Working in Latin America


Workers' protest, La Paz, Bolivia (photo credit: Pablo Verdin)

Today, in much of Latin America, the dominant economic paradigm is neo-liberalism.  This particular line of thinking is a reaction to the preceding paradigm known as 'Import Substitution.'  Previously, the perceived problem was the dependency of Latin Americans upon the unpredictable demands of the First and Second World nations.  For example, countries that were overly dependent upon the export of commodities such as tin and copper have found themselves in dire straits due to drops in prices and/or demand but were nevertheless dependent on imported manufactured goods such as automobiles.  During the era of Import Substitution, many countries applied their national resources to develop core industries such as automobile manufacturing, which would reduce their dependency upon imports as well as drive their own internal economies.

Import Substitution came under fire for leading many Latin American countries into debt crises, as the money borrowed to start these Import Substitution industries could not be repaid from the revenues from these industries.  The neo-liberals held that the problem was that there was too much state intervention in developing national industries that were inefficient and non-competitive and the required overspending led to runaway inflation.  

The neo-liberal solution to these problems attempts to address the philosophical roots.  The actual steps were somewhat different across countries, since what is needed and what is possible depends on many situations (e.g. the amount of the external debt, the nature and state of the economy, the principal assets of the country, etc) and many players (e.g. government officials, unions, the lending banks, academic theoreticians, the International Monetary Fund, the World Bank, and even the electorate).  Usually, they involve these two aspects  ---

This is not the place for us to evaluate the success/failure of neo-liberalism as a whole.  Still, it should be clear that structural adjustment implies a radical transformation of the economy achieved within a short time frame, which is sometimes called a shock.  The re-allocation of resources means that some sectors of the economy will shrink even as others expand.  Thus, in the post-NAFTA era, the traditional maize growers in Mexico found themselves unable to compete in the open market against the large mechanized North American farms which are several times more productive; correspondingly, the Latin American countries were booming in maquiladoras because they had an abundant supply of cheap labor; or, as Ross Perot chooses to describe it, there was the 'giant sucking sound' of North American manufacturing jobs heading south.

Under any re-allocation process for a complex economy, there is unlikely to be a Pareto-optimal solution in which everybody does no worse than before.  Rather, in all likelihood, some people will do better and other people will fare worse than before.  When an economic shock is applied, the quickest and biggest impact appears in the form of rising unemployment, as when governments reduces their sizes and expenditures, privatized firms streamline their operations, private companies replacing union workers with non-union people, companies going out of business because of foreign competition, etc.  Job elimination simply happens a lot faster than job creation.

We will now cite some survey data from the 1999-2000 TGI Latina study.  This is a consumer survey of 46,244 persons between the ages of 12 and 64 years old in seven Latin American countries: Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela.  From this study, the employment statistics are:  40% of the respondents have full-time employment (that is, working 30 hours or more per week), 6% are unemployed and currently looking for work, 1.4% are unemployed but are currently not looking for work.  The following table breaks these numbers out by demographic characteristics.

Demographic Characteristic % Full-time employed % Unemployed, 
looking for work 
% Unemployed, 
not looking for work
Regional Socio-Economic Level
     Level A (top 10%)
     Level B (next 20%)
     Level C (next 30%)
     Level D (bottom 40%)

47%
43%
40%
36%

  2%
  4%
  6%
  8%

  0.5%
  0.8%
  1.5%
  1.9%
Sex/age
     Male 12-19 years
     Male 20-24 years
     Male 25-34 years
     Male 35-44 years
     Male 45-54 years
     Male 55-64 years

     Female 12-19 years
     Female 20-24 years
     Female 25-34 years
     Female 35-44 years
     Female 45-54 years
     Female 55-64 years

15%
54%
76%
81%
73%
50%

  5%
26%
32%
36%
29%
15%

  4%
10%
  7%
  5%
  5%
  4%

  4%
12%
  9%
  5%
  3%
  2%

  1.0%
  0.9%
  1.3%
  1.2%
  1.0%
  1.5%

  2.2%
  2.3%
  1.9%
  1.4%
  1.8%
  0.7%
TOTAL 40%   6%   1.4%

(source:  TGI Latina)

There is a gender gap in labor participation in Latin America.  More men are employed than women; for example, 81% of men 35-44 years old are working full time, versus 36% of women in the same age bracket.  Conversely, more women than men are unable to find jobs; for example, 10% of men 20-24 years old cannot find jobs, versus 12% of women in the same age bracket.  

Labor participation is also an increasing function of socio-economic level.  The more affluent people are more likely to be working, and the less affluent are more likely to be unemployed.  This is rather unfortunate, as the poor are more vulnerable because they are less likely to possess the means (such as savings, credit and loan collaterals) to smooth out the effects of unemployment and have to endure cuts in consumption that have long-term deleterious effects.  

Here, we must point out that there are number of definitional issues related to the notions of employment and unemployment.

An unemployed person faces an uncertain future.  The loss of that income erodes consumer confidence.  In the following table, we show the consumer confidence index by the different employment/unemployment categories.  There is clearly significantly less confidence among the unemployed persons.  

Consumer Confidence % Full-time employed -
agree
% Unemployed, 
looking for work -
agree
% Unemployed, 
not looking for work -
 agree
Current condition compared to 1 year ago
     Better than 1 year ago
     The same as 1 year ago
     Worse than 1 year ago

Consumer Confidence Index

33%
39%
27%

106

20%
35%
45%

75    

26%
39%
36%

87    
Current condition compared to 1 year from now
     Better 1 year from now
     The same as 1 year from now
     Worse 1 year from now

65%
22%
12%

72%
17%
11%

65%
21%
14%

(source:  TGI Latina)

As we have shown in a previous note (Consumer Confidence and Spending Behavior), consumer confidence is positively correlated with consumption.  For the poor, normal consumption is already close to the minimal subsistence levels.  Further reduction in food consumption may lead to higher levels of malnutrition, which may cause serious damage to long-term health and earnings potentials.  Reduction in schooling, either because they could not afford the direct and indirect costs or because the children must enter the labor force to earn money too, will mean lesser opportunities later in life.

While the economic, social and political effects are somewhat understood, the psychological injuries of unemployment are often taken for granted or hidden from public view because they are too embarrassing to discuss.  In the following table, we show a list of attitudinal statements tabulated by the employment/unemployment categories.  What do we see for the jobless ones?  Feelings of anxiety, isolation, disappointment, unhappiness, inadequacy, helplessness,  ...

Statement % Full-time employed -
completely agree
% Unemployed, looking for work -
completely agree
% Unemployed, not looking for work -
 completely agree
I am very happy with life as it is 36% 34% 35%
Successful people have more money 17% 19% 21%
It is important my family thinks I am doing well 43% 51% 41%
I feel very alone in the world    8% 11% 11%
I worry a lot about myself 31% 46% 26%
There is little I can do to change my life 10% 14% 13%
If I won the lottery, I would never work again 16% 21% 20%
I look on the work I do as a career rather than just a job 38% 33% 32%
I am perfectly happy with my standard of living 27% 23% 27%
I am a workaholic 14% 13% 12%
Job security is more important to me than the money 29% 31% 24%
I would rather have a boring job than no job at all 44% 47% 42%

(source:  TGI Latina)

In a perfect world, a person who wishes to earn money by performing honest work should be given the opportunity to do so.  Nobody should have to suffer the indignities and injuries of unemployment.  Unfortunately, under neo-liberalism, full employment is in fact unacceptable since there must be a reserve labor pool to ensure efficient and time allocation of resources.

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(posted by Roland Soong on 9/07/00)


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