Employment and wage effects of trade liberalization : the case of Mexican manufacturing

In 1985, after decades of an import-substitution industrial strategy, Mexico initiated a radical liberalization of its external sector. Between 1985 and 1988, import licensing requirements were scaled back to a quarter of earlier levels, reference prices were removed, and tariff rates on most products were substantially reduced. By 1989, Mexico was one of the most open economies in the developing world. Adjusting to trade liberalization required the reallocation of resources between sectors and entailed substantial dislocation of workers. The author analyzes how Mexico's trade liberalization (1985-87) affected employment and wages in indusry, focusing on how it affected average employment and earnings rather than on the link between trade and relative wages. She examines the tradeoff between wage and employment adjustment, identifies which labor groups benefited more from liberalization, and tries to associate changes in employment and wages directly with measures of change in trade protection, rather than link them to changes in imports and exports (which is more common). The author also finds that reductions in quota coverage and tariff levels are associated with moderate reductions in firm-level employment. A 10-point reduction in tariff levels (between 1985 and 1990) is associated with a 2- to 3- percent decline in employment in Mexico. Changes in quota average appear to have no discernible effect on wages, but reduction in tariff levels are associated with increases in average wages. This seems to reflect improved productivity in the reformed industries, which may be related to a shift toward the use of more skilled workers. There seems to have been a slight shift in the skill mix in favor of nonproduction workers. This was paralleled by a sharper increase in the wage differential between skilled and unskilled workers. The wages and employment of skilled production workers were significantly more responsive to changes in protection levels than those of nonproduction workers - perhaps partly because production workers were more heavily concentrated in the industries in which protection levels were greatly reduced.Environmental Economics&Policies,Municipal Financial Management,Economic Theory&Research,Labor Policies,Banks&Banking Reform,Municipal Financial Management,Environmental Economics&Policies,Economic Theory&Research,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Banks&Banking Reform

The Effects of Trade Policy Reform: What Do We Really Know?

The magnitude of existing research on the effects of trade reform is impressive. Yet economists have not reached a clear consensus on a number of important questions such as the labor market impact of trade reform, the linkages between trade and foreign direct investment, and the relationship between trade and growth. In this paper we attempt to clarify what we know about the relationship between trade reform, factor markets, and growth. Although many studies have shown a positive relationship between various measures of openness and growth, many nagging problems remain. Trade policy is almost never measured using the most obvious indicators -- such as tariffs. In addition, many studies are plagued by serious econometric problems. The evidence on labor markets and trade reform is less extensive. Based on the studies to date, it appears that the unemployment and wage effects of trade reforms have generally been small. In the paper, we discuss the possibility that small wage and employment responses are due to labor market regulations. The paper concludes with an analysis of the linkages between trade policies and foreign investment flows. Our evidence suggests that trade reform has been accompanied by significant increases in investment inflows.

Wages and unemployment in Poland : recent developments and policy issues

The authors review recent developments in wages, employment, and unemployment in Poland and discuss some of the main risks Poland faces in sustaining its stabilization effort. They find that: unemployment has increased dramatically with stabilization, but this increase cannot be said to reflect widespread economic adjustment and restructuring throughout the Polish economy; and wages showed a significant degree of downward flexibility - in real terms - at the beginning of the year, when firms faced a severe supply shock coupled with very tight credit. The wage policy still in force in Poland at the end of 1991 maintains a few undesirable features. The monthly indexation and the possibility of carrying forward the unused margins are among the policy's main drawbacks; another is the link between wages and profitability. The current wage policy could be replaced by a generalized agreement on the wage path, with synchronized six-month contracts. The wage path should be related to expected inflation and economywide productivity. This scheme would also have the advantage of being based on a consensual agreement instead of being perceived as being imposed as a punitive tax.Youth and Governance,Banks&Banking Reform,Economic Theory&Research,Health Monitoring&Evaluation,Environmental Economics&Policies

