Unemployment and precariousness of employment in Uruguay: who are the losers?

Some of the main indicators of labor market performance in Uruguay are here analyzed in order to give some insight on which are the most urgent problems to be faced. Unemployment, underemployment, instability of employment and informality have gone up in Uruguay in the late nineties, in spite of the country having grown at a high average annual rate. The individuals that have worsen their relative position in the labor market are identified so that policy implications – both labor and social policies - can be suitably differentiated according to the reasons explaining the process.

The wage elasticity of labour demand in the Uruguayan manufacturing sector after re-unionisation: new results

This paper provides new evidence on the magnitude of the elasticity of substitution between labour and capital for the Uruguayan manufacturing sector. Labour demand is derived using a right-to-manage model estimated for the period 1985-1997 using data for six industries. The evidence found suggests that the elasticity is generally less than 1. Differences by industry and in time are also found. The latter result may be linked both to the integration process underwent by Uruguay in the nineties and to the changes in the bargaining framework that took place in that same period. As a nested CES production function is used to derive the labour demand, the partial elasticity of substitution between production and non-production workers is also calculated, being its magnitude quite low. Finally, the model was estimated using data from industrial surveys (gathered from firms) and from household surveys. The comparison of results shows that when using industrial surveys data the estimated elasticities are higher than when using household surveys data. The result is probably related to the different coverage of both sources, as well as to the different accuracy reached in measuring wages.

A bargaining model with uncertainty and varying outside opportunities

The main purpose of this paper is to propose an alternative way of explaining – within the bargaining theory framework – the stylised fact of flat wages and employment bearing all the adjustment to shocks. Standard models predict this behaviour under the assumptions of a constant elasticity production function and a reservation wage independent of shocks. Once the latter is removed, however, the result holds no more. The proposed two-stage model, in which the second stage involves negotiations over employment after the state of nature is revealed, would allow to recover it as a consequence of the uncertainty agents face when bargaining over wages in the first stage. The model nests other formulations and allows for Pareto efficient and inefficient outcomes, depending on union power, agents' beliefs and the observed state of nature.

Labour demand in Uruguay before and after re-unionisation

This paper examines a unique situation in Uruguay where before-after comparisons about the impact of collective bargaining can be made. During the period under study there were three distinct regimes: (1) 1975-1984 when bargaining was banned, (2) 1985-1991 when there was tripartite bargaining, and (3) 1992- 1997 when there was bargaining without government involvement. During the third regime the economy became much more open, which would presumably also have an effect on bargaining results. Strong evidence of a change in economic behaviour after 1985 is reported. Based on this evidence, a standard labour demand model, derived from a neoclassical framework, for 1975-1984 and a right-to-manage bargaining model for 1985-1997 are estimated. The results show that the long run wage elasticity of labour demand and the employment-output elasticity fell sharply, while there was no overall change in the amount of time needed for employment to adjust to its equilibrium level. The bargaining model results indicate that unions significantly raised wages in 1985-1992. Afterwards, the change in the bargaining structure and the increased openness had a pronounced effect on bargaining outcomes. The overall impact of unions has been a much higher level of wages at the cost of a lower level of employment.

Trade unions in Uruguay: some historical features explaining their economic role

The knowledge of the nature and structure of trade unions is a basic requisite to correctly model bargaining between firms and unions. Thus, in this paper the historical background and the current characteristics of the Uruguayan trade unions are summarised.

Methodological shortcomings in estimating Armington elasticities

CGEMs are one of the most potentially powerful tools for simulating policies. However, a major restriction they face is them needing a huge number of parameters that are not always available, and even at times impossible to obtain. When CGEMs are applied to trade, Armington elasticities of substitution are one of those key sets. The common practice among CGEMs builders has been to impose these values, either at will or by using those stemming from other existing research. There is general consensus, however, that econometrically estimated parameters for each case study would substantially improve the robustness of results. Unfortunately, most of the so obtained elasticities are considered underestimates of both the real and theoretically expected parameters. This gave rise to a growing concern on the eventual role played by methodological and empirical issues in this matter. There are some findings that have generated a quite general consensus among researchers, related to the type of datasets used; the disaggregation levels at which goods are defined and the origins of imported varieties are considered; the frequency of data; among others.Armington elasticity; CGEM; methodology

Innovation, R&D Investment and Productivity: Uruguayan Manufacturing Firms

Uruguay’s inability to sustain high levels of economic growth cannot be fully explained by external shocks, the prevailing institutional setting or the level of human capital accumulation. Instead, low investment in knowledge capital stands as a most likely explanation. This hypothesis is supported by empirical evidence analyzed in this study. Returns on innovation were found to be significant, promoting a non-negligible acceleration of labor productivity gains. However, the propensity to innovate and the intensity of the effort expended critically depend on the firm’s already having a high internal efficiency level. As firms’ behavior is differentiated depending on the type of innovation output pursued, the significantly higher frequency of processes relative to product-innovative firms is matched by the larger impact of novel processes with respect to products on labor productivity. However, the degree of novelty of process innovation is significantly inferior to that of product innovation. The research points to inadequate choices of input mixes as the underlying cause. Policy recommendations center on finding adequate channels to generate and disseminate information on the optimal input mixes depending on the type of innovation output sought.Innovation input, Innovation output, Productivity growth, CDM model

Armington Elasticities: Estimates for Uruguayan Manufacturing Sectors

Armington elasticities of substitution – AEs – are a crucial set of parameters that allows CGEMs applied to trade to be operational. In the case of Uruguay, no estimated values for these parameters have been available until now, forcing researchers to impose them arbitrarily. We here start filling this gap by providing estimated AEs for 32 Uruguayan 4-digit manufacturing industries belonging to the Food, Beverages and Tobacco; Chemical Products; and Textiles economic sectors, using monthly and quarterly data along 1989-2001. The specification of the models follows the simplified benchmark proposed by Armington (1969) that has been used in most of the existing applied research. The resulting estimated AEs are in line with those reported by the international literature and hence of a smaller size than expected by CGEM modellers. Our econometric analyses also show that the low values of the estimated elasticities are not due to the characteristics of the available data and/or the methodology used. Instead, a plausible explanation suggested by our results relates to the theoretical models used being misspecified, particularly due to the omission of relevant variables.Armington elasticity, Substitutability, Computable General Equilibrium Model.

The outcome of different bargaining models: the effects on wages, employment and the employment mix

The paper analyses data on wages, employment and labour composition in the Uruguayan manufacturing sector during 1985-1999 in order to get some evidence on the effects of union action on these variables. The whole period is first studied using a model in which no assumptions on the underlying bargaining model are made. The results support the hypothesis of two different bargaining frameworks in the 80s and 90s. Therefore, a right-tomanage bargaining model is specified for the 80s and a recursive contracts model for the 90s. Union effects are such that while in the 80s the effect of trade unions were to increase wages and hence decrease employment, in the nineties they moderated wage demands in exchange of more job stability. They not only managed to have a positive direct effect on employment but also to buffer the negative effects of increased openness and demand fluctuations on employment. The existence of unions also had an impact on labour composition, favouring a higher share of non-production workers in total employment. The result can be linked to the fact that firms moved to more capital intensive – or at least more skilled labour intensivetechnologies to avoid union costs. A final finding is related to the fact that the change in the Uruguayan bargaining regime at the beginning of the 90s – by which the mandatory extension of contracts vanished – favoured a more decentralised negotiation scheme and thus ended with the homogenous impact found in the 80s, since coordination in bargaining was lost.