Abstract:

This paper reviews Peru’s macroeconomic performance in the last 16 years (2001-2016) through labor market indicators. The assessment of the past 16 years is somewhat bittersweet. On the positive side, there has been a major reallocation of labor resources away from agriculture into the rest of the economy without any major disruption in wages, unemployment levels, and inflation as it had been in previous resource booms. Yet, most employment created during that period—notably in commerce and transport and communication—has been in jobs paying wages that are roughly equal to or below the economy’s average. Wages in these sectors have been increasing broadly in line with productivity growth, thus keeping unit labor costs (ULCs) largely unchanged despite underlying inflation. The inertia of ULCs growth should have, in principle, spurred a tighter growth of households’ real income, consumption, and savings than otherwise. The welfare and policy implications of such economic environment have not been insignificant.