The COVID-19 crisis is wreaking havoc on employment. The uneven temporary shutdown of economic activity in countries across the region has forced firms to fire or suspend workers and prevented new hires. Recently released official statistics in some countries provide evidence of a very dramatic worsening in labor markets outcomes (a few weeks ago another #GraphForThought entry suggested this fact by using Google searches for unemployment benefits).  

Data from Chile, Colombia, Mexico and Peru show an unprecedented drop in the number of employed individuals along with a large increase in the number of people exiting the labor force. At the same time, only a surprisingly modest increase in the number of unemployed is recorded. Indeed, many individuals that lose their jobs are not becoming “unemployed” but are putting off looking for a job as a consequence of social distancing measures and mobility restrictions. These “discouraged workers” are dropping out of the labor force and not recorded as unemployed.

This #GraphForThought shows that as of May, in Mexico and Peru the number of individuals of working age out of the labor force surpassed that of individuals in it for the first time in at least 15 years. In Chile and Colombia, we see a similar trend, with both groups becoming closer in size.

In these rare circumstances, the unemployment rate (which is the ratio of the unemployed and those in the labor force) is unable to measure the extent of the scarcity of jobs since it fails to capture the fact that people move massively out of the labor force. Instead, a better thermometer for the labor market is the employment rate, which is the ratio between those employed and the working age population since it is not affected by the fact that people might leave the labor market because of the restrictions imposed due to COVID-19 on labor markets.

Figure 2 shows the evolution of the employment rate since 2010 and splits the population by gender to account for the fact that men and women often have very different labor market histories. It is observed that the indicator falls around 20 percentage points since the start of COVID-19, and that both men and women have been hit hard by the crisis. However, the situation is particularly concerning for women, whose integration to the labor market had been slowly growing in LAC in the past decades. The female employment rate had increased steadily since the beginning of the decade in Chile (reaching 48% in January, just before the pandemic started to hit), Mexico (43% in the same period) and Colombia (it reached 50% at its peak although before the pandemic it hovered around 47%). In just a few months the pandemic has erased the progress made in 10 years (the rate fell to 37%, 34% and 35% in Chile, Mexico and Colombia, respectively).

Figure 2.

These figures illustrate the unprecedented impact of the COVID-19 crisis on the labor market in Latin America and the Caribbean. While the impact is stark for both men and women, the graphs illustrate that the crisis could signify a regression of more than a decade in progress towards gender parity in the labor force. It is critical that countries quickly redouble efforts to bring women back into labor markets once countries reopen. Whether or not the observed drops in women’s and men’s employment will recover at similar speeds following the crisis remains an open question—and one that policy makers should monitor carefully to ensure that the progress many countries have made toward gender equality in the labor force is not lost in this crisis.