UNEMPLOYMENT IN ECUADOR: A COMPARATIVE ANALYSIS

ABSTRACT

This paper analyzes the historical evolution of unemployment in Ecuador during the period 2018-2023. Through descriptive research based on data from the National Institute of Statistics and Census (INEC), various employment categories, such as adequate employment, underemployment, unpaid employment, other non-full employment, and unemployment, are examined. The results show that despite the relatively low unemployment rate, with an average of 4.2%, nearly half of the active population is in underemployment or other non-full employment conditions. This reveals deep inequalities in the Ecuadorian labor market, where a significant proportion of the workforce lacks job stability and social benefits.

АННОТАЦИЯ

Данная статья анализирует историческую эволюцию безработицы в Эквадоре в период 2018-2023 годов. С помощью описательного исследования на основе данных Национального института статистики и переписи (INEC) были изучены различные категории занятости, такие как достаточная занятость, неполная занятость, неоплачиваемая занятость, другая неполная занятость и безработица. Результаты показывают, что несмотря на относительно низкий уровень безработицы, составляющий в среднем 4,2%, почти половина активного населения находится в условиях неполной занятости или другой неполной занятости. Это свидетельствует о глубоких неравенствах на рынке труда Эквадора, где значительная часть рабочей силы не имеет стабильной работы и социальных льгот.

Keywords: Unemployment, Ecuador, Precarious Employment, Economic Activity.

Ключевые слова: Безработица, Эквадор, Нестабильная занятость, Экономическая активность.

Introduction

This study focuses on analyzing the behavior of unemployment in Ecuador during the period from 2018 to 2023. Through descriptive research based on data from the National Institute of Statistics and Census (INEC), it seeks to provide a comprehensive view of the different forms of employment in the country. Additionally, economic theories explaining unemployment are examined to offer a theoretical context for the empirical results obtained.

The main objective of this work is to identify trends and characteristics of unemployment in Ecuador, comparing the various types of employment and their evolution over time, with the aim of better understanding the challenges facing the labor market.

Methodology

Descriptive research is a method that uses numerical data to provide a clear and precise view of a reality, whether it be customs, habits, or situations (Guevara et al., 2020). In this context, this article addresses the variable of unemployment in Ecuador through descriptive research, aiming to identify, process, and analyze databases that provide valuable information to understand the social phenomenon of unemployment in a holistic, clear, and concise manner. The study period is from 2018 to 2023 (the year 2020 is not included).

Results and Analysis

Theories of Unemployment

Unemployment has been widely studied and debated, primarily because it affects the economies of almost every country in the world and has broad implications for both individuals and economies. It is a complex issue with various causes and deep consequences. This section addresses unemployment from a theoretical perspective to understand how and why it occurs.

In economic theory, unemployment is explained through various approaches. One of the most significant is that proposed by John Maynard Keynes (1883-1946), whose ideas, presented in his most important work "The General Theory of Employment, Interest, and Money" (1936), have greatly influenced the design and implementation of public policies.

Keynes criticized classical theory, which holds that there is an automatic equilibrium in the economy between supply and demand, balanced by prices. According to this theory, unemployment would not be possible because wages (prices) would allow the labor market to balance itself. In cases of unemployment, wages would fall, bringing labor supply and demand back into equilibrium, ensuring that everyone who wants to work can do so, meaning unemployment would be voluntary (Ramírez, 2012).

Keynes argued that this was not the case, as the balance between savings and investment is not as simple as classical economists suggested, since both variables are determined by multiple factors. He argued that markets do not always adjust automatically to achieve full employment; instead, there can be prolonged periods of involuntary unemployment due to insufficient demand for goods and services.

According to Keynes, unemployment arises because aggregate demand is insufficient. If there is a decline in the overall demand for goods and services in an economy, companies reduce their production, and as a result, decrease hiring. This creates a downward spiral, as unemployed individuals reduce consumption, further exacerbating the problem of low aggregate demand (Herrerías, 2002).

Keynes also stated that wages tend to be rigid downward, meaning they do not easily adjust. Instead of lowering wages, companies choose to reduce their workforce, causing unemployment. For Keynes, unemployment is not corrected by reducing wages but by increasing demand (Herrerías, 2002).

