## _wp1340 - References

## Source details

**Canonical URL:** [_wp1340 - References](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp1340.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp1340.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp1340.pdf.json)

---

### Introduction
- The Dominican Republic (DR) recorded remarkable growth rates in recent decades that outpaced many peers in Latin America and the Caribbean.
- Persistent and widespread labor market informality, inequality, and poverty have produced an unbalanced growth pattern.
- The DR was selected as a pilot case for a joint IMF-ILO initiative to design policies to foster job creation and promote inclusive growth.
- Study objective: identify structural issues preventing full use of abundant labor and formulate policy responses.

### Growth and employment — key findings
- Aggregate growth
  - The DR has grown on average nearly 4 percent a year since 2000, almost double the LAC average and four times more than the OECD average.
  - Fast GDP per capita growth was primarily rooted in fast-growing labor productivity (output per worker).
  - Higher capital-labor ratios have been the main driver of productivity growth, although total factor productivity (TFP) growth surged in the past 5 years.
- Sectoral concentration
  - Manufacturing, wholesale and retail trade, construction, transportation and communication, and financial services jointly generate about 70 percent of total value added.
  - During the past decade, manufacturing, and transportation and communication accounted for about 60 percent of aggregate growth; wholesale and retail trade and financial services increased importance in the last 5 years.
  - Labor productivity growth is concentrated in a few sectors (notably manufacturing and communication), while those sectors contributed little to employment growth.
  - Communications sector labor productivity grew at an astounding 14-percent annual rate since 1996.
- Labor market performance
  - Employment-to-population ratios (15+) are traditionally low in the DR relative to regional peers.
  - Open unemployment rates are relatively low, but broad unemployment (including discouraged workers) has been quite high — indicating low labor force participation as a significant problem.
  - Employment shares:
    - “Other services” currently accounts for about 25 percent of total employment (18 percent in the mid 1990s).
    - Manufacturing’s share of employment declined from 18 percent in the early 1990s to 12 percent more recently.
    - Wholesale and retail trade has remained about 20 percent of total employment.
  - Sectoral employment growth concentrated in lower-skill services; these sectors have weak productivity growth (e.g., “other services” share in value added fell from 17 percent in 1996 to 11 percent in 2011).
- Wages and job quality
  - Real earnings dynamics: real earnings started to fall at the end of the 1990s; the 2003-2004 banking crisis intensified the decline.
  - On average, real earnings per hour of both self-employed and private sector wage workers are about 27 percent lower in 2011 than in 2000.
  - Decline by subgroup: self-employed women experienced a 35 percent decline versus a 27 percent decline for self-employed men.
  - Real wages have been stagnant even in sectors with strong productivity growth (e.g., transportation and communication, manufacturing), suggesting weak worker bargaining power.
- Informality
  - Share of self-employment in total employment increased from 34 percent in 1991 to about 43 percent in 2011 (productivity-based definition).
  - Using a legalistic definition (social security affiliation) the share of salaried workers without social security affiliation is declining, reflecting initiatives to increase social security enrollment.

### Labor supply, human capital, and unemployment — key findings and diagnostics
- Determinants of labor force participation (probit results, October 2011 NLFS; sample age 15-65)
  - Education positively affects participation, with a significantly stronger effect for women than for men.
  - Household receipt of remittances from abroad negatively affects participation: coefficient for men is -0.217*** and for women is -0.106**.
  - Other factors with significant coefficients include age, currently enrolled in school (negative), male household head, marital status, and region indicators.
  - Number of observations: 9,471 (men) and 9,222 (women).
- Unemployment composition
  - Unemployment rates are smallest among the least educated (primary or less).
  - Higher unemployment among more educated individuals may reflect scarcity of good jobs, mismatch between education and marketable skills, and cohort/statistical effects.
  - Youth and first-time job seekers account for a large share of broad and open unemployment: more than a third of men in open unemployment and more than 50 percent of discouraged men are ages 15 to 24.
  - Prime-age women are overrepresented among the unemployed; women account for 58 percent of broad unemployment in 2011 (versus 42 percent men).
- Education and employment composition
  - Years of schooling have increased, but rising schooling has not translated into absorption of better educated workers into high-productivity industries.
  - Sectoral decomposition: increases in education intensity among employed workers mainly occurred in wholesale and retail trade, the financial sector, and “other services.”
  - Occupational decomposition: education intensity rose most in ‘service and sales workers’ and ‘elementary occupations,’ indicating that better-educated workers are being absorbed into lower-skill occupations.

