GOOD JOBS WANTED: Labor Markets in Latin America Inter-American Development Bank

1
GOOD JOBS WANTED Labor Markets in Latin
AmericaInter-American Development Bank
Washington DC. May 2004 Economic and Social
Progress Report 2004 Inter American Development
Bank
2
Unemployment, low wages and employment
instability are the main sources of concern for
Latin Americans
Most pressing problem in your country
Unemployment
Corruption
Poverty
Delinquence /Insecurity
Employment Instability
Low wages
Terrorism/Political Violence
Low quality of Education
Inflation
Lack of opportunities for youth
Drug Consumption
Human Rights Violations
Health Problems
Drug traffic
Housing problems
Transport
Environment
Racial Discrimination
0
5
10
15
20
25
3
WHAT IS GOING ON?
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Labor SupplyThe increasing supply of labor is
not the root of the problem... it is a source of
economic growth- Structural ReformsDid not
have the expected effects- External
ShocksLabor markets in the region adjust to
shocks mostly through wages.....but this appears
to be changing
5
- TechnologyThe problem is not the
technology...but the lack of it-
EducationInequality in earnings reflects
inequality in education....but education, alone,
will not get individuals out of poverty
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Some new issues- Job and Worker turnover-
Regulations
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The dilemma of the labor policies- Job and
Worker turnover is powerful engine of growth -
30 of workers change job each year - Many lose
income in the process - Income protection is
not a free good - Protection has equity and
efficiency costs - Enforcing labor laws is
crucial to uphold the social contract.
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Job and Worker turnover is very high
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Job turnover is very high and comparable to the
one observed in other parts of the world
Average Annual Gross Job Flows ( of employment)
Avg. Net Change in Employment
Gross Job Creation
Entry
Gross Job Destruction
Exit
6.0
Mexico (1994-2000)
1.1
Brazil (1991-2000)
Denmark (1983-1989)
2.2
New Zealand (1987-1992)
-0.1
-4.1
Sweden (1985-1992)
2.6
Canada (1983-1991)
0.7
France (1984-1992)
Italy (1984-1992)
1.2
U.S.A. (1979-1983)
1.5
Finland (1986-1991)
-1.6
-3.2
Estonia (1992-1994)
1.5
Germany (1983-1990)
-25
-20
-15
-10
-5
0
5
10
15
20
25
10
Job turnover is similarly high in manufacturing
Average Annual Gross Job Flows in Manufacturing
(Percentage of employment)
Gross Job Creation
Gross Job Destruction
Avg.Net Change
6.5
Morocco (1984-1989)
7.9
Mexico (1994-2000)
0.4
Chile (1980-1999)
0.6
Canada (1979-1984)
-3.5
UK (1981-1991)
1.5
Israel (1970-1994)
-0.8
Colombia (1980-1999)
-1.1
USA (1973-1988)
Norway (1976-1986)
-1.2
-20
-15
-10
-5
0
5
10
15
20
25
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And it is not driven by aggregate shocks
Job Reallocation By Type of Shock
Aggregate
Sectoral (Between Sectors)
Idiosyncratic (Within Sectors)
USA (1973-1988)
Morocco (1984-1989)
Mexico (1994-2000)
Chile (1980-1999)
Colombia (1981-1999)
0
5
10
15
20
25
30
35
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Across the world, job turnover is an important
engine of productivity growth
Labor Productivity Growth Decomposition
Annual Growth Rate
5.3
Colombia 1992-97
3.0
Chile 1992-97
3.0
United States 1992-97
1.6
1987-92
3.1
UK 1992-97
1987-92
2.5
4.7
Portugal 1992-1997
5.3
1987-1992
4.1
Netherlands 1992-97
2.3
1987-92
4.3
Italy 1992-97
3.9
1987-92
2.1
Germany 1992-97
2.3
France 1987-92
5.2
Finland 1989-94
5.0
1987-92
-75
-25
25
75
125
175
Output reallocation amongst existing firms
Within-firm productivity growth
Exit of firms
Entry of firms
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Workers that are involuntarily separated suffer
wage losses after reemployment
Involuntary unemployed in t1
Mexico
Change in monthly wage
Argentina
Change in hourly wage
-20
-18
-16
-14
-12
-10
-8
-6
-4
-2
0
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However, labor flows imply costs in the welfare
of the workers.- During the 90s, employment
flows (E) towards unemployment (U) in
Latin-America were two times bigger than those of
US (and unemployment is a problem in developing
countries). - Women, youths, unskilled workers
and workers without social security have the
highest probability of transitioning to
unemployment
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Time spent searching can be beneficial.- Women,
youth, and skilled workers have a smaller chance
of leaving unemployment during the first six
month than men, adult, and unskilled.- However,
women, youth, and skilled workers have the
highest probability of finding a registered,
full-benefit wage job in a big firm.
