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The Effects of Labor Market Regulations on Employment Decisions by Firms: Empirical Evidence for Argentina

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  • Guillermo Mondino
  • Silvia Montoya
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    Abstract

    There are few Latin American countries that produced such a remarkable turnaround in policies and outcomes as Argentina did in the 1990s. The large number of reforms yielded surprisingly strong growth and the near-disappearance of inflation. The change of `economic paradigm` led to behavioral changes that reflected themselves in a number of other areas. Perhaps the most striking change took place in the labor market, where job creation and destruction reigned in earnest. There, where reforms were moderate, high open unemployment was the result. This paper looks at the potential effect regulations might have on labor demand dynamics. In particular, we try to ascertain how movements in labor costs influence firms` decisions regarding job creation. The paper first presents descriptive evidence on who benefits from regulations and how much they cost. The evidence is based on PHS Microdata and identifies the effects on individuals` labor market outcomes stemming from varying regulations. The paper then turns to labor demand estimation. We exploit a panel data set that comprises some 1,300 manufacturing firms for the period 1990-1996. The panel provides information on employment and hours worked, as well as overtime hours, wages and physical production. We exploit the hours worked/jobs relation to shed some light on labor market dynamics. It is found that regulations do have a sizable and significant negative effect on employment decisions. In particular, it appears that severance payment regulations do hurt employment decisions. It is also found that firms rationally substitute workers for a more intensive use of hours.

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    Bibliographic Info

    Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 3091.

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    Date of creation: May 2000
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    Handle: RePEc:idb:wpaper:3091

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    References

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    1. Katharine G. Abraham & Susan N. Houseman, 1993. "Does Employment Protection Inhibit Labor Market Flexibility? Lessons from Germany, France, and Belgium," NBER Working Papers 4390, National Bureau of Economic Research, Inc.
    2. Bertola, Giuseppe, 1991. "Labour Turnover Costs and Average Labour Demand," CEPR Discussion Papers 601, C.E.P.R. Discussion Papers.
    3. Joseph Antos, 1983. "Analysis of Labor Cost: Data Concepts and Sources," NBER Chapters, in: The Measurement of Labor Cost, pages 153-182 National Bureau of Economic Research, Inc.
    4. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70, pages 538.
    5. Fallon, Peter R & Lucas, Robert E B, 1991. "The Impact of Changes in Job Security Regulations in India and Zimbabwe," World Bank Economic Review, World Bank Group, vol. 5(3), pages 395-413, September.
    6. Hamermesh, Daniel S, 1995. "Labour Demand and the," Economic Journal, Royal Economic Society, vol. 105(430), pages 620-34, May.
    7. Hamermesh, Daniel S & Pfann, Gerard A, 1996. "Turnover and the Dynamics of Labour Demand," Economica, London School of Economics and Political Science, vol. 63(251), pages 359-67, August.
    8. Bentolila, Samuel & Saint-Paul, Gilles, 1992. "The macroeconomic impact of flexible labor contracts, with an application to Spain," European Economic Review, Elsevier, vol. 36(5), pages 1013-1047, June.
    9. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
    10. Robert S. Smith & Ronald G. Ehrenberg, 1983. "Estimating Wage-Fringe Trade-Offs: Some Data Problems," NBER Chapters, in: The Measurement of Labor Cost, pages 347-370 National Bureau of Economic Research, Inc.
    11. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December.
    12. Victor Aguirregabiria & Cesar Alonso-Borrego, 2009. "Labor contracts and flexibility : evidence from a labor market reform in Spain," Economics Working Papers we091811, Universidad Carlos III, Departamento de Economía.
    13. Carola Pessino & Indermit S. Gill, 1996. "Determinants of Labor Demand in Argentina. Estimating the Benefits of Labor Policy Reform," CEMA Working Papers: Serie Documentos de Trabajo. 114, Universidad del CEMA.
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    Cited by:
    1. Ponce, Aldo, 2008. "Emergence, Organizational Transformations, And Decline Of The Piquetero Movement: A Comparative Institutional Explanation," MPRA Paper 8748, University Library of Munich, Germany.
    2. Carmen Pagés-Serra & James J. Heckman, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," IDB Publications 4119, Inter-American Development Bank.
    3. Daniel S. Hamermesh, 2004. "Labor Demand in Latin America and the Caribbean. What Does It Tell Us?," NBER Chapters, in: Law and Employment: Lessons from Latin America and the Caribbean, pages 553-562 National Bureau of Economic Research, Inc.
    4. Carmen Pagés-Serra & James J. Heckman, 2000. "El costo de la regulación de la estabilidad laboral: elementos de juicio de los mercados laborales latinoamericanos," Research Department Publications 4228, Inter-American Development Bank, Research Department.
    5. Ponce, Aldo Fernando, 2006. "Unemployment and Clientelism: The Piqueteros of Argentina," MPRA Paper 23, University Library of Munich, Germany.

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