PARAGUAY'S UNEMPLOYMENT RATE FALLS BUT

UNCLAS SECTION 01 OF 02 ASUNCION 000873

SIPDIS

STATE FOR WHA/BSC, WHA/EPSC
STATE PASS TO USTR FOR SCRONIN, LYANG
USAID FOR AA/LAC ADOLFO FRANCO
TREASURY FOR OSIA MAUREEN WAFER
COMMERCE ITA SARAH COOK
NSC FOR MIKE DEMPSEY
SOUTHCOM FOR POLAD
US SOUTHERN COMMAND MIAMI, FLORIDA

E.O. 12958: N/A
TAGS: ECON EFIN PA
SUBJECT: PARAGUAY'S UNEMPLOYMENT RATE FALLS BUT
UNDEREMPLOYMENT REMAINS HIGH



1. Summary: The GOP's annual unemployment report indicates
that open unemployment fell to 10.9 percent of the labor
force in 2004 from 13 percent in 2003. However, another 24
percent of the population is classified as under-employed,
meaning that more than a third of the work force has less
work than it would like. The report also classifies people
working in the family with no remuneration (13 percent of
the labor force) as employed. The report indicates that 40%
of the labor force is self-employed, and casual observation
would suggest that most are among the lower rungs of the
economy. The GOP considers persons ten years of age or
older as part of the potential workforce, although the
report claims that only about 20 percent of young workers
(10-14) participate in the work force. The data indicates
some marginal improvement, but highlight the insufficient
rate of job creation in Paraguay's economy. End Summary.


2. According to the General Office of Statistics, Surveys,
and Census (DGEEC),the total unemployment rate for 2004 was
10.9%, down from 13.0% in 2003. In 2004, 76.4% of the total
population (5,701,675) was of working age (10 years or
older),and the DGEEC classified 63.4% of these workers as
Economically Active Persons (PEA),defined as those employed
or those unemployed seeking work. In 2003, only 60.6% of
the working age population was classified as economically
active. The combination of a larger percentage of
economically active persons and a lower unemployment rate
suggests an improving labor market: the labor pool has
grown, while at the same time the share of those unable to
find work has decreased. Note: the DGEEC publishes
unemployment data only annually. End note.


3. A closer look reveals a less positive picture of the
labor market. The DGEEC report includes a footnote to
explain the inclusion of persons as young as 10 years old as
part of the labor force. It says "information is collected
about persons ten years old and above for a better
characterization of the labor market given the particular
national economic reality." The report includes a chart
estimating that only about 20% of Paraguayans from 10 to 14
years of age participate in the labor force. That
percentage is an average of about 25 percent for boys and 15
percent for girls in that age group.


4. Employment rates by themselves are insufficient when
assessing the state of an economy, i.e. a low unemployment
rate does not automatically imply a healthy economy. The
level of sub-employment is thus an important indicator of
macroeconomic behavior. The DGEEC defines two types of sub-
employment: visible and invisible. Visible sub-employment
occurs when a person works for less than 30 hours a week,
but wishes to work more and is making an effort to do so.
The DGEEC defines invisible sub-employment as comprising
those workers who work more than 30 hours a week, but are
paid less than the minimum wage. Paraguay's overall sub-
employment rate has remained fairly stable, around 24% of
PEA, since 2001, with 8% visibly and 16% invisibly sub-
employed in 2004.


5. According to the report, 210,017 new jobs were created
in 2004, to include workers classified as self employed. In
addition to general economic recovery, this increase was
largely due to a 10.6% (97,270) increase in the number of
self-employed workers as well as the relative success of
small businesses. Currently around 40% of the workforce is
classified as self-employed, with an additional 13%
classified as employed, but working within the family
without remuneration. Around 70% of the PEA claims to work
for a business with less than 5 employees, highlighting the
prevalence of micro-enterprises.

Comment
--------------


6. Although the total unemployment rate has dropped, other
factors remain troublesome. The relatively high sub-
employment rate has not improved in recent years, reflecting
the economy's inability to generate more full-time, formal
jobs. Adding both rates, the report notes that 35 percent
of the work force has some employment problem, with the rate
higher (40 percent) in urban areas than in rural ones (28
percent). One might conclude that the 13 percent considered
employed but working in their families without remuneration
might prefer paid work and could better be considered
unemployed or sub-employed. Also, self-employed workers as
a whole are likely to earn less than the minimum wage and to
lack access to Paraguay's social security system.


7. The overall quality of the survey is difficult to
determine. The data is collected from August to December,
and released five or so months later as an annual report.
Anecdotal experience would suggest that the open
unemployment rate of 10.9 percent is an underestimation of
the real rate, although the high rate of sub-employment may
well capture the reality of insufficient job creation in
Paraguay.

KEANE