16
Labor market regulation has significative costs
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Latin America is highly regulated
Conditions of Employment Index (0-1)
Eastern Europe and Central Asia
Latin America and Caribbean
Sub-Saharan Africa
South Asian Region
Middle East and North Africa
Industrial Continental Europe
East Asia and Pacific Islands
Industrial Anglosaxon
Bolivia
Venezuela
Brasil
Panamá
Colombia
México
Rep. Dominicana
Perú
Argentina
Ecuador
Chile
Uruguay
Jamaica
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
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Job security in Latin America is the highest in
the world
The Cost of Job Securities End of Eighties
relative to end of Nineties
Venezuela
Colombia
Ecuador
1999
Peru
1988
Brazil
Panama
Industrial countries average, 1999
Bolivia
Costa Rica
Honduras
Chile
Mexico
El Salvador
Latin America average, 1999
Argentina
Dominican Rep.
Nicaragua
Caribbean average, 1999
Uruguay
Paraguay
0
5
10
15
20
25
Cost of benefits measured in multiple of wages
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Collective bargaining is also is highly regulated
Industrial (collective) relations laws index
East Asia and Pacific Islands
Industrial Continental Europe
Latin America and Caribbean
Eastern Europe and Central Asia
Middle East and North Africa
Sub-Saharan Africa
South Asian Region
Industrial Anglosaxon
Peru
Argentina
Brazil
Colombia
Mexico
Venezuela
Panamá
Collective bargaining
Chile
Worker participation in management
Bolivia
Uruguay
Collective disputes
Dominican Rep.
Jamaica
0.0
0.5
1.0
1.5
2.0
2.5
20
A large percentage of workers are not covered
Percentage of Wage Employees without Social
Security benefits, End of Nineties
Nicaragua 2001
Peru 2000
Bolivia 1999
Dominican Rep. 1998
El Salvador 1998
Venezuela 1998
Argentina 2001
Brazil 1999
Mexico 1999
Colombia1999
Chile1998
Costa Rica 2000
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However, there is plenty of evidence on the costs
of the regulation. - Labor stability decrease
turn-over and the flexibility of firms
adjustments- Social security contributions and
other non-wage costs decrease employment and
increase unemployment Labor stability
regulations decrease the employment of youths and
unskilled workers.- Labor stability can
increase wage rigidities
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WHAT CAN WE DO?
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Labor policies and social contract- Labor and
Social policies - Differences in focalization,
nature and purpose- Without adequate registries
and enforcement capacity there are no labor
policies - Its impossible to create UI when
the labor authority doesnt know whether or where
a beneficiary works- The region spends very
little in labor policies
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Labor policies in a dynamic world- Reduce macro
volatility- Ease the reallocation process with
LIS Provide feasible and adequate level of
income protection- Increase the population
marketable skills- Enforce labor laws and
regulations
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Labor intermediation systems- A permanent
function- Implemented through a complex network
of public and private providers, with lots of
referral capability- Inclusive to improve the
employment opportunities of the poor
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Income Protection- Set of systems adapted to
the variety of labor insertions of the
population- 3 basic criteria - Do not
generate incentives against production or work -
Coverage as wide as possible, including workers
in non-regulated contracts - Budgetary
allocations should be counter-cyclical
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Training Systems- Priority is to increase
attractiveness, relevance, and pertinence of
basic education- The State can help strong
regulator and a variety of public and private
providers- Local level experimentation can help
meaningful participation of the social partners
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The labor authority- The labor authority needs
to increase its capability to register, enforce,
and evaluate the impact of policies and
regulations. - A good design of collective
bargaining rules helps to improve
productivity.- Innovation in enforcement should
involve the State and private agents.