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The Effects of Increasing Openness and Integration to the MERCOSUR on the Uruguayan Labour Market: A CGE Modeling Analysis

Author

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  • Terra, Maria Ines
  • Bucheli, Marisa
  • Laens, Silvia
  • Estrades, Carmen

Abstract

Uruguay is a small economy. Its integration to MERCOSUR has increased the exposure to regional macroeconomic instability. The aim of this paper is to assess the impact of regional integration on the country’s labour market and poverty. We estimated wage differentials between labour categories, finding a 60 percent wage gap between formal and informal workers. A CGE model with an efficiency wage specification for unskilled labour was built, with results showing that regional shocks deeply affect the Uruguayan economy. The consideration of an efficiency wage model is particularly important when shocks lead to a reallocation of resources towards sectors intensive in unskilled labour. A subsidy on formal, unskilled labour could contribute to decrease informality and therefore increase GDP, but this type of policy needs to be carefully implemented because it may have negative effects on investment. Finally, the effects on poverty and income distribution obtained through microsimulations are consistent with the results of the CGE experiments.

Suggested Citation

  • Terra, Maria Ines & Bucheli, Marisa & Laens, Silvia & Estrades, Carmen, 2005. "The Effects of Increasing Openness and Integration to the MERCOSUR on the Uruguayan Labour Market: A CGE Modeling Analysis," Conference papers 331318, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331318
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    2. Estrades, Carmen & Terra, María Inés, 2009. "International Commodity Prices, Trade and Poverty in Uruguay," Conference papers 331876, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. Flores, Manuel & Cassoni, Adriana, 2008. "Armington elasticities - Estimates for Uruguayan manufacturing sectors," Conference papers 331814, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. Estrades, Carmen & Terra, María Inés, 2012. "Commodity prices, trade, and poverty in Uruguay," Food Policy, Elsevier, vol. 37(1), pages 58-66.
    5. Cecilia Llambi & Silvia Laens & Marcelo Perera & Mery Ferrando, 2011. "Assessing the Impact of the 2007 Tax Reform on Povert and Inequality in Uruguay," Working Papers PMMA 2011-14, PEP-PMMA.
    6. Maria Laura Alzua & Hernan Ruffo, 2011. "Effects of Argentina's Social Security Reform on Labor Markets and Poverty," Working Papers MPIA 2011-11, PEP-MPIA.
    7. Johan Sandberg, 2012. "Conditional Cash Transfers and Social Mobility: The Role of Asymmetric Structures and Segmentation Processes," Development and Change, International Institute of Social Studies, vol. 43(6), pages 1337-1359, November.

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    Keywords

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    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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