### Business environment and regulation — analysis and implications
- Product market constraints
  - Cross-country evidence and the “Economic Freedom of the World” indices indicate tighter product market restrictions are associated with lower labor productivity.
  - The DR ranks in the middle among LAC in product market constraints, with particularly poor performance on:
    - Bureaucracy costs
    - Administrative requirements
    - Corruption (entrepreneurs cite corruption as a major obstacle in the Enterprise Survey)
    - Cost of tax compliance (measured in hours)
  - Simple econometric analysis in the study: improvements in product market conditions have a strong positive effect on labor productivity; better labor market policies do not show a significant effect on productivity.
- Firm size and employment dynamics
  - Regression results show very small firms produce the largest increases in employment; the largest firms account for the least job creation.
  - Small and medium-size firms report main obstacles: electricity supply problems, corruption, practices of the informal sector, tax rates, and access to finance.
- Policy implications (channels highlighted)
  - Removing market entry barriers and reducing administrative burdens could:
    - Increase competition, investments, and technological adoption.
    - Raise workers’ productivity and market wages, making jobs more attractive and boosting labor force participation.
    - Improve allocation of production factors and reduce economic rents to stimulate output and job creation.
  - Improving the operational environment for small and medium-size firms could have large impacts on employment, aggregate productivity, and market wages.

### Policy recommendations and priorities
- Raise market productivity to make jobs more attractive and increase labor force participation:
  - Medium- to long-term: raise the quality of education and mold the educational system to market needs, including greater support to technical training.
  - Short- to medium-term: address product market deficiencies to spur incentives for innovation, on-the-job training, and competition for qualified workers, thereby bidding up wages.
- Targeted policies for specific groups:
  - Women of prime-working age: improve provision of day care benefits and other measures to raise female labor force participation.
  - Youth and first-time job seekers: enhance programs to facilitate school-to-work transitions.
- Reduce product market frictions:
  - Simplify administrative requirements and reduce bureaucracy costs.
  - Cut incidences of corruption that impede business operations.
  - Lower the time cost of tax compliance for businesses.
- Strengthen support to small and medium-size enterprises:
  - Improve access to reliable electricity and finance.
  - Address informal sector practices and tax burdens that hinder SMEs’ growth and job creation.

### Appendix in Gwartney et al. (2012) — data and empirical evidence
- Data and sources
  - Plotted data refer to year 2007.
  - Source: EFW database, Total Economy Database.
  - Note: Policy indices are obtained from the "Economic Freedom of the World" database (Gwartney et al., 2007).
  - National Labor Force Survey, October 2011 wave; IMF staff estimates used for microdata tables.
- Panel regression results (pooled least squares with country and year fixed effects; sample: unbalanced panel data on 107 countries for the period from 2000 to 2010; labor productivity is measured in 1990 USD (PPP); robust standard errors reported):
  - Labor market policies (t-1): -0.005 (0.010)
  - Product market policies (t-1): 0.025** (0.011)
  - Credit market regulation (t-1): 0.022*** (0.007)
  - Constant: 9.240*** (0.108)
  - Number of observations: 956
  - Number of countries: 107
  - R-sq. (within): 0.48
  - F statistic: 22.04
  - Significance legend: *** p<0.01, ** p<0.05, * p<0.1
- Enterprise-level determinants of employment growth (World Bank Enterprise Survey wave for year 2010; employment growth rate defined as the annualized growth rate of the number of permanent workers between fiscal years t and t-3; industry controls included; sample weights used; robust standard errors reported):
  - Firm size
    - Small (11-50 employees): -0.165** (0.075)
    - Medium (51-250 employees): -0.165** (0.065)
    - Large (251 and more employees): -0.284*** (0.067)
  - Foreign ownership: -0.117 (0.149)
  - Exporter: 0.037 (0.117)
  - Age: -0.003* (0.002)
  - Constant: 0.393*** (0.145)
  - Number of observations: 322
  - R-sq.: 0.186
  - Significance legend: *** p<0.01, ** p<0.05, * p<0.1

