Labor Market Integration in Central America

This paper evaluates labor market integration in Central America using pooled household surveys from 17 Latin American countries. Using three measures of labor market integration, the results show evidence of long-run wage convergence. Two other measures, the short-run response to shocks and the short-run convergence to an equilibrium differential, suggest that Central America is no more integrated than the rest of Latin America (which, in turn, is much less than the United States and Mexico). Estimates of labor market integration measures are used to simulate the effects of falling wages in neighboring countries.