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


  • Guillermo Mondino
  • Silvia Montoya


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.

Suggested Citation

  • Guillermo Mondino & Silvia Montoya, 2000. "The Effects of Labor Market Regulations on Employment Decisions by Firms: Empirical Evidence for Argentina," Research Department Publications 3091, Inter-American Development Bank, Research Department.
  • Handle: RePEc:idb:wpaper:3091

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    Cited by:

    1. Carmen Pagés & James J. Heckman, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," IDB Publications (Working Papers) 1094, Inter-American Development Bank.
    2. Ponce, Aldo, 2008. "Emergence, Organizational Transformations, And Decline Of The Piquetero Movement: A Comparative Institutional Explanation," MPRA Paper 8748, University Library of Munich, Germany.
    3. Ponce, Aldo Fernando, 2006. "Unemployment and Clientelism: The Piqueteros of Argentina," MPRA Paper 23, University Library of Munich, Germany.
    4. 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.
    5. 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.

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