Labor Market Dynamics, Informality and Regulations in Latin America

Author/Editor:

Antonio David ; Samuel Pienknagura ; Jorge Roldos

Publication Date:

January 31, 2020

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

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.

Series:

Working Paper No. 20/19

Subject:

English

Publication Date:

January 31, 2020

ISBN/ISSN:

9781513523750/1018-5941

Stock No:

WPIEA2020019

Format:

Paper

Pages:

27

Please address any questions about this title to publications@imf.org