This paper first provides an overview of the levels of minimum wages in Latin America and their true impact on the distribution of wages using both numerical measures and kernel density plots. It identifies "numeraire" effects higher in the wage distribution and "lighthouse" or reference effects in the unregulated or "informal" sector. The final section then employs panel employment data from Colombia, a country where minimum wages seem high and very binding, to quantify the effects of an increase on wages and employment. The evidence suggests that in the Latin American context, the minimum wage has impacts beyond those usually contemplated in the advanced country literature.
We analysed labour costs in Mexico and evaluated their impact in terms of firm performance. Using a new survey, we studied how firms chose to conduct a firing procedure (i.e. mandatory payment, negotiation, or legal dispute) and the actual costs derived from that decision. We found that firms that negotiate have, on average, lower costs. This may mean that workers subvaluate the legal benefits. Moreover, legal disputes may increase firing costs by 50 per cent. We contributed to the analysis of the impact of such costs on employment and found that, when firms negotiate or pay higher costs, this decreases the level of employment. We also analysed the impact of Social Benefits on employment using an industrial survey. We found that a 10 per cent increment in these benefits may have a negative long-term impact of 9 per cent on the level of employment. Copyright 2007 The Authors; Journal compilation 2007 CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd..
This paper selectively synthesizes much of the research on Latin American and Caribbean labor markets in recent years. Several themes emerge that are particularly relevant to on going policy dialogues. First, labor legislation matters, but markets may be less segmented than previously thought. The impetus to voluntary informality, which appears to be a substantial fraction of the sector, implies that the design of social safety nets and labor legislation needs to take a more integrated view of the labor market taking into account the cost-benefit analysis workers and firms make about whether to interact with formal institutions. Second, the impact of labor market institutions on productivity growth has probably been underemphasized. Draconian firing restrictions increase litigation and uncertainty surrounding worker separations, reduce turnover and job creation, and poorly protect workers. But theory and anecdotal evidence also suggest that they, and other related state or union induced rigidities, may have an even greater disincentive effect on technological adoption, which accounts for half of economic growth. Finally institutions can affect poverty and equity, although the effects seem generally small and channels are not always clear. Overall, the present constellation of labor regulations serves workers and firms poorly and both could benefit from substantial reform.
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