LABOR MARKET
I. The labor force participation rate and employment in Greater Buenos Aires, 1974-1994
This chapter discusses the labor force participation rate and employment in the city of Buenos Aires and nearby urban areas of the province of Buenos Aires (Greater Buenos Aires, GBA) in the period 1974-1994. GBA is a distinct geographical area noted for the size and density of its population, where activity is almost exclusively urban in nature.
I.1 The labor force participation rate
The labor force participation rate indicates the proportion of the population that is working or seeking work. It is an indicator of the supply of labor (expressed as the number of active persons) and reflects a large group of social and economic behaviors and structures.
The rate for a given region will depend on factors as diverse as the economic and demographic structure, cultural habits, the tax burden and structure, the means by which labor skills are acquired, the level of wealth and its distribution, the length and number of work days, income per job for different levels of qualification, the cost of seeking work, the organization of the markets and labor market regulations.
As economies develop events take place that affect the labor force participation rate in different ways. Increased urbanization, the growing participation of women in the labor market, specialization in production, reductions in the length of the working day, the creation of flexible or part-time jobs, growth in the formation of consolidated markets and improved infant mortality rates tend to generate a rise in the labor force participation rate.
On the other hand, the introduction of social security benefits for death or old age, reduced fertility rates, increased life expectancy, the extension of the years of education and the trend towards rigidity in labor contracts all tend to act in the opposite direction.
The historical development of the labor force participation rate in the GBA should be considered in the light of these considerations. As can be observed in Graph 3.1, throughout the sub-period from 1974 to 1983 the labor force participation rate recorded a declining trend, reaching 37.7% in 1983. Since then it has shown significant growth. The only declines in the 1983-1994 sub-period took place in 1990 and 1994. Furthermore, there was an unusually large increase of over two percentage points in 1993. Thus, despite the 1994 drop in the rate, it has remained at a high level in terms of the historical series.
Currently, given the speed and magnitude of the changes taking place, the peak reached in 1993 was a probably temporary reaction to a combination of independent factors with similar effects. In 1994 the labor force participation rate began to decline to return to its previous levels and trends, according to one plausible explanation
However, if the phenomenon is analyzed on the basis of long-term structural considerations, it could be argued that the transformation of the economy has removed the factors that had been depressing the labor force participation rate in the GBA region and that it has begun to move to a higher level more appropriate to the social and economic characteristics of the area. It is hoped that once further surveys are available, statistical analysis will be possible that will permit the identification of the trends and their causes.
The employment rate measures the share of the employed in the total population, indicating the relative strength of employment demand. The determinants include changes in the level of economic activity; changes in the structure of the economy and the institutional organization of production and markets; the degree of competition; predominant technological characteristics and the range of technological alternatives; relative prices; the costs of entry, personnel search and on-the-job training; the organization of the labor market; the length and number of working days; and the burden and structure of taxation. Changes in the social and economic structure affect the rate of employment by sending signals that become manifest in the medium and long term.
The employment rate is equivalent to the relationship between output per inhabitant and output per worker. It is frequently argued that a greater relative level of per capita wealth will be matched by lower population and output growth rates and greater output per worker. As economies develop a trend towards increased employment should therefore be recorded, followed by stagnation or even a decline. However, societies possess different factors that have a significant effect on potential behavior. The specific sequence followed in the incorporation of new activities that can be more or less labor intensive is a significant factor that affects the development over time of the rate of employment.
In addition, the significant presence of companies that gain access to resources through allocations from outside the market (whether public or private), highly oligopolistic tendencies, protection from competition from abroad, limitations on the access to capital markets and technology, an institutional framework that discriminates in favor of a longer working day rather than an increase in employment and an excessively large public sector are all phenomena that can be associated with a relatively higher rate of employment but also to slower productivity growth, eventually generating a premature stagnation in economic development.
At the same time, these phenomena will affect the employment rate in line with their intensity and duration. Brief fluctuations in the level of activity tend to provoke similar though less intense movements in the rate of employment, given the costs of reducing and later expanding employment levels.
As can be observed in Graph 3.2, the employment rate in the GBA region reflects certain basic features in common with those described for the labor force participation rate in the previous section: a declining cycle between 1980 and 1983 with a subsequent recovery to previous levels. The employment rate does not, however, reflect such a sharp rise as that recorded by the labor force participation rate in 1992 and 1993 . Furthermore, in 1994 there was a decline in the rate of employment. Since the most recent employment survey was conducted in May 1995, it will record the deceleration in activity levels following the Mexican crisis and the uncertainty of the pre-election period, it is to be expected that the rate of employment will be at a lower level than that for 1994.
The combination of the rate of employment and the labor force participation rate establishes the rate of unemployment, which measures the proportion of the active population that is unemployed. This link can be seen more clearly if consideration is also given of the complement of the unemployment rate: the occupation rate (measuring the number of persons employed per active member of the population). Since the unemployment rate is no more than 100% minus the occupation rate, the lower the occupation rate the higher the unemployment rate. The rate of occupation can be stated as the quotient between the rate of employment and the labor force participation rate: Increases or reductions in the employment rate can affect the rate of occupation offset by movements in the opposite direction in the labor force participation rate.
Graph 3.3 shows both the labor force participation rate and the employment rate for the G.B.A. region between 1974 and 1994. The increase in the rate of employment in the period 1991-1993 is accompanied by an increase in the labor force participation rate. This explains the increase in the rate of unemployment despite the increase in the number of new jobs.