Job Growth Weak Amid Reforms, Study Finds

Free-market reforms sweeping Latin America are fostering higher economic growth and more revenue for foreign firms, but they have done little to relieve the region’s pressing unemployment problem, a paradox that will cause a political backlash and jeopardize the continent’s shift to free markets if it persists, officials here said Sunday.

A report released by the Inter-American Development Bank on the eve of its annual board of governors meeting here found that jobs in Latin America have grown at a disappointing 2.8% annual rate in the 1990s. That’s slower than the 3.3% growth rate of the 1980s, before reforms took hold.

And despite economic growth in recent years of 6% or higher in Chile, Peru and Argentina, the region’s high formal unemployment rate of 10% is essentially unchanged from a decade ago.

Meanwhile, the number of informal and underemployed workers continues to increase throughout the continent, representing more than 57% of all workers. That’s up from 52% in 1990.

The report, prepared by IDB Chief Economist Ricardo Hausmann, supports warnings from several government officials attending the bank’s meeting that free-market benefits must translate into better jobs if reforms are to endure.

The promise of higher living standards are, after all, what helped them sell those reforms to their constituents.

“There is a political problem if the benefits of privatization and openness do not reach the lesser-educated workers who are increasingly on the margin,” Costa Rican Finance Minister Francisco de Paula Gutierrez told an IDB seminar.

Those benefits, already slow in coming, may now take even longer because the Asian financial crisis is depriving many Latin American firms of export dollars, according to a report by the Institute of International Finance in Washington, D.C.

Sunday, the IIF forecast that Latin America’s economic growth rate will slow to 3% in 1998 from 5% last year.

Over the past decade, most countries in the region have jettisoned socialist economic models based on state-owned energy, transportation and banking industries and opened up such services to enterprises through privatization and liberalized foreign-investment rules.

The transition to free markets has led to economic growth and stability in many countries but has also been painful, involving the firings of hundreds of thousands of government employees in bloated bureaucracies and privatized state-owned businesses. Government officials sold the economic restructuring with the argument that the promise of better times to come outweighed the short-term pain.

But with a few exceptions, notably Mexico, Paraguay and Peru, the shift has failed to deliver the most essential benefit of all--more jobs. Most Latin American countries show “rising unemployment rates, lower real salaries and increasing inequality” in wages across the spectrum of skilled and unskilled workers, the IDB report said.

“We all want an increase in employment, the inclusion of more citizens in the social security system. Otherwise, all these reforms would have no point,” said Mexican Finance Minister Jose Angel Gurria.

Hausmann and other speakers agreed that the employment problem was due to such factors as rising productivity, urbanization and the entry of women into the workplace.