Economic reforms, growth and employment: labour markets in Latin America and the Caribbean

Foreword At the start of the new decade, the debate on economic policy centres on the consequence of the reforms implemented in Latin America and the Caribbean in the last two decades. Trade and financial liberalization and the privatization of production activities have radically altered the rules of the game governing labour and business. The macroeconomic policy changes that accompanied or preceded the reforms sometimes strengthened the latter's specific objectives, especially the growth of exports, but on other occasions they had the opposite effect. That combination of factors prompted the emergence of new market structures and transformations in microeconomic behaviour. Assessing the effects of the reforms on economic growth, employment and income distribution is of more than academic interest. Governments, political parties and social actors require a thorough evaluation of the results, so as to devise or propose policies that complement the reforms or counter their unwanted consequences. The Economic Commission for Latin America and the Caribbean (ECLAC) actively participates in this process. This book is part of a project carried out by ECLAC, in conjunction with researchers from nine countries, to study the impact of the reforms. Directed by Dr. Barbara Stallings, the project has produced 14 books and 70 working papers. The summary appears in the first volume, entitled Growth, Employment and Equity: The Impact of the Economic Reforms in Latin America and the Caribbean. It is complemented by four issue-specific volumes analysing investment, technological change, employment and equity. Additionally, another nine country volumes examine the particular characteristics of the reforms in Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Jamaica, Mexico and Peru. The working papers are available at ECLAC's web site (www.cepal.cl). One feature of the project that distinguishes it from other comparative studies of economic reform is that it specifically addresses the interaction between macroeconomic and microeconomic processes. To understand the impact of the reforms more fully, it is necessary to disaggregate the regional level and to study the differences between countries and in the microeconomic behaviour of firms according to sector, size and ownership. The globalization of the economy and government policies such as structural reform affect different countries and groups of firms in different ways. Some have been able to exploit the new opportunities, while the situation of others has deteriorated. The outcome of such developments gives rise to aggregate trends that others have observed and measured, but to design economic policy measures and improve future performance, it is essential to know what underlies those aggregates. The differing effects of the reforms are also evident in labour markets. Jürgen Weller, an ECLAC economist, thus takes account of their profound heterogeneity in the analysis of the region's labour markets presented in this book. That diversity partly derives from the special way in which labour markets work, as reflected in the presence of different segments driven by labour demand and by supply. This analysis thus differs from approaches which start from the premise of homogeneous labour markets, or which argue that the segmentation stems from politically induced distortions. Such approaches fail to capture the inherent dynamics of the region's labour markets. The author argues that economic reforms and effective labour institutions do not necessarily lead to equilibrium in the labour market, which underscores the importance of empirical research. Since it might be expected that the reforms would mainly affect the segment driven by labour demand, the book focuses on wage employment, although it also addresses the evolution of supply and of other employment categories. Additionally, the author maintains that an understanding of labour market dynamics demands an examination not only of trends at the aggregate level, but also of changes at the sectoral level. This approach provides a dynamic vision of the use of production factors, specifically the labour force, which explains why the economic reforms did not fulfil the expectations about job creation. In that context, the book shows that it is mistaken to speak (as some do) of jobless growth, but that some sectors did indeed suffer a significant decline in labour intensity. The productive restructuring triggered by the reforms not only affected job creation, but also had a marked impact on the composition of employment. Changes within and between sectors created a labour demand bias in favour of more educated workers, which tends to aggravate labour market segmentation. The author's analysis clearly reveals the size of the challenge facing the region in terms of creating more and better quality jobs. ECLAC could not have carried out a project of this scale without the cooperation of many individuals and institutions. We wish to thank the researchers that participated in each of the nine countries, as well as the coordinators of the thematic and national volumes. We are also indebted to the members of the project's External Advisory Committee: Nancy Birdsall, Director of Economic Programs at the Carnegie Endowment for International Peace; René Cortázar, Executive Director of Chilean National Television; Norman Hicks, senior economist at the World Bank; Juan Antonio Morales, President of the Central Bank of Bolivia; Pitou van Dijck, Professor of Economics at the University of Amsterdam; and Dorothea Werneck, Executive Director of the Brazilian Agency for Export Promotion. External financing came from a number of international donors. First, we wish to recognize the central role of the Netherlands Ministry for Development Cooperation, which provided the project's basic donation. The International Development Research Centre of Canada (IDRC) also made a substantial contribution that allowed us to expand the scope of the project significantly. These two sources were supplemented with funds from the Ford Foundation and the Swedish International Development Agency. We offer our deepest thanks to all the donors, without whose support this project would not have been possible. José Antonio Ocampo Executive Secretary Economic Commission for Latin America and the Caribbean