Horacio Bafico and Gustavo Michelin have recently published an article about the Uruguayan labour market trend in the local newspaper, El Pais. According to the authors, there has been a deterioration of Uruguayan labour market during 2015 that goes along with the economic slowdown the country is going through.

When analysed from a long term perspective, the deterioration is relative, mainly because it is compared with an election year (2014). However, the decline is expected to continue in the future.

Truth be told, during the 2011-2015 period the Uruguayan economy failed to create new jobs. Even though it was a period of economic growth, no new jobs were created. Nevertheless, the situation changed in 2014, when around 34 thousand jobs were developed. These jobs are the ones that were then lost in 2015.

The lack of employment creations has two main causes. On the one hand, almost full employment was reached in 2011-2012. Every person who wished to work and was moderately trained could enter the labour market. Among those who did not work it was either because they did not wanted to or they lacked the minimum skills to be hired.

On the other hand, there was a rise of real wages. According to Bafico and Michelin, this situation and the scarcity of proper talent, within a context of inexpensive financing, led companies to use production functions that provided workforce’s savings.

Nonetheless, the world has changed. Both the difficulties that the global economy is going through and the changes of local economic agents will contribute to increase the country’s economic slowdown. This shall have a negative impact on employment, particularly among unskilled youth.

In Uruguay, 58% of businessmen are planning to reduce investments in 2016 and domestic consumption is falling. Uncertainty towards employment stability and the rise of the US dollar are lowering the population’s expenditures. And each of these variables has an impact on employment.

Some of these changes occurred during 2015, and it was not possible to maintain the jobs created in 2014. The authors state that the deterioration is real and can be seen in the growth of unemployment, with an average rate in 2015 of 7.5%. It is the highest rate since 2009 and affects around 130 thousand people.

Bafico and Michelin claim that the new labour market’s reality can be seen in the conditions demanded by unemployed people. Around 60.7% of people had no demands in 2015, while in 2014 approximately 59% of candidates did not have any requirements.

Over half the jobs lost in 2015 were for people under 25 years old. Even though youth employment is a minority (220 thousand workers from a total number of 1.6 million workers), there are many unskilled youngsters among them.

Certainly, the largest part of those who lost their jobs are unskilled youngsters. This would explain why they do not set any conditions. It is a vulnerable group that shall have difficulties finding a new job in the current economic context.

In the short term, the Youth Employment Law, which deals with these problems, could be a useful instrument if it corrected certain rigidities and bureaucratic aspects it has.

Click here to read the full article in Spanish.