US embassy cable - 05ASUNCION873

UNCLAS SECTION 01 OF 02 ASUNCION 000873 
 
SIPDIS 
 
STATE FOR WHA/BSC, WHA/EPSC 
STATE PASS TO USTR FOR SCRONIN, LYANG 
USAID FOR AA/LAC ADOLFO FRANCO 
TREASURY FOR OSIA MAUREEN WAFER 
COMMERCE ITA SARAH COOK 
NSC FOR MIKE DEMPSEY 
SOUTHCOM FOR POLAD 
US SOUTHERN COMMAND MIAMI, FLORIDA 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, PA 
SUBJECT: PARAGUAY'S UNEMPLOYMENT RATE FALLS BUT 
UNDEREMPLOYMENT REMAINS HIGH 
 
 
1.  Summary: The GOP's annual unemployment report indicates 
that open unemployment fell to 10.9 percent of the labor 
force in 2004 from 13 percent in 2003.  However, another 24 
percent of the population is classified as under-employed, 
meaning that more than a third of the work force has less 
work than it would like.  The report also classifies people 
working in the family with no remuneration (13 percent of 
the labor force) as employed.  The report indicates that 40% 
of the labor force is self-employed, and casual observation 
would suggest that most are among the lower rungs of the 
economy.  The GOP considers persons ten years of age or 
older as part of the potential workforce, although the 
report claims that only about 20 percent of young workers 
(10-14) participate in the work force.  The data indicates 
some marginal improvement, but highlight the insufficient 
rate of job creation in Paraguay's economy. End Summary. 
 
2.  According to the General Office of Statistics, Surveys, 
and Census (DGEEC), the total unemployment rate for 2004 was 
10.9%, down from 13.0% in 2003.  In 2004, 76.4% of the total 
population (5,701,675) was of working age (10 years or 
older), and the DGEEC classified 63.4% of these workers as 
Economically Active Persons (PEA), defined as those employed 
or those unemployed seeking work.  In 2003, only 60.6% of 
the working age population was classified as economically 
active.  The combination of a larger percentage of 
economically active persons and a lower unemployment rate 
suggests an improving labor market: the labor pool has 
grown, while at the same time the share of those unable to 
find work has decreased.  Note: the DGEEC publishes 
unemployment data only annually.  End note. 
 
3.  A closer look reveals a less positive picture of the 
labor market.  The DGEEC report includes a footnote to 
explain the inclusion of persons as young as 10 years old as 
part of the labor force.  It says "information is collected 
about persons ten years old and above for a better 
characterization of the labor market given the particular 
national economic reality."  The report includes a chart 
estimating that only about 20% of Paraguayans from 10 to 14 
years of age participate in the labor force.  That 
percentage is an average of about 25 percent for boys and 15 
percent for girls in that age group. 
 
4.  Employment rates by themselves are insufficient when 
assessing the state of an economy, i.e. a low unemployment 
rate does not automatically imply a healthy economy.  The 
level of sub-employment is thus an important indicator of 
macroeconomic behavior.  The DGEEC defines two types of sub- 
employment: visible and invisible.  Visible sub-employment 
occurs when a person works for less than 30 hours a week, 
but wishes to work more and is making an effort to do so. 
The DGEEC defines invisible sub-employment as comprising 
those workers who work more than 30 hours a week, but are 
paid less than the minimum wage.  Paraguay's overall sub- 
employment rate has remained fairly stable, around 24% of 
PEA, since 2001, with 8% visibly and 16% invisibly sub- 
employed in 2004. 
 
5.  According to the report, 210,017 new jobs were created 
in 2004, to include workers classified as self employed.  In 
addition to general economic recovery, this increase was 
largely due to a 10.6% (97,270) increase in the number of 
self-employed workers as well as the relative success of 
small businesses.  Currently around 40% of the workforce is 
classified as self-employed, with an additional 13% 
classified as employed, but working within the family 
without remuneration.  Around 70% of the PEA claims to work 
for a business with less than 5 employees, highlighting the 
prevalence of micro-enterprises. 
 
Comment 
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6.  Although the total unemployment rate has dropped, other 
factors remain troublesome.  The relatively high sub- 
employment rate has not improved in recent years, reflecting 
the economy's inability to generate more full-time, formal 
jobs.  Adding both rates, the report notes that 35 percent 
of the work force has some employment problem, with the rate 
higher (40 percent) in urban areas than in rural ones (28 
percent).  One might conclude that the 13 percent considered 
employed but working in their families without remuneration 
might prefer paid work and could better be considered 
unemployed or sub-employed.  Also, self-employed workers as 
a whole are likely to earn less than the minimum wage and to 
lack access to Paraguay's social security system. 
 
7.  The overall quality of the survey is difficult to 
determine.  The data is collected from August to December, 
and released five or so months later as an annual report. 
Anecdotal experience would suggest that the open 
unemployment rate of 10.9 percent is an underestimation of 
the real rate, although the high rate of sub-employment may 
well capture the reality of insufficient job creation in 
Paraguay. 
 
KEANE