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Cablegate: High Under-Employment Despite Solid Macro Showing

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 LIMA 004129

SIPDIS

DEPT FOR WHA/AND, EB/EPSC
LABOR FOR ILAB, TMCCARTER, LBUFFO, CROMERO

E.O. 12958: N/A
TAGS: ELAB ECON PGOV ETRD PE
SUBJECT: HIGH UNDER-EMPLOYMENT DESPITE SOLID MACRO SHOWING


1. Summary: Despite doubling yearly exports since 2001,
(projected to reach $15 billion in 2005) and 49 consecutive
months of GDP growth, Peru's labor force remains largely
informal and under-employed. In Lima, the average rate of
open unemployment through July 2005 was 9.58 percent, up
slightly from 9.24 percent over the same period in 2001.
While the unemployment rate remains relatively low, severe
levels of under-employment persist. Since 2001 an annual
average of 55 percent of economically active persons has
experienced under-employment. More significant, at least 60
percent of those currently employed are under-employed.
While Peru's macroeconomic numbers reflect a booming
economy, formal job creation has lagged behind. End
Summary.

-------------------------------
Impressive Macroeconomic Growth
-------------------------------

2. Peru's economy has emerged as one of the most dynamic in
Latin America. GDP grew 4.8 percent in 2004, reaching $67
billion. Exports -- propelled by high mineral prices and
trade benefits under the Andean Trade Promotion and Drug
Eradication Act (ATPDEA) -- surged above $12 billion in
2004, up 39 percent in dollar terms from 2003. The economy
has continued to gather steam in 2005, with a GDP growth
rate of 5.7 percent through the first two quarters. Exports
are up another 20 percent in dollar terms compared to the
same period in 2004, and international reserves have hit a
record $15.4 billion.

---------------------------
Relatively Low Unemployment
---------------------------

3. Peru continues to enjoy a relatively low rate of open
unemployment at 9.58 percent through July 2005, according to
monthly survey statistics published by the GOP's statistical
agency, INEI. Unlike many Latin American countries, Peru's
unemployment rate has not exceeded 10 percent annually since
1990. The working age population of Lima -- those over 14
years old -- reached 6.1 million in July, displaying a
steady two percent annual growth up from 5.7 million in the
same month of 2001. Approximately 68 percent of the working
age population is considered economically active persons,
defined as those employed or actively seeking employment.
Of these 4.1 million economically active persons, some 26
percent experience at least one period of unemployment each
year.

4. Within the working age population, those between the
ages of 14 and 24 suffer the most from unemployment. Since
2001, this age group's open unemployment rate has increased
from 14.4 percent to 16.4 in July 2005, more than double the
unemployment rate of any other age grouping. Those between
14 and 24 years old represent 42 percent of all those
unemployed in Lima while constituting only 26 percent of the
economically active. (Note: Because no annual nation-wide
comprehensive employment survey exists in Peru, we use
statistics for the Lima Metropolitan area. While the
capital city clearly does not cover the entire population of
Peru, Lima comprises approximately 32 percent of Peru's
working age population and accounts for 73 percent of formal
employment. End Note.)

5. The rate of labor force activity (active/working age) of
14-24 year olds and those older than 45 has been negative
since 2001, signaling that some are opting for inactivity
rather than participating in the labor market. The result
is passive unemployment: those who wish to work but do not
actively participate in the workforce, largely because of
low expectations of finding a decent job. The young are
most severely affected, as their lack of labor experience
makes them less desirable candidates for formal jobs.
Passive unemployment is estimated at five percent of the
economically active population.

-------------------------------
But Staggering Under-Employment
-------------------------------

6. While Peru's unemployment rate remains constant around
9.5 percent, levels of under-employment continue to grow.
Two types of under-employment exist in Peru: visible and
invisible. Visible under-employment occurs when a person
works less than thirty-five hours a week, but wishes to work
more and makes an effort to do so. Those suffering from
invisible under-employment work more than thirty-five hours
weekly but receive less than the minimum wage of $142 per
month. An average of 55.3 percent of the economically
active persons has experienced under-employment since 2001.
Invisible under-employment remains the most prominent,
affecting 38 percent of this group. Visible under-
employment affects a smaller, yet considerable 17.3 percent
of economically active persons.

7. More significant, 60.7 percent of those currently
employed in Lima are under-employed. A large portion (43
percent) of this under-employment is invisible, signaling a
large incidence of informality in the labor market (see
septel). A disparity exists between age groups affected.
An overwhelming 79 percent of employed 14-24 year olds
suffer from under-employment, 59 percent of which is
invisible. Workers over the age of 45 are also largely
affected, with 59 percent under-employed, 40 percent of
which is invisible. Those employed between 25 and 44 years
old are the least affected by under-employment, with 25
percent working less than desired or receiving less than
minimum wages.

-------
COMMENT
-------

8. Although open unemployment has consistently remained
under 10 percent in Peru, polls continually list
unemployment or lack of adequate employment as the number
one public concern. In Lima, less than one-third of those
who actively seek work find adequate employment. While
positive macro growth numbers suggest that all of Peru is
prospering, severe levels of under-employment, particularly
invisible under-employment that largely affects lower paid
workers, indicate a struggling labor market beset by
informality. The underemployment problem is exacerbated by
low levels of public and private investment, which declined
nearly 2 percent as a percentage of GDP, from 20.2 percent
in 2000 to 18.5 at the beginning of 2005. Many analysts
believe that for Peru's labor market to experience
continuous and sustained expansion, GDP must continue to
grow more than 5.5 percent annually and investment must
exceed 25 percent of GDP.

POWERS

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