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Fear of Labor Rigidities – The Role of Expectations in Employment Growth in Peru

  • Pablo Lavado

    ()

    (Departamento de Economía, Universidad del Pacífico)

  • Gustavo Yamada

    ()

    (Departamento de Economía, Universidad del Pacífico)

Many studies have been conducted to analyze the effect of stricter Employment Protection Legislation (EPL). However, almost all of them has focused on an ex-post impact; leaving aside a second but equally important channel: expectations. This paper aims to analyze the role of expectations on peruvian formal and informal labor market; using news as our identification variable. We use the monthly number of news related to the approval of the General Labor Law (GLL), a proposal entailing future stronger labor rigidities, from January 2001 to May 2012. Using the Permanent Employment Survey (EPE), we find a negative relation between expectations towards a stricter labor market and both employment and average income. News mainly affect formal occupied EAP, arousing a substitution effect from formal to informal employment. We also discover that the effect of expectations differs in periods with higher versus lower GDP growth. Finally, we find some evidence supporting news having a cumulative effect: the larger the previous stock of news, the weaker the effect.

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File URL: http://srvnetappseg.up.edu.pe/siswebciup/Files/DD1316_Lavado-Yamada.pdf
File Function: First Version, 2013
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Paper provided by Departamento de Economía, Universidad del Pacífico in its series Working Papers with number 13-17.

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Length: 81 pages
Date of creation: Dec 2013
Date of revision: Dec 2013
Handle: RePEc:pai:wpaper:13-17
Contact details of provider: Web page: http://www.up.edu.pe/

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  1. David H. Autor & William R. Kerr & Adriana D. Kugler, 2007. "Do Employment Protections Reduce Productivity? Evidence from U.S. States," Harvard Business School Working Papers 07-048, Harvard Business School.
  2. Lehmann, Hartmut & Muravyev, Alexander, 2012. "Labor Market Institutions and Informality in Transition and Latin American Countries," IZA Discussion Papers 7035, Institute for the Study of Labor (IZA).
  3. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 91-134, February.
  4. Carmen Pagés-Serra & James J. Heckman, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," Research Department Publications 4227, Inter-American Development Bank, Research Department.
  5. Di Tella, Rafael & MacCulloch, Robert, 2005. "The consequences of labor market flexibility: Panel evidence based on survey data," European Economic Review, Elsevier, vol. 49(5), pages 1225-1259, July.
  6. Andrea Bassanini & Luca Nunziata & Danielle Venn, 2009. "Job protection legislation and productivity growth in OECD countries," Economic Policy, CEPR;CES;MSH, vol. 24, pages 349-402, 04.
  7. Claudio Montenegro & Carmen Pagés-Serra, 2003. "Who Benefits from Labor Market Regulations? Chile 1960-1998," Research Department Publications 4345, Inter-American Development Bank, Research Department.
  8. Carmen Pagés-Serra & Alejandro Micco, 2007. "The Economic Effects of Employment Protection: Evidence from International Industry-Level Data," IDB Publications (Working Papers) 4120, Inter-American Development Bank.
  9. Valerie A. Ramey, 2009. "Identifying Government Spending Shocks: It's All in the Timing," NBER Working Papers 15464, National Bureau of Economic Research, Inc.
  10. Pierre, Gaelle & Scarpetta, Stefano, 2004. "Employment regulations through the eyes of employers - do they matter and how do firms respond to them?," Policy Research Working Paper Series 3463, The World Bank.
  11. Garz, Marcel, 2013. "Unemployment expectations, excessive pessimism, and news coverage," Journal of Economic Psychology, Elsevier, vol. 34(C), pages 156-168.
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