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A better policy framework for preventing, managing, and helping
people recover from crises is crucial to lifting long-term growth
and livelihoods in Latin America and the Caribbean (LAC). The need
for this policy framework has never been more urgent as the region
faces the monumental task of recovery from the worldwide COVID-19
pandemic. Whether specific policy responses will deliver the
expected growth dividends will depend on the underlying vision of
how labor markets adjust to crises and the quality of the policies
enacted. This report estimates how crises change labor market
flows, assesses how these changes affect people, and discusses the
key policy responses. The key findings are threefold. First, crises
have significant impacts on employment dynamics and structure in
Latin America. Different labor market dynamics hide behind similar
reductions in labor demand. Crises increase unemployment. This is
the principal margin of adjustment despite highly informal labor
markets. Across the region, the biggest employment losses are in
the formal sector, driven by a reduction in job-finding rates
rather than higher job-loss rates. Adjustment through reduction in
hours worked does not seem to be an important factor in most
countries' formal or informal sectors. Crises do not just shape
worker flows temporarily-they have significant after-crisis effects
on the structure of employment that last for several years. These
effects are such that good job opportunities are gradually
shrinking. Whereas in some countries the whole economy shrinks, in
others informality serves as a partial buffer. Second, crises leave
scars. Some workers recover from displacement and other livelihood
shocks, while others are permanently scarred. For lower-skilled
workers, earnings losses are persistent. Workers with higher
education suffer no impacts of the crisis on their wages and very
short-lived impacts on their employment. The responses are similar
across male and female workers and workers with high and low
previous participation in the formal labor market. New entrants to
the labor market during a crisis face a worse career start - one
from which it is difficult to recover. Yet, crises also bring
efficiency gains, as detailed in this report. This study finds that
both the structure of product markets and the conditions in local
labor markets matter for the severity of crisis-induced employment
and earnings losses across localities and sectors. Workers in more
protected sectors that enjoy rents are sheltered from adjustment,
while workers in localities with more informality cope better. This
suggests the need for integrated responses at the worker, sector,
and locality levels. Third, this study considers how the region's
policy frameworks can more effectively respond to crises-mitigating
scarring, speeding adjustment, and promoting long-term growth. It
proposes a three-pronged strategy, including (i) creating a more
stable macroeconomic environment at the aggregate level to smooth
the impacts of crises, including "automatic stabilizers" such as
countercyclical, publicly-financed income support that is lacking
in LAC; (ii) increasing the capacity of social protection and labor
policies to provide income support as well prepare workers for
change through reemployment assistance; and (iii) tackling
structural issues, including addressing product market competition,
contestability issues, and the spatial dimension behind poor labor
market adjustment.
Since the early 1990s, most developing economies have become more
integrated with the world s economy. Trade and foreign investment
barriers have been progressively lifted and international trade
agreements signed. These reforms have led to important changes in
the structures of these economies. The labor markets have adjusted
to these major changes, and workers were required to adapt to them
in one way or another. In 2006, the Social Protection Unit of the
World Bank launched an important research program to understand the
impact that these profound structural changes have had on workers
in developing countries. 'Globalization, Wages, and the Quality of
Jobs: Five Country Studies' presents the findings and insights of
this important research program. In particular, the authors present
the similar experiences of low-income countries with globalization
and suggest that low-income countries working conditions have
improved in the sectors exposed to globalization. However,
'Globalization, Wages, and the Quality of Jobs' also highlights
concerns about the sustainability of these improvements and that
the positive demonstration effects on the rest of the economy are
unclear. The empirical literature that exists, although vast, does
not lead to a consensus view on globalization s eventual impact on
labor markets. Understanding the effects of globalization is
crucial for governments concerned about employment, working
conditions, and ultimately, poverty reduction. Beyond job creation,
improving the quality of those jobs is an essential condition for
achieving poverty reduction. 'Globalization, Wages, and the Quality
of Jobs' adds to the existing literature in two ways. First, the
authors provide a comprehensive literature review on the current
wisdom on globalization and present a micro-based framework for
analyzing globalization and working conditions in developing
countries. Second, the authors apply this framework to five
developing countries: Cambodia, El Salvador, Honduras, Indonesia,
and Madagascar. This volume will be of interest to government
policy makers, trade officials, and others working to expand the
benefits of globalization to developing countries."
