US embassy cable - 05LIMA4129

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. 
 
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Impressive Macroeconomic Growth 
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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. 
 
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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. 
 
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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. 
 
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COMMENT 
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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