The Peruvian labor force increased from 3.1 million workers in 1960 to 5.6 million by 1980, and to 7.6 million by 1990. As it did so, the share of the labor force in agriculture steadily decreased, but the shares in manufacturing and mining failed to rise (see fig. 11). On balance, the decreases in the agricultural share had to be offset by increases in the share in service activities, some of them offering productive employment at abovepoverty income levels but many of them not (see table 17, Appendix).

Peru's long process of transition away from a rural society was far from complete at the beginning of the post-World War II period. Fifty-nine percent of the labor force was still working in agriculture in 1950. That share fell to barely over half by 1960 and to 34 percent by 1990. The more surprising trend is that the share of the labor force in manufacturing also fell, from 13 percent in 1950 to 10 percent by 1990. Stable shares in both construction and mining meant that the shift out of agriculture went mainly toward services, pulling their share of employment up from 23 percent in 1950 to 50 percent by 1990.

The persistent decrease in the share of the labor force in agriculture could in theory have helped to alleviate rural poverty by leaving higher average land holdings to those remaining in agriculture. But the absolute number of people trying to make a living from inadequate land holdings actually increased. The labor force in agriculture rose 52 percent between 1960 and 1990. In addition, emigration from agriculture exerted increasing pressure on labor markets in the cities, and the increase in rural workers kept earnings low in that sector.

A growing labor force need not drive wages down and in most instances does not, provided that investment and technical change keep opening up new opportunities for productive employment fast enough to absorb the larger number of workers. Peru managed to accomplish such growth in the first post-World War II decades, but from the early 1970s the trend went downward. As more and more workers tried to survive in the service sector by selfemployment or work with families instead of formally registered firms, they created a rapidly growing informal sector. Workers in the informal sector are mostly employed, and they certainly add to national income, but their earnings are often below the poverty line.

Overt unemployment that can actually be counted has been only a small part of the problem. The overt unemployment level in Lima was an estimated 7 percent in 1980, rising to 8 percent by 1990. But estimates of underemployment in part-time or very low-income activities indicate that 26 percent of Lima's labor force was in this category in 1980, and fully 86 percent in 1990. Such measures are invariably somewhat arbitrary, depending on how underemployment is defined and measured. However, the fact that the share of Lima's labor force fitting the definition more than tripled between 1980 and 1990 is readily understandable in the light of the deterioration of th147 the economy in the 1980s.

Data as of September 1992