IADB Dealing with risk: Implementing employment policies under fiscal constraints Milan, March 23, 2

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IADBDealing with risk Implementing employment
policies under fiscal constraintsMilan, March
23, 2003

• What went on in Latin America Labor Markets?
• Comments
• Stefano Scarpetta
• Labor Advisor, World Bank

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Main findings of the paper

• This is a comprehensive review of labor market
  conditions and developments in Latin America
• It depicts a rather gloomy picture
• Increase in unemployment rates often above 10
• All groups are facing a higher joblessness risk
• Increase in female participation (from low
  levels) but falls in male employment rates
• Stagnant and in some cases even falling real
  wages
• Many workers earn poverty wages, with a rising
  share in some countries

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Some issues on labor market developments in Latin
America

• Unemployment patterns is the increase of LF
  participation the main driver?
• Was LF participation also driven, as argued in
  the paper, by the need to supplement household
  income affected by stagnant and more uncertain
  wages?
• How can we explain the significant differences in
  LM patterns across countries in the region?
• The paper points at downward wage flexibility as
  one factor reducing unemployment pressures (e.g.
  Mexico CA compared to Chile and Brazil)
• and outward migration (Mexico)
• Is low pay an absolute or a relative concept?
• The paper uses the 1/hour as a benchmark to
  define low pay and to assess size of the informal
  sector, but PPP GDP/capita are quite different
  across countries

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What went wrong in Latin American labor markets?

• The background
• Relatively strong growth, even if marked by some
  crises (Tequila crisis, Argentina crisis)
• Significant efforts of structural adjustment
• Including privatization and regulatory reforms
• But relatively low employment content of
  growth
• increases in the informalization of the
  economy

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Was the labor market at the center of the
development agenda?

• Probably the answer is NO
• E.g. of the 183 structural adj. projects of WB
  over 1999-2001 in 77 countries only 13 had at
  least one LM conditions
• Labor market issues rank high amongst the
  concerns of enterprises
• e.g. WB surveys of business environment in more
  than 80 countries suggest that in many of them
  (Brazil, Chile, Colombia, Venezuela, Bolivia,
  Argentina etc.), LM is the first or second (out
  of 8) of the main obstacles for business activity
  and growth.
• Labor market issues also of major concerns for
  households
• Less surprising, household surveys reveal that
  concerns about job availability, wages and job
  security are at the top of concerns of households

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What is the role of LM for development?

• At the risk of oversimplifying, most of the
  effort in the LM area has been to protect social
  expenditures and improve their effectiveness in
  order to mitigate potential adverse effects of
  structural adjustments on the poor and other
  vulnerable groups
• We should perhaps know more about how labor
  markets fit into a comprehensive development
  strategy
• Labor is the market where the employment shocks
  related to (and often required by) structural
  reforms must be handled
• Labor is most often the only asset of poor people
  
• A labor market that facilitates job creation and
  increases in productivity is a key ingredient in
  a business climate where new firms are created
  and private agents find the proper incentives to
  invest and innovate
• Labor markets interact with product markets and
  such interactions affect firm creation and
  destruction, investment in physical and human
  capital, adoption of new technologies, and
  foreign direct investment.
• Moreover, acting on one front (i.e. product and
  financial markets) but not on the other (labor
  market) may jeopardize the results reforms