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Labor market flexibility in thirteen Latin American countries and the United States : revisiting and expanding Okun coefficients, Volume 1
Author:Gonzalez Anaya, Jose Antonio; Country:Panama; Brazil; Colombia; Mexico; United States; Venezuela, Republica Bolivariana de; Uruguay; Peru; Bolivia; Guatemala; Paraguay; Costa Rica; Chile; Argentina;
Date Stored:2000/11/23Document Date:1999/09/30
Document Type:PublicationSubTopics:Environmental Economics & Policies; Economic Theory & Research; Banks & Banking Reform; Labor Markets; Municipal Financial Management
ISBN:ISBN 0-8213-4489-7Language:English
Major Sector:(Historic)Social ProtectionRegion:Latin America & Caribbean; OTH
Report Number:19668Sub Sectors:Labor Markets & Employment
Collection Title:World Bank Latin American and Caribbean studies ; viewpointsVolume No:1

Summary: This paper studies labor market flexibility in 13 Latin American countries--Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Guatemala, Mexico, Panama, Paraguay, Peru, Uruguay, and Venezuela--since the 1960s and 1970s by looking at the sensitivity of employment and unemployment, and real wages with respect to output. It finds that price stabilization has brought real-wage stability, but that it has tended to increase uncertainty of job security. It argues that declining inflation makes labor market rigidities binding because labor markets cannot absorb output shocks through prices. Cyclical relationships are studies by constructing Okun coefficients for unemployment, employment, and wages using first differences and the cyclical component of a Hodrick-Prescott (HP) decomposition of the series. This paper finds that compared with the United States, output fluctuations in Latin America have a small effect on employment and unemployment, but a large effect on real wages. The most important determinants of the flexibility indicators are labor market reforms. Long-term relationships are studies using a standard production function and the permanent component of the HP decomposition of the series. In all seven countries that implemented a price stabilization program, the output elasticity of employment increased, implying higher productivity and lower employment generation.

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