In practical terms, a high unemployment rate poses a serious problem for a country, as it directly affects economic growth. This is primarily because unemployed individuals do not generate income, which leads to economic problems such as reduced production, consumption, demand, and an increase in public deficits.

Keynes proposed that the government take an active role in the economy by using expansionary fiscal policies through public spending to stimulate demand and generate employment. This approach addresses cyclical unemployment and helps mitigate the effects of economic crises.

Milton Friedman, on the other hand, argued that there is a natural rate of unemployment in the economy and that the government cannot indefinitely reduce unemployment through fiscal policies because this would cause inflation. When unemployment falls below the natural rate, inflationary pressures arise because labor demand exceeds supply, driving wages and prices up (Yarce, 2010).

Friedman argued that unemployment is primarily caused by structural problems, such as industry changes, technological advances, geographic unemployment, demographic changes, or institutional rigidities. Unemployment is considered a long-term problem that cannot be resolved through economic policies alone, as Keynes suggested, but rather requires deeper changes in labor market structures and workforce capabilities (Yarce, 2010).

The theoretical debate on unemployment remains complex, as countries face different economic, social, and political issues. However, it is essential to understand this phenomenon from various perspectives to analyze its causes, characteristics, and potential solutions.

Definition and Categories of Unemployment

To understand unemployment, it is crucial to start with its definition. According to the Reserve Bank of Australia (s.f., p.1), "Unemployment occurs when someone is willing and able to work but does not have paid employment." In other words, it refers to the economically active population of working age that is available for remunerated work but is unemployed or seeking employment.

In Ecuador, unemployment is understood through the National Institute of Statistics and Census (INEC), which provides national statistical data. For this study, we used data from the National Survey of Employment, Unemployment, and Underemployment (ENEMDU).

INEC classifies employment into several categories: adequate/full employment, underemployment, other non-full employment, unpaid employment, and unemployment. Below are INEC’s definitions of each category.

Adequate/full employment: A person who has a job during the reference week, earns a salary equal to or greater than the established minimum wage, and works 40 or more hours, provided they do not wish to work additional hours (INEC, 2023).

Picture 1. Evolution of Adequate Employment in Ecuador

Note. Source: Prepared by the authors, based on INEC (2023).

In picture 1, we can observe the downward trend in suitable employment from 2018 to 2021, with a 7.7% decrease. This reflects that a considerable number of Ecuadorians were not in jobs with high employment quality indices, such as fair and adequate wages, job stability, health insurance, retirement access, among others.

Although a period of slight growth in suitable employment began in 2022, it is important to note that it has not been sufficient to reach the levels established in 2018.

Underemployment: Workers who, despite having a job, experience a combination of low income and/or reduced working hours. This situation occurs when the income obtained does not meet the established minimum wage or when the number of hours worked is less than the legal working hours, creating a gap between these individuals' job aspirations and the actual conditions of their employment (INEC, 2023).

Picture 2. Evolution of Underemployment in Ecuado

Note. Source: Prepared by the author, based on INEC (2023).

Underemployment levels in Ecuador have increased since 2018, reaching their peak in 2021. This reflects that more and more Ecuadorians are working fewer hours than the legal working hours or earning less than the minimum wage.

In 2022 and 2023, there has been a slight decrease in underemployment rates; however, the figures remain higher than those recorded in 2018.

Unpaid employment: People who, despite performing work activities, do not receive any form of payment in return. This group includes domestic workers, individuals who work without pay in other households, and those who assist paid workers or laborers without receiving a salary (INEC, 2023).

Picture 3. Evolution of Unpaid Employment

Note. Source: Prepared by the author, based on INEC (2023).

Regarding Unpaid Employment, from 2018 to 2019, there was an increase of 0.6%, reaching the highest peak. By 2021, a decrease of 0.4% was recorded compared to 2019.

What is notable in the graph is the period from 2022 to 2023, where Unpaid Employment has remained constant.

Another type of inadequate employment: People who, despite earning below the minimum wage or having reduced working hours, do not wish or are not available to work more. This indicates that they are satisfied with their current employment situation and are not actively seeking to improve it (INEC, 2023).

Picture 4. Evolution of Other Non-Full Employment

Note. Source: Prepared by the author, based on INEC (2023).

