Labor Market Dynamics, Informality and Regulations in Latin America

Antonio David, Samuel Pienknagura and Jorge Roldos

No 2020/019, IMF Working Papers from International Monetary Fund

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: WP; labor market; labor market regulation; regulation; employment protection regulation; labor market outcome; labor market flexibility; log employment; labor market dynamism; labor market adjustment; labor market slack; destruction margin; labor market data; employment benefit; long-run employment-GDP relationship; Labor market regulations; Unemployment; Labor markets; Employment; Minimum wages; Central America; South America; Global; Labor Market Adjustments; Informality; Latin America (search for similar items in EconPapers)
Pages: 27
Date: 2020-01-31
New Economics Papers: this item is included in nep-iue
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Citations: View citations in EconPapers (7)

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