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Do labor market regulations affect labor earnings in Ecuador?


  • MacIsaac, Donna
  • Rama, Martin


The authors use the 1994 Living Standards Measurement Survey to show that the impact of labor market regulations, namely mandated benefits, is mitigated by reducing the base earnings on which they are calculated. Therefore, market regulation neither accounts for labor market segmentation nor for slow growth and increased inequality alone. Ecuador's regulations do raise take-home pay, but less than the vast number of benefits would suggest. The increase in labor costs induced by compliance is even smaller than the corresponding increase in take-home pay, because mandated benefits are not subject to social security contributions or payroll taxes. Despite mandated benefits, wage differentials between industries are comparable to those in Bolivia, a country otherwise similar to Ecuador, yet known to have"flexible"labor markets. Compliance with these regulations is associated with significantly higher take-home pay only in the public sector and where trade unions are active -and it is unclear that merely changing the labor code would bring wages down in those two areas. The most dramatic earnings gap, the one between jobs in agriculture and the rest of the economy, appearsto be largely independent of either unions or labor laws. The authors conclude, therefore, that drastically streamlining the cumbersome labor laws, although welcome, would only produce moderate change.

Suggested Citation

  • MacIsaac, Donna & Rama, Martin, 1997. "Do labor market regulations affect labor earnings in Ecuador?," Policy Research Working Paper Series 1717, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1717

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    References listed on IDEAS

    1. Grosh, M.E. & Glewwe, P., 1995. "A Guide to Living Standards Measurement Study Surveys and their Data Sets," Papers 120, World Bank - Living Standards Measurement.
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    Cited by:

    1. Chong, Alberto & Lopez-de-Silanes, Florencio, 2002. "Privatization and labor force restructuring around the world," Policy Research Working Paper Series 2884, The World Bank.
    2. repec:cuf:journl:y:2014:v:15:i:2:chong:lopez-de-silanes is not listed on IDEAS
    3. Alberto Chong & Florencio Lopez-de-Silanes, 2003. "La privatización y la reestructuración de la fuerza laboral en todo el mundo," Research Department Publications 4330, Inter-American Development Bank, Research Department.
    4. Maskus, Keith E., 1997. "Should core labor standards be imposed through international trade policy?," Policy Research Working Paper Series 1817, The World Bank.


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