The global crisis and the Peruvian labor market: impact and policy options
AbstractAfter almost 20 years of prudent macro policies, Peru seems in better shape than before to withstand the effects of a financial crisis. Progress, however, has left some policy areas unscathed and the labor market is one of them. In this paper we analyze the potential effects of the crisis on labor market outcomes, and discuss policy options to address short run and structural considerations. We review stylized facts from this and previous crisis to account for potential transmission mechanisms, review policy options and results from past and existing labor market interventions, and build a DSGE model to provide further insight regarding labor market outcomes and the effects of transitory and permanent policy measures. On the countercyclical front, our analysis reveals that the main risk that the policymaker should aim to mitigate is a surge in informality and underemployment. For this, job protection alternatives (as temporary payroll tax holidays already implemented) have to be accompanied by a strengthened and better focalized reemployment service, especially if the shock transpires into the nontradable sector. On the more structural side, policy should aim at the prime drivers of informality in our country: low productivity and high formal labor costs. For the latter, progressive access to labor benefits for small firms (already introduced via a special labor regime) could be complemented by introducing different minimum wage levels according to firm size and a generalized reduction in firing costs. Low productivity issues, on the other hand, can be addressed by strengthening and integrating existing training programs and information networks which have already proven successful in terms of formal job creation. Simulations reveal that permanent non-wage cost reductions (like those introduced via the special labor regime) can increase formal employment and formal GDP participation by 2 percentage points. Structural policy interventions also exhibit a large countercyclical potential due to their permanent nature. This implies that we should not wait for the crisis to be over to start their implementation.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 22120.
Date of creation: 16 Oct 2009
Date of revision:
Global crisis; labor markets; Peru;
Other versions of this item:
- Eduardo Morón & Juan Castro & Lucciano Villacorta, 2009. "The Global Crisis and the Peruvian Labor Market: Impact and Policy Options," Working Papers 09-13, Departamento de Economía, Universidad del Pacífico, revised Oct 2009.
- J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-24 (All new papers)
- NEP-DGE-2010-04-24 (Dynamic General Equilibrium)
- NEP-LAB-2010-04-24 (Labour Economics)
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.:
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