A better policy framework for preventing, managing, and helping
people recover from crises is crucial to lifting long-term growth
and livelihoods in Latin America and the Caribbean (LAC). The need
for this policy framework has never been more urgent as the region
faces the monumental task of recovery from the worldwide COVID-19
pandemic. Whether specific policy responses will deliver the
expected growth dividends will depend on the underlying vision of
how labor markets adjust to crises and the quality of the policies
enacted. This report estimates how crises change labor market
flows, assesses how these changes affect people, and discusses the
key policy responses.The key findings are threefold. First, crises
have significant impacts on employment dynamics and structure in
Latin America. Different labor market dynamics hide behind similar
reductions in labor demand. Crises increase unemployment. This is
the principal margin of adjustment despite highly informal labor
markets. Across the region, the biggest employment losses are in
the formal sector, driven by a reduction in job-finding rates
rather than higher job-loss rates. Adjustment through reduction in
hours worked does not seem to be an important factor in most
countries' formal or informal sectors. Crises do not just shape
worker flows temporarily-they have significant after-crisis effects
on the structure of employment that last for several years. These
effects are such that good job opportunities are gradually
shrinking. Whereas in some countries the whole economy shrinks, in
others informality serves as a partial buffer.Second, crises leave
scars. Some workers recover from displacement and other livelihood
shocks, while others are permanently scarred. For lower-skilled
workers, earnings losses are persistent. Workers with higher
education suffer no impacts of the crisis on their wages and very
short-lived impacts on their employment. The responses are similar
across male and female workers and workers with high and low
previous participation in the formal labor market. New entrants to
the labor market during a crisis face a worse career start - one
from which it is difficult to recover. Yet, crises also bring
efficiency gains, as detailed in this report.This study finds that
both the structure of product markets and the conditions in local
labor markets matter for the severity of crisis-induced employment
and earnings losses across localities and sectors. Workers in more
protected sectors that enjoy rents are sheltered from adjustment,
while workers in localities with more informality cope better. This
suggests the need for integrated responses at the worker, sector,
and locality levels.Third, this study considers how the region's
policy frameworks can more effectively respond to crises-mitigating
scarring, speeding adjustment, and promoting long-term growth. It
proposes a three-pronged strategy, including (i) creating a more
stable macroeconomic environment at the aggregate level to smooth
the impacts of crises, including "automatic stabilizers" such as
countercyclical, publicly-financed income support that is lacking
in LAC; (ii) increasing the capacity of social protection and labor
policies to provide income support as well prepare workers for
change through reemployment assistance; and (iii) tackling
structural issues, including addressing product market competition,
contestability issues, and the spatial dimension behind poor labor
market adjustment.
A better policy framework for preventing, managing, and helping
people recover from crises is crucial to lifting long-term growth
and livelihoods in Latin America and the Caribbean (LAC). The need
for this policy framework has never been more urgent as the region
faces the monumental task of recovery from the worldwide COVID-19
pandemic. Whether specific policy responses will deliver the
expected growth dividends will depend on the underlying vision of
how labor markets adjust to crises and the quality of the policies
enacted. This report estimates how crises change labor market
flows, assesses how these changes affect people, and discusses the
key policy responses.The key findings are threefold. First, crises
have significant impacts on employment dynamics and structure in
Latin America. Different labor market dynamics hide behind similar
reductions in labor demand. Crises increase unemployment. This is
the principal margin of adjustment despite highly informal labor
markets. Across the region, the biggest employment losses are in
the formal sector, driven by a reduction in job-finding rates
rather than higher job-loss rates. Adjustment through reduction in
hours worked does not seem to be an important factor in most
countries' formal or informal sectors. Crises do not just shape
worker flows temporarily-they have significant after-crisis effects
on the structure of employment that last for several years. These
effects are such that good job opportunities are gradually
shrinking. Whereas in some countries the whole economy shrinks, in
others informality serves as a partial buffer.Second, crises leave
scars. Some workers recover from displacement and other livelihood
shocks, while others are permanently scarred. For lower-skilled
workers, earnings losses are persistent. Workers with higher
education suffer no impacts of the crisis on their wages and very
short-lived impacts on their employment. The responses are similar
across male and female workers and workers with high and low
previous participation in the formal labor market. New entrants to
the labor market during a crisis face a worse career start - one
from which it is difficult to recover. Yet, crises also bring
efficiency gains, as detailed in this report.This study finds that
both the structure of product markets and the conditions in local
labor markets matter for the severity of crisis-induced employment
and earnings losses across localities and sectors. Workers in more
protected sectors that enjoy rents are sheltered from adjustment,
while workers in localities with more informality cope better. This
suggests the need for integrated responses at the worker, sector,
and locality levels.Third, this study considers how the region's
policy frameworks can more effectively respond to crises-mitigating
scarring, speeding adjustment, and promoting long-term growth. It
proposes a three-pronged strategy, including (i) creating a more
stable macroeconomic environment at the aggregate level to smooth
the impacts of crises, including "automatic stabilizers" such as
countercyclical, publicly-financed income support that is lacking
in LAC; (ii) increasing the capacity of social protection and labor
policies to provide income support as well prepare workers for
change through reemployment assistance; and (iii) tackling
structural issues, including addressing product market competition,
contestability issues, and the spatial dimension behind poor labor
market adjustment.
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