### Stylized facts and ALMP evidence
- Stylized facts for the Dominican Republic (from the chapter)
  - Two linked labor market challenges:
    - Stagnant job quality: real earnings have been declining consistently across all economic sectors and most new jobs have been created in low-productivity industries.
    - Large share of the population remains inactive, explained by low/inadequate average skill levels and scant employment opportunities at attractive wages.
  - Labor market regulations are not seen as particularly burdensome in the Dominican Republic, but product market conditions show room for improving efficiency and competition.
  - World Bank Enterprise Surveys indicate business conditions in the Dominican Republic lag several other Latin American and Caribbean countries, contributing to a prevalence of small-size enterprises and self-employed workers—traits associated with lower productivity.
- Evidence on ALMPs and training effectiveness
  - International and meta-evidence:
    - Estevão (2007) shows ALMPs have been effective in raising employment rates in the business sector in a number of OECD countries.
    - Meta-analyses (Kluve (2010), Betcherman et al. (2007), Puerto (2007)) show mixed results: job search assistance and employment services largely effective; training programs show mixed effects; training more effective for youth in developing/emerging economies.
  - Dominican Republic-specific evidence:
    - Card et al. (2011): Juventud y Empleo (2004 sample) — no significant effect on post-training probability of finding employment, but evidence of improved employment quality (earnings and medical insurance).
    - Ibarrarán and Rosas-Shady (2008): later, larger sample finds a positive employment effect for the same program.
    - Jensen (2010): informing randomly selected eighth grade boys about actual average earnings of high-school graduates increased completed years of schooling by about 0.20 – 0.35 years.

### Microdata appendices and policy guidance
- Microdata appendices and descriptive tables (contents)
  - Appendix contains:
    - Table A1. Characteristics of formal and informal workers (age 15-65). (Source: National Labor Force Survey, IMF staff estimates. Notes: Percent refers to shares of workers with corresponding characteristics in total number of observations. October 2011 wave of the National Labor Force Survey is used. Social security affiliation based definition of formal/informal employment applies only to private sector employees. * Monthly income in the main job, average, in RD$, standard deviation in parentheses.)
    - Table A2. Characteristics of the working age population (15–65), currently not attending any type of schooling, by gender. (Source: National Labor Force Survey, October 2011 wave; IMF staff estimates. Notes: Percent refers to shares of workers with corresponding characteristics in total number of observations. Column (4) refers to individuals, who are included in the broad measure of unemployment (column (2)), but not in the search based definition of unemployment (column (3)).)
  - Box 1 summarizes evidence on ALMPs, channels of impact, potential negative outcomes of subsidies (substitution and deadweight losses), and mixed empirical findings.
- Policy guidelines and recommendations
  - Improve training, education, and product market conditions to raise job quality and living standards.
    - Emphasize matching technical training programs to labor market realities.
    - Strengthen school-to-job transition mechanisms through tighter collaboration between technical schools and private sector employers.
    - Investigate barriers to higher labor force participation of women (e.g., potential lack of affordable and reliable daycare centers), noting more research is needed.
  - Improve business environment by:
    - Lowering bureaucracy costs.
    - Reducing the incidence of business-related corruption.
    - Reducing the cost of tax compliance.
    - These changes would contribute to higher labor productivity growth and strengthen payoffs from other initiatives.
  - Reduce informality:
    - Continue government efforts to reduce informality; formalization is expected to raise productivity and real wages over the medium term by increasing workers’ bargaining power and incentives for human capital investment.
  - Active Labor Market Programs (ALMPs):
    - Tailor ALMPs (job training, job-search assistance, entrepreneurship training) to the skills and needs of overrepresented groups in the jobless population.
    - Provide business training (managerial skills, financial literacy, quality management, product development) to owners of small and medium-size enterprises.
    - Consider fiscal costs and the need for careful assessment of benefits and costs; ALMP effectiveness can be undermined by weak labor demand and slow growth.

*Italic: Summary based solely on content of the supplied PDF chapter.*

### References .............................................................................................................

