Pending issues in protection, productivity growth, and poverty reduction

Omar Arias, Andreas Blom, Mariano Bosch, Wendy Cunningham, Ariel Fiszbein, Gladys Lopez Acevedo, William Maloney, Jaime Saavedra, Carolina Sanchez-Paramo, Mauricio Santamaria and Lucas Siga

No 3799, Policy Research Working Paper Series from The World Bank

Abstract: This paper selectively synthesizes much of the research on Latin American and Caribbean labor markets in recent years. Several themes emerge that are particularly relevant to ongoing policy dialogues. First, labor legislation matters, but markets may be less segmented than previously thought. The impetus to voluntary informality, which appears to be a substantial fraction of the sector, implies that the design of social safety nets and labor legislation needs to take a more integrated view of the labor market, taking into account the cost-benefit analysis workers and firms make about whether to interact with formal institutions. Second, the impact of labor market institutions on productivity growth has probably been underemphasized. Draconian firing restrictions increase litigation and uncertainty surrounding worker separations, reduce turnover and job creation, and poorly protect workers. But theory and anecdotal evidence also suggest that they, and other related state or union induced rigidities, may have an even greater disincentive effect on technological adoption, which accounts for half of economic growth. Finally, institutions can affect poverty and equity, although the effects seem generally small and channels are not always clear. Overall, the present constellation of labor regulations serves workers and firms poorly and both could benefit from substantial reform.

Keywords: Labor Markets; Labor Standards; Economic Theory&Research; Work&Working Conditions; Labor Management and Relations (search for similar items in EconPapers)
Date: 2005-12-01
New Economics Papers: this item is included in nep-dev
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Citations: View citations in EconPapers (5)

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