unemployment in 1994, but it is practically the same as it was during the 2001 crisis, when unemployment had reached 21..8 percent.”

That is why Kritz insists that the key is the informal sector, which is not giving way even with higher employment. “It’s a structural problem of small businesses. This could already be seen in 1994, when 30 percent of workers were informal, but their numbers increased sharply after the crisis, and many employers are still afraid to register their workers,” he said.

The situation is an obstacle to the creation of decent work. According to INDEC figures, registered employees have gained average wage increases of 92 percent since 2002, compared to 36 percent for those who have remained in the informal sector.

In Argentina today, 80 percent of low income households are supported by one worker who is either in the informal sector or earns a very low wage. This information was released this month by the Ministry of Economy.

In spite of the economic recovery and generation of employment, low wages are a bottleneck to curbing poverty. Having a job no longer guarantees that a head of household will escape from poverty, the government study concludes.

Of the working poor, 41 percent are registered workers and 51 percent are working in the informal sector. The remainder do some sort of work for the state in return for a meagre subsidy of about 50 dollars a month.

These figures show that sustained economic growth since 2003, and the associated job creation, have not sufficed to improve social indicators, and the Kirchner administration has started to realise this.

In recent weeks, some journalists have complained of alleged pressure from the government not to publicise official data about income distribution, which indicate that the gap between rich and poor has grown in the last year. Indeed, the authorities are considering changing the way this has traditionally been measured.

The fact is that in the first quarter of 2006, the income of the richest segment of the population was 29.2 times that of the poorest, and in the same quarter of 2005 it was 26.9 times the share of the poorest.

The gap is wider than it was in 1995, when the income of the rich was 19 times that of the poor. Current income distribution does show income recovery in the middle sectors, but this is happening within a social structure that distributes income in a highly unequal manner.