### _wp1340 - References

### Introduction
- The Dominican Republic (DR) recorded remarkable growth rates in recent decades that outpaced many peers in Latin America and the Caribbean.
- Persistent and widespread labor market informality, inequality, and poverty have produced an unbalanced growth pattern.
- The DR was selected as a pilot case for a joint IMF-ILO initiative to design policies to foster job creation and promote inclusive growth.
- Study objective: identify structural issues preventing full use of abundant labor and formulate policy responses.

### Growth and employment — key findings
- Aggregate growth
  - The DR has grown on average nearly 4 percent a year since 2000, almost double the LAC average and four times more than the OECD average.
  - Fast GDP per capita growth was primarily rooted in fast-growing labor productivity (output per worker).
  - Higher capital-labor ratios have been the main driver of productivity growth, although total factor productivity (TFP) growth surged in the past 5 years.
- Sectoral concentration
  - Manufacturing, wholesale and retail trade, construction, transportation and communication, and financial services jointly generate about 70 percent of total value added.
  - During the past decade, manufacturing, and transportation and communication accounted for about 60 percent of aggregate growth; wholesale and retail trade and financial services increased importance in the last 5 years.
  - Labor productivity growth is concentrated in a few sectors (notably manufacturing and communication), while those sectors contributed little to employment growth.
  - Communications sector labor productivity grew at an astounding 14-percent annual rate since 1996.
- Labor market performance
  - Employment-to-population ratios (15+) are traditionally low in the DR relative to regional peers.
  - Open unemployment rates are relatively low, but broad unemployment (including discouraged workers) has been quite high — indicating low labor force participation as a significant problem.
  - Employment shares:
    - “Other services” currently accounts for about 25 percent of total employment (18 percent in the mid 1990s).
    - Manufacturing’s share of employment declined from 18 percent in the early 1990s to 12 percent more recently.
    - Wholesale and retail trade has remained about 20 percent of total employment.
  - Sectoral employment growth concentrated in lower-skill services; these sectors have weak productivity growth (e.g., “other services” share in value added fell from 17 percent in 1996 to 11 percent in 2011).
- Wages and job quality
  - Real earnings dynamics: real earnings started to fall at the end of the 1990s; the 2003-2004 banking crisis intensified the decline.
  - On average, real earnings per hour of both self-employed and private sector wage workers are about 27 percent lower in 2011 than in 2000.
  - Decline by subgroup: self-employed women experienced a 35 percent decline versus a 27 percent decline for self-employed men.
  - Real wages have been stagnant even in sectors with strong productivity growth (e.g., transportation and communication, manufacturing), suggesting weak worker bargaining power.
- Informality
  - Share of self-employment in total employment increased from 34 percent in 1991 to about 43 percent in 2011 (productivity-based definition).
  - Using a legalistic definition (social security affiliation) the share of salaried workers without social security affiliation is declining, reflecting initiatives to increase social security enrollment.

### Labor supply, human capital, and unemployment — key findings and diagnostics
- Determinants of labor force participation (probit results, October 2011 NLFS; sample age 15-65)
  - Education positively affects participation, with a significantly stronger effect for women than for men.
  - Household receipt of remittances from abroad negatively affects participation: coefficient for men is -0.217*** and for women is -0.106**.
  - Other factors with significant coefficients include age, currently enrolled in school (negative), male household head, marital status, and region indicators.
  - Number of observations: 9,471 (men) and 9,222 (women).
- Unemployment composition
  - Unemployment rates are smallest among the least educated (primary or less).
  - Higher unemployment among more educated individuals may reflect scarcity of good jobs, mismatch between education and marketable skills, and cohort/statistical effects.
  - Youth and first-time job seekers account for a large share of broad and open unemployment: more than a third of men in open unemployment and more than 50 percent of discouraged men are ages 15 to 24.
  - Prime-age women are overrepresented among the unemployed; women account for 58 percent of broad unemployment in 2011 (versus 42 percent men).
- Education and employment composition
  - Years of schooling have increased, but rising schooling has not translated into absorption of better educated workers into high-productivity industries.
  - Sectoral decomposition: increases in education intensity among employed workers mainly occurred in wholesale and retail trade, the financial sector, and “other services.”
  - Occupational decomposition: education intensity rose most in ‘service and sales workers’ and ‘elementary occupations,’ indicating that better-educated workers are being absorbed into lower-skill occupations.

