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Labor Market Dynamics, Informality and Regulations in Latin America

Author

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  • Mr. Antonio David
  • Samuel Pienknagura
  • Mr. Jorge Roldos

Abstract

Labor markets in Latin America and the Caribbean (LAC) are characterized by high levels of informality and relatively rigid regulation. This paper shows that these two features are related and together make the speed of adjustment of employment to shocks slower, especially when regulations are tightly enforced. Evidence suggests that strict labor market regulations also have an adverse effect on medium-term growth. While both regulations on prices (minimum wages) and quantities (employment protection) decrease the speed of adjustment to shocks, they appear to be binding in different phases of the cycle—the former affects mostly the (net) job creation margin and the latter the (net) job destruction margin. The results also highlight possible interactions between labor market regulations and the effectiveness of macro-stabilization tools—including exchange rate depreciation.

Suggested Citation

  • Mr. Antonio David & Samuel Pienknagura & Mr. Jorge Roldos, 2020. "Labor Market Dynamics, Informality and Regulations in Latin America," IMF Working Papers 2020/019, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2020/019
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    References listed on IDEAS

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    Cited by:

    1. Mathilde Bouvier & François Roubaud & Mireille Razafindrakoto & Roberta Teixeira, 2022. "Labour market transitions in the time of Covid-19 in Brazil:a panel data analysis," Working Papers DT/2022/02, DIAL (Développement, Institutions et Mondialisation).
    2. Juan Carlos Berganza & Rodolfo Campos & Enrique Martínez Casillas & Javier Pérez, 2020. "The end of the demographic dividend in Latin America: challenges for economic and social policies," Economic Bulletin, Banco de España, issue 1/2020.

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