Unemployment in Mexico : its characteristics and determinants

The restructuring of Mexico's economy has had surprisingly little effect on Mexican unemployment, which is low even in the worst years. The authors ask: Is the official definition of unemployment adequate? Is unemployment properly measured? And who bears its burden? Is the welfare cost of unemployment widespread or are certain population groups especially vulnerable to it, repeatedly hit by it, and therefore deserving of special attention? Is most unemployment associated with normal turnover (movements from one job to another) or with certain individuals being out of work a long time? The authors address these questions using panel data from the quarterly urban labor force survey, a household-based survey of 16 urban areas, and data from the National Employment Survey carried out every two to three years, and find the following. The structure of unemployment in Mexico is broadly similar to that in other countries. Unemployment is highest for those 16 to 25, especially women. Surprisingly, however, it is higher among secondary school graduates than among the less educated. Unemployment as officially measured is quite low, and has remained moderate during adjustment. Most adjustment occurred through the real wage rather than through unemployment. Therehas been relatively little restructuring for greater productivity. The official definition of unemployment leads to an underestimate of the jobless, because it ignores short spells out of the labor force transitions in and out of the labor force which are frequent. Using a more extension definition of unemployment raises the rate of male unemployment for 1988 from 3.4 percent to 6.4 percent, with the greatest increases in unemployment observed for people under 20 or with little education - yielding a structure of unemployment more like the one observed in other countries. Age, gender, and education are key determinants of unemployment. The probability of unemployment decreases with age and education for both men and women. Marriage is associated with lower risk of unemployment for men and for more educated women, but more probability of unemployment for women with less education. The typical spell of unemployment is not long: a mean duration of 5.7 months for men and 7.2 months for women (which explains the higher average unemployment rate for women). The duration of unemployment is longer for older workers but does not vary substantially according to educational attainment. Heads of households and individuals with household responsibilities tend to exit from unemployment faster. Although the typical spell of unemployment is relatively short, almost 70 percent of all unemployment in 1990-91 was attributable to spells lasting at least six months, and 30 percent corresponded to spells lasting at least a year. Although unemployment rates, as measured over a one-week period, are low (3 to 6 percent), 15 to 20 percent experience at least one spell of unemployment over a year. Among teenagers, the proportion is highest (50 percent) while it is only 10 percent for workers over 30.Economic Theory&Research,Youth and Governance,Health Monitoring&Evaluation,Labor Markets,Environmental Economics&Policies

The impact of Mexico's retraining program on employment and wages

The authors evaluated how Mexico's Labor Retraining Program (PROBECAT) affected unemployment and displaced workers. As part of the World Bank supported Manpower Training project, PROBECAT has provided short-term vocational training to more than 250,000 unemployed people. Their evaluation was based on new longitudinal data on PROBECAT trainees developed for this purpose, and includes data on a control group of unemployed people who did not join PROBECAT. Their main findings were as follows: On average, the trainees found jobs more quickly than the control group. But training does not shorten the term of unemployment for those without work experience. Male trainees are more likely to be employed three and six months after training than are the controls. Female trainees with work experience are more likely to be employed three, six, and twelve months after training than are the controls. Male trainees are more likely to find employment in large firms than are comparable controls. Training increases the monthly earnings of male trainees, but this effect varies systematically depending on the person's level of schooling attainment. The monetary benefits of training outweigh the costs of the PROBECAT program for certain groups of trainees. For male trainees over 25 with prior work experience, the benefits outweigh the costs of training within three months of starting work. For all other males except those with no prior work experience, the benefits outweigh the costs within one year. Men with no prior work experience spend the longest time job hunting after training (8 months, compared with the trainee mean of 4.4 months) and benefit less from training in terms of monthly earnings (128 thousand pesos compared with the average benefit of 152 thousand pesos). For this group, the costs of training are offset only after 17 months of higher earnings.Teaching and Learning,Environmental Economics&Policies,Health Monitoring&Evaluation,Vocational Education&Technical Training,Labor Standards

