Labor Market Reforms in Latin America: Consequences and Costs

Oct 2007
This paper has been prepared for the Inter-American Development Bank roundtable Consulta de San Jose 2007. It examines more efficient forms of regulating the labor market in Latin America. To that aim, I first provide a simple framework for analyzing the effects of labor market re-regulation on wages, employment, earnings and the return to capital. Second, I analyze, from a comparative perspective, the extent to which labor markets have been distorted and regulated in Latin America. In particular, I use recent indexes constructed by various organizations and scholars to evaluate whether the Latin American countries have a higher degree of labor market distortions than other regions and groups of countries. And third, I use existing models and estimates on labor markets¿ behavior to provide computations of the costs and benefits of three specific (potential) labor market reforms in Latin America.