Picture 4 shows an upward growth in the Other Non-Full Employment trend. The only year where it has a slight drop of just 0.2% is in 2021, however, for 2022 it had a surprising increase of 1.6%. Its highest peak is recorded in 2023.

Unemployment: According to the INEC definition (2023), a person is unemployed when they meet three conditions: they do not have a job, they are actively looking for one and they are available to start working. This definition is based on the activities carried out by the person in the previous four-week period. In addition to this, it classifies underemployment into two categories. The first is called open employment, which are people who, in the last month, did not work, but actively looked for a job; the second is called hidden unemployment, which are individuals who, without a job, did not actively look for work in the last month because they are waiting for the results of previous procedures, have temporary work or for other reasons.

Table 5

Evolution of Unemployment in Ecuador

Picture 5. Evolution of Unemployment in Ecuador

Note. Source: Prepared by the authors, based on INEC (2023).

As shown in picture 5, unemployment has been increasing since 2018, reaching its highest peak in 2021. This year can be considered the restart of economic activity after the COVID-19 pandemic, which is why it can be seen that it was 5.2%.

From 2021 to 2023, there has been a drop in national unemployment, even though unemployment was lower than in 2018.

Discussion

There is a key point in the definition that is important to highlight, “actively seeking employment”. If the search for employment lasts for long periods of time, it can reflect a macroeconomic symptom. According to the International Monetary Fund (IMF), 2017, they say that unemployment is mainly linked to economic activity. It can be mentioned that it is an ambivalent phenomenon. When production in general increases in goods and services, more people are needed to produce, so companies look for labor in the labor market. On the other hand, when economic activity is low, two effects occur. The first is the elimination of jobs, causing unemployment to increase, and the second effect is the fall in wages.

Unemployment in a nation's economy can show different nuances. In the analysis presented by Vladimirovich. Et.al. (2020), unemployment is a serious problem that affects the economy as a whole, as it wastes the potential of workers, decreases the production of goods and services, and increases costs for the State. In addition, families facing unemployment suffer a significant reduction in their income. So, even if a person is looking for a job, and the economic activity of a nation is considered low or in recession, the chances of having a job or being employed are low or almost zero.

The data on the different types of employment, indicated in the graphs, leave us with some reflections. When considering the types of jobs, we can see that the so-called "adequate employment" has quality characteristics for workers, because it allows them to achieve labor benefits, such as job stability, medical and retirement benefits, and salaries in accordance with the hours of work. At the other extreme, unemployment as a percentage in Ecuador is low with an average of 4.2% between 2018 and 2023 (2020 is not considered in this study).

However, there are doubts regarding “Underemployment” and “Other Non-Full Employment”. In the case of Underemployment, the average percentage of the 5 years of study is 20.2%, while the average of Other Non-Full Employment is 28.1%. Calculating the average shows us that something is happening with Ecuadorian society, because the percentage of those who do not have the desire and availability to work despite incomes below the minimum wage or who work fewer hours is 7.9% higher than those people who are in Underemployment who have the availability and desire to continue working despite not reaching the minimum wage or the number of hours in a legal workday. So, we are left with the following question: is Ecuadorian society conformist at the labor level? From our point of view, we doubt this. We think that the tendency to “Other non-full employment” may be linked to labor exploitation, the precariousness of the worker, exposure to high workloads of hours to earn a minimal salary, reasons for which they prefer not to choose to work, on the contrary, they choose not to be exploited.

Conclusion

• Unemployment in Ecuador, in the study period, is low with an average percentage of 4.2%. However, although this is an encouraging figure, the sum of the percentage averages of the figures for “Underemployment” and “Other Non-Full Employment” is equal to 48.3%. This figure, which represents nearly half of Ecuadorians, shows us that it has characteristics of unemployment, since, in the case of Underemployment, despite the willingness to work or the time they have, they have not found work to move on to the higher category, which is Adequate Employment.

• The types of jobs called “Underemployment”, “Other Non-Full Employment” and “Unpaid Employment” have in common a possible worsening of inequality in the Ecuadorian labor market, in which they do not enjoy labor benefits, having employment with informal characteristics, with low salaries and without any social benefits. We also consider that these three categories of employment, in a certain way, have characteristics of “unemployment”.

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