Labor Market Reforms and Their Impact on Formal Labor Demand and Job Market Turnover: The Case of Peru

This paper analyzes the effects of several aspects of labor legislation that were modified through successive waves of reform since 1991. Firing costs diminished sharply through the progressive elimination of job security regulations, the introduction of temporary contracts and changes in the severance payment structure. Simultaneously, non-wage labor costs increased. To assess the effect of these changes on the level of formal employment, we estimate labor demand functions. We use a pseudo-panel data set for ten formal sectors observed bimonthly between 1987 and 1997 and panel data sets at the establishment level for three sub-periods. Both at the sector and establishment level, labor costs have a negative and significant effect on labor demand. The coefficient of our measure of firing costs, the expected severance payments, is negative and significant, and its magnitude decreases in the post reform period. After the reforms, the price and output elasticities are larger and there is evidence of a speedier labor demand adjustment. To assess the effect of regulations changes on turnover we use a series of repeated cross sections household surveys for Metropolitan Lima and calculate mean tenure using censored data. We find evidence that mean tenure fell since 1992. The fall is larger and more statistically significant for formal salaried workers than for informal workers. Using censored and complete employment spells from the Peruvian Living Standards Measurement Surveys we compare employment duration data for the formal and informal sectors using empirical hazards and parametric estimations of hazard functions. After the reforms, there is an increase in the hazard function for formal wage earners relative to the hazard function of informal sector wage earners. We find higher hazards for informal, private, temporary and blue-collar workers.

Household and Individual Decision-Making Over the Life Cycle: A First Look at Evidence from Peruvian Cohorts

Peruvian society has achieved significant improvements in terms of lower fertility and mortality over the last forty years, which has brought down population growth rates to less than 1. 2% a year. These improvements have led, on average, to a demographic transition with lower dependency ratios. In general, this transition increases the ability of the society to take proper care of its non-working population groups, children and the elderly, which may be reflected in changes in household structure. We identify stylized facts about the implications of these changes at the micro level through the use of pseudo-panels from household-level data for Peru. We calculate age, cohort and year effects for variables related to household structure, educational attainment, labor force participation and savings. We find some evidence that suggests differences, by educational level, in the Peruvian demographic transition. Household size is smaller for the younger cohorts in all households but those with less educated heads. We argue that these different profiles are explained by the fact that reductions in fertility have not reached the less educated. On the one hand, these differences in household size patterns are similar to those in the number of children. On the other hand, cohort patterns in family living arrangements—i. e. , households with extended families—are similar across educational groups. However, family living arrangements change throughout the life cycle, in the sense that extended families are more common for households with very young (under 25) and elderly (over 60) heads. These changes in family arrangements over the life cycle add confusion to the meaning of headship, since in some cases the household reports as its head the older member and in other cases the main income earner. We also find that younger cohorts are more educated, are larger than older ones, and show lower returns to education. This is consistent with an increase in relative supply of educated workers that outpaces the increase in relative demand induced by economic growth, under the assumption of imperfect substitutability between equally educated workers of different cohorts. Finally, we show that intergenerational family arrangements over the life cycle limit the ability of the life cycle hypothesis (LCH) to explain household savings behavior. We find evidence that Peruvian households, especially the less educated, smooth consumption over the life cycle, not only through the typical saving-dissaving mechanism, but also by smoothing income. Net cash transfers, or living arrangements between parents and their offspring, play an important role in this income smoothing.

Ethnicity and Earnings in Urban Peru

In this paper we study the relationship between ethnic exclusion and earnings in Urban Peru. Our approach to the concept of ethnicity involves the usage of instruments in many of its several dimensions: mother tongue, parental background, religion, migration events and race. In order to approximate what can be called racial differences in a context like the Peruvian in which "racial mixture" is the main characteristic of the population, we use a score-based procedure to capture both the differences and the mixtures. By means of this procedure each individual is assigned intensities by pollsters in each of the four categories that correspond to the most easily recognized distinct racial groups in the Peruvian society: Asiatic, White, Indigenous, and Black. We find that the multidimensional race indicator is correlated with several human capital and physical capital assets, as well as with access to public services. Using Blinder-Oaxaca (B-O) decompositions we find that a substantial part of the earnings differences between racial groups cannot be explainged by differences in individual characteristics. To take into account the fact that B-O doesn't consider the probability distribution of the individual characteristics, and specifically race in our case, we also use a semi-parametric technique for the estimation of differences in hourly earnings. This estimation treats the typical wage equations in a linear fashion but let estimators for the racial intensity effects to interact freely, without restricting them to a functional form. The results suggests that among wage earners after controlling for a large set of characteristics, there are racially related earnings differences in favor of predominantly White individuals. In the case of the self-employed, none of the empirical distributions of earning differences attributable to race is substantially above zero.race discrimination, minorities, wage differentials, semi-parametric