Coping with crises : why and how to protect employment and earnings

Events of the past two years are a reminder that crises are a recurring phenomenon with deep and often protracted impacts on labor markets. This paper examines the challenges inherent in crafting policy responses, with particular attention to developing countries. It focuses on the potential tradeoffs between offsetting adverse short-term impacts and preserving incentives for economic recovery and future growth, and between protecting the most vulnerable and compensating those most immediately impacted. It also highlights how policymakers’ room for maneuver is constrained in crisis times by deteriorating fiscal space, limited institutional capacity, and mounting political pressures. Based on empirical evidence from previous crises, the paper asserts that taking a myopic and reactive approach may be costly and counterproductive. Instead, it advocates a more comprehensive approach, designed to build institutions - such as automatic stabilizers and safety nets - that can deliver a coordinated and coherent policy package. This approach will make crises catalysts for institutional changes and long-run growth.Labor Markets,Labor Policies,Safety Nets and Transfers,Banks&Banking Reform,Population Policies

Avoiding the Eye of the Storm: How to Deal Effectively with Job Crises

Although economic crises are difficult to predict, their recurrence is a salient feature of emerging market economies. Nevertheless, many developing countries continue to lack an effective policy infrastructure that can mitigate the impacts of economic downturns on employment opportunities without affecting long-term growth prospects. This was painfully highlighted by the hasty reactions implemented by many countries in response to the global downturn of 2008–9, and by the ad hoc and reactive nature of many of the policies implemented. The weak ability of governments to systematically foresee, monitor, and offset adverse labor market impacts of economic downturns is of particular concern in developing countries where poverty incidence is high and labor is typically the only asset for the majority of the population (Lustig 2000). The main objectives of this note1 are (i) to highlight the need for policies that limit earnings volatility and (ii) to guide policy makers through the challenges inherent in crafting effective and comprehensive policy packages.financial crisis, jobs, developing countries, growth, employment, unemployment, labor, poverty, labor market, recovery

Optimal exchange rate flexibility in an economy with intersectoral rigidities and nontraded goods

En este trabajo se propone un modelo estocastico de dos sectores, que puede ser utilizado para comparar las propiedades estabilizadoras de los distintos regimenes cambiarios. Del analisis se obtienen las siguientes conclusiones: Si la autoridad monetaria tiene mas informacion que los agentes privados, un regimen de tipo de cambio flexible estabiliza el producto, tanto en el sector de bienes comerciados como en el de no comerciados. Por el contrario, si la autoridad monetaria no posee informacion superior, el regimen optimo depende de magnitudes relativas de las perturbaciones nacionales y extranjeras, y de la importancia de los shocks sectoriales. Un regimen de tipo de cambio fijo minimiza la desviacion del output de equilibrio sobre el de informacion completa en el sector de comerciados, pero desestabiliza el sector protegido. En general, se encuentra que el regimen optimo se corresponde con una regla cambiaria intermedia entre el tipo de cambio fijo puro y el tipo de cambio completamente flexible. (frl) (ars) (mac

What affects the employment rate intensity of growth?

En este trabajo se analiza la relacion entre el crecimiento economico y la tasa de empleo (es decir, la proporcion empleada de la poblacion en edad de trabajar). Se halla, en una muestra de once paises de la OCDE durante los ultimos 30 años, que dicha relacion difiere de forma significativa entre paises. Las elasticidades mas altas de la tasa de empleo con respecto al crecimiento se encuentran en Estados Unidos, Canada y el Reino Unido, y las mas bajas, en Japon y Austria. Tambien se obtiene que esta elasticidad viene afectada por factores estructurales e institucionales, como la participacion de la agricultura en el producto total, el nivel de los costes de despido, los grados de coordinacion intersindical e interempresarial, y el porcentaje de asalariados en empresas grandes. Contiene graficos, cuadros estadisticos y bibliografia. (ars) (sbc) (igg