### Business environment and regulation — analysis and implications
- Product market constraints
  - Cross-country evidence and the “Economic Freedom of the World” indices indicate tighter product market restrictions are associated with lower labor productivity.
  - The DR ranks in the middle among LAC in product market constraints, with particularly poor performance on:
    - Bureaucracy costs
    - Administrative requirements
    - Corruption (entrepreneurs cite corruption as a major obstacle in the Enterprise Survey)
    - Cost of tax compliance (measured in hours)
  - Simple econometric analysis in the study: improvements in product market conditions have a strong positive effect on labor productivity; better labor market policies do not show a significant effect on productivity.
- Firm size and employment dynamics
  - Regression results show very small firms produce the largest increases in employment; the largest firms account for the least job creation.
  - Small and medium-size firms report main obstacles: electricity supply problems, corruption, practices of the informal sector, tax rates, and access to finance.
- Policy implications (channels highlighted)
  - Removing market entry barriers and reducing administrative burdens could:
    - Increase competition, investments, and technological adoption.
    - Raise workers’ productivity and market wages, making jobs more attractive and boosting labor force participation.
    - Improve allocation of production factors and reduce economic rents to stimulate output and job creation.
  - Improving the operational environment for small and medium-size firms could have large impacts on employment, aggregate productivity, and market wages.

### Policy recommendations and priorities
- Raise market productivity to make jobs more attractive and increase labor force participation:
  - Medium- to long-term: raise the quality of education and mold the educational system to market needs, including greater support to technical training.
  - Short- to medium-term: address product market deficiencies to spur incentives for innovation, on-the-job training, and competition for qualified workers, thereby bidding up wages.
- Targeted policies for specific groups:
  - Women of prime-working age: improve provision of day care benefits and other measures to raise female labor force participation.
  - Youth and first-time job seekers: enhance programs to facilitate school-to-work transitions.
- Reduce product market frictions:
  - Simplify administrative requirements and reduce bureaucracy costs.
  - Cut incidences of corruption that impede business operations.
  - Lower the time cost of tax compliance for businesses.
- Strengthen support to small and medium-size enterprises:
  - Improve access to reliable electricity and finance.
  - Address informal sector practices and tax burdens that hinder SMEs’ growth and job creation.

*Italic: Summary based solely on content of the supplied PDF chapter.*

### Appendix in Gwartney et al. (2012) for more details. Plotted data refer to year 2007.

### _wp1340 - Appendix in Gwartney et al. (2012) for more details. Plotted data refer to year 2007.

### Data and sources
- Plotted data refer to year 2007.
- Source: EFW database, Total Economy Database.
- Note: Policy indices are obtained from the "Economic Freedom of the World" database (Gwartney et al., 2007).
- National Labor Force Survey, October 2011 wave; IMF staff estimates used for microdata tables.

### Key empirical findings on productivity and regulation
- Panel regression results (pooled least squares with country and year fixed effects; sample: unbalanced panel data on 107 countries for the period from 2000 to 2010; labor productivity is measured in 1990 USD (PPP); robust standard errors reported):
  - Labor market policies (t-1): -0.005 (0.010)
  - Product market policies (t-1): 0.025** (0.011)
  - Credit market regulation (t-1): 0.022*** (0.007)
  - Constant: 9.240*** (0.108)
  - Number of observations: 956
  - Number of countries: 107
  - R-sq. (within): 0.48
  - F statistic: 22.04
  - Significance legend: *** p<0.01, ** p<0.05, * p<0.1

- Enterprise-level determinants of employment growth (World Bank Enterprise Survey wave for year 2010; employment growth rate defined as the annualized growth rate of the number of permanent workers between fiscal years t and t-3; industry controls included; sample weights used; robust standard errors reported):
  - Firm size
    - Small (11-50 employees): -0.165** (0.075)
    - Medium (51-250 employees): -0.165** (0.065)
    - Large (251 and more employees): -0.284*** (0.067)
  - Foreign ownership: -0.117 (0.149)
  - Exporter: 0.037 (0.117)
  - Age: -0.003* (0.002)
  - Constant: 0.393*** (0.145)
  - Number of observations: 322
  - R-sq.: 0.186
  - Significance legend: *** p<0.01, ** p<0.05, * p<0.1