Latin America and the social contract : patterns of social spending and taxation

This paper presents an incidence analysis of both social spending and taxation for seven Latin American countries, the United Kingdom, and the United States. The analysis shows that Latin American countries are headed de facto toward a minimalist welfare state similar to the one in the United States, rather than toward a stronger, European-like welfare state. Specifically, both in Latin America and in the United States, social spending remains fairly flat across income quintiles. On the taxation side, high income inequality causes the rich tobear most of the taxation burden. This causes a vicious cycle where the rich oppose the expansion of the welfare state (as they bear most of its burden without receiving much back), which in turn maintains long-term inequalities. The recent increased socioeconomic instability in many Latin American countries shows nonetheless a real need for a stronger welfare state, which, if unanswered, may degenerate into short-term and unsustainable policies. The case of Chile suggests that a way out from this apparent dead end can be found, as elites may be willing to raise their contribution to social spending if this can lead to a more stable social contract.,Public Sector Economics&Finance,Taxation&Subsidies,Economic Theory&Research,Services&Transfers to Poor

Bundling of Services and Household Welfare in Developing Countries Using Panel Data: The Case of Peru

Using panel data for Peru for the period 1994-2000, we find that when households receive two or more services jointly, the welfare increases of the household, as measured by changes in consumption, are larger than when services are provided separately. Such an increase appears to be more than proportional, as F-tests on the coefficients of the corresponding regressors confirm. Thus, we find that bundling of services may help realize welfare effects.

Occupational Training to Reduce Gender Segregation: The Impacts of ProJoven

This paper discusses program evaluation for ProJoven, the Peruvian youth labor training program. Complementing detailed fieldwork, the econometric work implements a two-stage matching procedure on propensity scores, gender and labor income. This allows identification of differentiated program impacts on males and females and attacks the problem of Ashenfelter’s Dips. The evaluation shows substantial differences in ProJoven’s impact for males and females. Eighteen months after participation in the program, employment rates forfemales improve by about 15 percent (while employment for males reduces by 11 percent), gender occupational segregation reduces by 30 percent, and females’ labor income improves by 93 percent (while males’ earnings increase by 11 percent). Nonetheless, gender equality promotion represents only 1. 5 percent of ProJoven’s budget. These results suggest that labor-training programs that promote equal gender participation have disproportionately positive effects on outcomes for women trainees in a labor market with substantial gender differences.

Informality and Productivity in the Labor Market: Peru 1986 - 2001

Peru has one of the highest informality rates in Latin America, with almost 60 percent of the urban labor force working at the margins of labor market legislation or in microenterprises that lack basic labor market standards (Marcouiller, Ruiz de Castilla, and Woodruff, 1997). This paper identifies two factors that can explain the variation in informality rates in the 1990s. First, Peru experienced a steady increase in employment allocation in traditionally “informal” sectors—in particular, retail trade and transport. Second, there was a sharp increase in nonwage labor costs, despite a reduction in the average productivity of the economy. In addition, the paper illustrates the negative correlation between productivity and informality by evaluating the impacts of the PROJOVEN youth training program.

Gender and Racial Discrimination in Hiring: A Pseudo Audit Study for Three Selected Occupations in Metropolitan Lima

In this paper, we adapt the audit studies methodology to analyze gender and racial differences in hiring for a particular segment of the market of three selected occupations in Metropolitan Lima: salespersons, secretaries and (accounting and administrative) assistants. The adapted pseudo-audit study methodology allow us to reduce the room for existence of statistical discrimination. The results suggest the existence of no significant differences in hiring rates for different gender-race groups but some systematic (and significant) differences in the aimed wages of the individuals in their job search processes.field experiments, discrimination, occupational segregation