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What’s Behind Latin America’s Jobless Recovery?

A common explanation for the apparent decoupling of growth and employment in many countries is that technological advances, such as automation and robotics, have resulted in capital substituting for labor across the region’s economies. But in Latin America, at least, a simpler and more plausible hypothesis has not yet been ruled out.

MONTEVIDEO – After a sharp and continuous slowdown that began in mid-2013 and ended in the last quarter of 2015, economic growth in most Latin American countries has now officially returned. But a corresponding decline in unemployment is nowhere in sight. In fact, unemployment in much of the region has continued climbing during the last seven quarters. Why?

Latin America’s jobless recovery is of great concern for many, and with good reason. During the first seven quarters of the previous recovery, which began in 2004, average unemployment decreased by 0.2 percentage points for every percentage point of GDP growth. This time, unemployment over the last seven quarters has actually increased by 0.3 percentage points for each percentage point of growth, resulting in a total rise in unemployment of almost one percentage point since the end of 2015.

One common explanation for the apparent decoupling of growth and employment is that technological advances, such as automation and robotics, have resulted in capital substituting for labor across the region’s economies. As innovations in production have reduced the number of workers needed to generate a unit of output, the traditional correlation between output and employment has been severed.

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