### Stylized facts for the Dominican Republic (from the chapter)
- Two linked labor market challenges:
  - Stagnant job quality: real earnings have been declining consistently across all economic sectors and most new jobs have been created in low-productivity industries.
  - Large share of the population remains inactive, explained by low/inadequate average skill levels and scant employment opportunities at attractive wages.
- Labor market regulations are not seen as particularly burdensome in the Dominican Republic, but product market conditions show room for improving efficiency and competition.
- World Bank Enterprise Surveys indicate business conditions in the Dominican Republic lag several other Latin American and Caribbean countries, contributing to a prevalence of small-size enterprises and self-employed workers—traits associated with lower productivity.

### Policy guidelines and recommendations
- Improve training, education, and product market conditions to raise job quality and living standards.
  - Emphasize matching technical training programs to labor market realities.
  - Strengthen school-to-job transition mechanisms through tighter collaboration between technical schools and private sector employers.
  - Investigate barriers to higher labor force participation of women (e.g., potential lack of affordable and reliable daycare centers), noting more research is needed.
- Improve business environment by:
  - Lowering bureaucracy costs.
  - Reducing the incidence of business-related corruption.
  - Reducing the cost of tax compliance.
  - These changes would contribute to higher labor productivity growth and strengthen payoffs from other initiatives.
- Reduce informality:
  - Continue government efforts to reduce informality; formalization is expected to raise productivity and real wages over the medium term by increasing workers’ bargaining power and incentives for human capital investment.
- Active Labor Market Programs (ALMPs):
  - Tailor ALMPs (job training, job-search assistance, entrepreneurship training) to the skills and needs of overrepresented groups in the jobless population.
  - Provide business training (managerial skills, financial literacy, quality management, product development) to owners of small and medium-size enterprises.
  - Consider fiscal costs and the need for careful assessment of benefits and costs; ALMP effectiveness can be undermined by weak labor demand and slow growth.

### Evidence on ALMPs and training effectiveness
- International and meta-evidence:
  - Estevão (2007) shows ALMPs have been effective in raising employment rates in the business sector in a number of OECD countries.
  - Meta-analyses (Kluve (2010), Betcherman et al. (2007), Puerto (2007)) show mixed results: job search assistance and employment services largely effective; training programs show mixed effects; training more effective for youth in developing/emerging economies.
- Dominican Republic-specific evidence:
  - Card et al. (2011): Juventud y Empleo (2004 sample) — no significant effect on post-training probability of finding employment, but evidence of improved employment quality (earnings and medical insurance).
  - Ibarrarán and Rosas-Shady (2008): later, larger sample finds a positive employment effect for the same program.
  - Jensen (2010): informing randomly selected eighth grade boys about actual average earnings of high-school graduates increased completed years of schooling by about 0.20 – 0.35 years.

### Microdata appendices and descriptive tables (contents)
- Appendix contains:
  - Table A1. Characteristics of formal and informal workers (age 15-65). (Source: National Labor Force Survey, IMF staff estimates. Notes: Percent refers to shares of workers with corresponding characteristics in total number of observations. October 2011 wave of the National Labor Force Survey is used. Social security affiliation based definition of formal/informal employment applies only to private sector employees. * Monthly income in the main job, average, in RD$, standard deviation in parentheses.)
  - Table A2. Characteristics of the working age population (15–65), currently not attending any type of schooling, by gender. (Source: National Labor Force Survey, October 2011 wave; IMF staff estimates. Notes: Percent refers to shares of workers with corresponding characteristics in total number of observations. Column (4) refers to individuals, who are included in the broad measure of unemployment (column (2)), but not in the search based definition of unemployment (column (3)).)
- Box 1 summarizes evidence on ALMPs, channels of impact, potential negative outcomes of subsidies (substitution and deadweight losses), and mixed empirical findings.

*Source: Appendix in Gwartney et al. (2012) for more details. Plotted data refer to year 2007.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp1340.pdf_