Labor Market Reforms and Their Impact on Formal Labor Demand and Job Market Turnover: The Case of Peru
AbstractThis paper analyzes the effects of several aspects of labor legislation that were modified through successive waves of reform since 1991. Firing costs diminished sharply through the progressive elimination of job security regulations, the introduction of temporary contracts and changes in the severance payment structure. Simultaneously, non-wage labor costs increased. To assess the effect of these changes on the level of formal employment, we estimate labor demand functions. We use a pseudo-panel data set for ten formal sectors observed bimonthly between 1987 and 1997 and panel data sets at the establishment level for three sub-periods. Both at the sector and establishment level, labor costs have a negative and significant effect on labor demand. The coefficient of our measure of firing costs, the expected severance payments, is negative and significant, and its magnitude decreases in the post reform period. After the reforms, the price and output elasticities are larger and there is evidence of a speedier labor demand adjustment. To assess the effect of regulations changes on turnover we use a series of repeated cross sections household surveys for Metropolitan Lima and calculate mean tenure using censored data. We find evidence that mean tenure fell since 1992. The fall is larger and more statistically significant for formal salaried workers than for informal workers. Using censored and complete employment spells from the Peruvian Living Standards Measurement Surveys we compare employment duration data for the formal and informal sectors using empirical hazards and parametric estimations of hazard functions. After the reforms, there is an increase in the hazard function for formal wage earners relative to the hazard function of informal sector wage earners. We find higher hazards for informal, private, temporary and blue-collar workers.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 3095.
Date of creation: May 2000
Date of revision:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
- Burgess, Simon M & Dolado, Juan J, 1989. "Intertemporal Rules with Variable Speed of Adjustment: An Application to U.K. Manufacturing Employment," Economic Journal, Royal Economic Society, vol. 99(396), pages 347-65, June.
- Burgess, Simon & Rees, Hedley, 1996. "Job Tenure in Britain 1975-92," Economic Journal, Royal Economic Society, vol. 106(435), pages 334-44, March.
- Burda, Michael C., 1991. "Monopolistic competition, costs of adjustment, and the behavior of European manufacturing employment," European Economic Review, Elsevier, vol. 35(1), pages 61-79, January.
- Eduardo Lora & Carmen Pagés-Serra, 1997. "La legislación laboral en el proceso de reformas estructurales de América Latina y el Caribe," Research Department Publications 4065, Inter-American Development Bank, Research Department.
- Anderson, Patricia M, 1993. "Linear Adjustment Costs and Seasonal Labor Demand: Evidence from Retail Trade Firms," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 1015-42, November.
- Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-79, June.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Luis Daniel Martinez).
If references are entirely missing, you can add them using this form.