The Political Economy of the Labor Reform in Argentina

Abstract:     
In this paper, we develop a voting model to analyze the possibilities of observing different kinds of reforms in the labor market in Argentina. We consider different types of workers, such as unemployed, employed but specific, and employed but adaptive. We also consider labor unions, firms, and government as different players and predict the outcome of a given proposal involving weaker regulations in the labor sector under different economic contexts: the level of inflation, the degree of openness of the economy, the initial level of unemployment, etc. We conclude that reforms of the kind considered here will always be opposed by the labor unions and that they will be able to block the new legislation as long as unemployed, currently employed, and adaptive workers do not fully perceive the benefits of the new legislation and as long as some type of insurance is given to currently employed workers.

JEL Classification: J38, J58

working papers series