Labor Market and Macroeconomic Dynamics in Latin America amid COVID: The Role of Digital-Adoption Policies

Alan Finkelstein Shapiro, Victoria Nuguer and Santiago Novoa Gomez

The World Bank Economic Review, 2024, vol. 38, issue 1, 161-184

Abstract: This paper analyzes how a policy that lowers firm digital-adoption costs shapes the labor-market and economic recovery from COVID-19 in Latin America (LA) using a framework with firm entry and unemployment, where salaried firms can adopt digital technologies and the employment and firm structure embodies key features of LA economies. Using Mexico as a case study, the model replicates the response of the labor market and output at the onset of the COVID recession and in its aftermath, including the dynamics of labor-force participation and informal employment. A policy-induced permanent reduction in the cost of adopting digital technologies at the trough of the recession bolsters the recovery of GDP, total employment, and labor income, and leads to a larger expansion in the share of formal employment compared to a no-policy scenario. In the long run, the economy exhibits a reduction in total employment but higher levels of GDP and labor income, greater average firm productivity, a larger formal employment share, and a marginally lower unemployment rate. Finally, as a side effect, the policy exacerbates the differential between formal and informal labor income, both as the economy recovers from the COVID recession and in the long run.

Keywords: COVID; business cycles; self-employment and informality; unemployment and labor force participation; information and communications technologies (ICT) (search for similar items in EconPapers)
Date: 2024
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Working Paper: Labor Market and Macroeconomic Dynamics in Latin America Amid COVID: The Role of Digital Adoption Policies (2022)
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