Labor Market Dynamics, Informality and Regulations in Latin America

28 Pages Posted: 28 Feb 2020

See all articles by Antonio C. David

Antonio C. David

World Bank - Policy Research Department; International Monetary Fund (IMF)

Samuel Pienknagura

International Monetary Fund (IMF)

Jorge E. Roldos

International Monetary Fund (IMF)

Date Written: January 2020

Abstract

Labor markets in Latin America and the Caribbean (LAC) are characterized by high levels of informality and relatively rigid regulation. This paper shows that these two features are related and together make the speed of adjustment of employment to shocks slower, especially when regulations are tightly enforced. Evidence suggests that strict labor market regulations also have an adverse effect on medium-term growth. While both regulations on prices (minimum wages) and quantities (employment protection) decrease the speed of adjustment to shocks, they appear to be binding in different phases of the cycle - the former affects mostly the (net) job creation margin and the latter the (net) job destruction margin. The results also highlight possible interactions between labor market regulations and the effectiveness of macro-stabilization tools - including exchange rate depreciation.

Keywords: Labor market regulations, Labor market institutions, Labor market characteristics, Labor market friction, Labor markets, Labor Market Adjustments, Informality, Latin America, WP, labor market regulation, government effectiveness, minimum wage, CCE

JEL Classification: E2, E32, E61, J3, J40, E01, O24, Z13

Suggested Citation

David, Antonio C. and Pienknagura, Samuel and Roldos, Jorge E., Labor Market Dynamics, Informality and Regulations in Latin America (January 2020). IMF Working Paper No. 20/19, Available at SSRN: https://ssrn.com/abstract=3545284

Antonio C. David (Contact Author)

World Bank - Policy Research Department ( email )

1818 H Street
Washington, DC 20433
United States

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

Samuel Pienknagura

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Jorge E. Roldos

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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