Exports, production and uncertainty

Includes bibliographical references (p

Are labor markets in developing countries dualistic?

There is a long tradition of viewing as disadvantaged the roughly 40 percent of workers in developing countries who are unprotected by labor legislation and work in small"informal"firms. The author offers an alternative to traditional views of the relationship between formal and informal labor markets: For many workers, inefficiencies in present labor codes and relatively low levels of human capital (labor productivity) may make employment in the informal sector more desirable. He offers the first study of worker transitions among sectors, using detailed panel data from Mexico, and finds little evidence to support the traditional dualistic view. He shows that traditional earning differentials cannot prove or disprove segmentation in developing countries, and patterns of worker mobility do not suggest a rigid labor market -- or one segmented into formal and informal divisions. It is possible that the market is dualistic in the sense used in the industrial world, but the division between good jobs and bad jobs seems to cut across issues of formality.Work&Working Conditions,Labor Policies,Environmental Economics&Policies,Banks&Banking Reform,Labor Standards,Banks&Banking Reform,Environmental Economics&Policies,Labor Standards,Health Monitoring&Evaluation,Work&Working Conditions

The structure of labor markets in developing countries : time series evidence on competing views

Competing conceptions of the large, unprotected,"informal"workforce in developing countries differ greatly in their implications for the labor reform considered to be essential complements to trade liberalization and"fair"competition in international trade. Traditionally, the informal sector is viewed as the disadvantaged segment of a dual labor market segmented by legislated or union-induced rigidities and high labor costs in the protected (or"informal") sector. In this view, the size of the informal sector is a testament to the inefficiencies in labor allocation and the magnitude of required reform. In cyclical downturns, the informal sector is thought to absorb displaced workers from the formal sector (with informal earnings falling relative to those in the formal sector) and then to contract again during recovery as the queue for"good jobs"shortens again. A recent, related view postulates a long-term trend in which large enterprises, confronted by heightened global competition, increasingly subcontract to unprotected workers as a way to reduce costs and gain flexibility. This is particularly relevant in the debate about establishing common labor standards in regional trade agreements. The author reexamines the traditional view of the dual labor market by studying the dynamics between the formal and informal sectors across a business cycle and a period of trade liberalization in Mexico (1987-93). He shows conventional comparisions of earnings, even across time, to be unreliable tests for segmentation. As an alternative, he shows that transitions on informal employment, the size of the informal sector, and levels of mobility to be procyclical, increasing with upturns, and decreasing with recessions. He tests for, and finds, however, some evidence of queuing to enter formal employment. Overall, he contends, the informal sector behaves as an unregulated entrepreneurial sector rather than the disadvantaged wing of a dual labor market. There is evidence of increased subcontracting over time, with trade liberalization, but it is not clear that workers are worse off as a result.Labor Policies,Banks&Banking Reform,Environmental Economics&Policies,Work&Working Conditions,Public Health Promotion,Labor Standards,Banks&Banking Reform,Health Monitoring&Evaluation,Environmental Economics&Policies,Work&Working Conditions

Cyclical movements in unemployment and informality in developing countries

This paper analyzes the cyclical properties of worker flows in Brazil and Mexico, two important developing countries with large unregulated or “informal” sectors. It generates three stylized facts that are critical to the accurate modeling of the sector and which suggest the need to rethink the approaches to date. First, the unemployment rate is countercyclical essentially because job separations of informal workers increase dramatically in recessions. Second, the share of formal employment is countercyclical because of the difficulty of finding formal jobs from inactivity, unemployment and other informal jobs during recessions rather than because of increased separation from formal jobs. Third, flows from formality into informality are not countercyclical, but, if anything, pro-cyclical. Together, these challenge the conventional wisdom that has guided the modeling the sector that informal workers are primarily those rationed out of the formal labor market. They also offer a new synthesis of the mechanics of the cyclical adjustment process. Finally, the paper offers estimates of the moments of worker flows series that are needed for calibration.Labor Markets,Labor Policies,Population Policies,,Labor Standards

Gross Worker Flows in the Presence of Informal Labor Markets. The Mexican Experience 1987-2002

This paper applies recent advances in the study of labor market dynamics to a representative developing country with a large unregulated of "informal" sector, Mexico. It finds, first, that the formal salaried sector shows the same procyclical job finding rate and mildly countercyclical separation behavior identified in the recent US literature by Shimer (2005a) and Hall (2005). The unregulated informal sector, however, shows reasonable acyclicality in the job finding rate coupled with sharp countercyclical movements in the job separation rate, consistent with standard small firm dynamics and Davis and Haltiwanger (1992 and 1999). The differential behavior of regulated and unregulated sectors, and the finding of relative wage rigidity in the former, sheds suggestive light on the roots of countercyclical job finding behavior in the US. Second, the patterns of worker transitions between all sectors, formal and informal correspond to the job-to-job dynamics observed in the US and not to the traditional idea of informality constituting the inferior sector of a segmented market. That said, the counter cyclical job finding in the formal sector combined with the acyclical job finding in informality does lead to the latter absorbing relatively more labor during downturns, even as its increased separation rates drive movements in unemployment.Gross worker flows, Labor market dynamics, Informality, Developing Countries

Comparative analysis of labor market dynamics using markov processes : an application to informality

This paper discusses a set of statistics for examining and comparing labor market dynamics based on the estimation of continuous time Markov transition processes. It then uses these to establish stylized facts about dynamic patterns of movement using panel data from Argentina, Brazil and Mexico. The estimates suggest broad commonalities among the three countries, and establish numerous common patterns of worker mobility among sectors of work and inactivity. As such, we offer some of the first comparative work on labor dynamics. The paper then particularly focuses on the role of the informal sector, both for its intrinsic interest, and as a case study illustrating the strengths and limits of the tools. The results suggest that a substantial part of the informal sector, particularly the self-employed, corresponds to voluntary entry although informal salaried work may correspond more closely to the standard queuing view, especially for younger workers.Labor Markets,Labor Policies,,Work&Working Conditions,Labor Standards

Labor market dynamics in developing countries: comparative analysis using continuous time Markov processes

The authors study the dynamics of three developing country labor markets using recent advances in the estimation of continuous time Markov processes. They first examine the flows of workers among five states: three types of paid labor, unemployment, and out of the labor force. The authors find a high degree of commonality in patterns of worker flows among the three countries and attempt to compare the flexibility of the markets by examining an index of overall mobility. Second, they seek to establish whether the issues of advanced country labor markets apply to developing country markets or whether the latter constitute a different phylum. Paralleling the mainstream literature on the role of being out of the labor force as discouraged unemployment, the authors then identify some common stylized facts about the role of the informal self-employed and salaried sectors and to what degree they serve as a holding pattern versus a desirable alternative to formal sector work. In the process, the authors identify very strong differences in mobility patterns between men and women and attempt to shed some light on whether these differences arise from discrimination or perhaps instead the constraints imposed by household responsibilities. Finally, they study labor market adjustment across the business cycle in Mexico and identify patterns of job creation and destruction among the three paid sectors and confirm the mainstream view of the role of out of the labor force as a procyclical phenomenon.Health Monitoring&Evaluation,Environmental Economics&Policies,Labor Standards,Labor Markets,Work&Working Conditions

Gross worker flows in the presence of informal labor markets : the Mexican experience 1987-2002

This paper applies recent advances in the study of labor market dynamics to a representative developing country with a large informal or unregulated sector, Mexico. It studies quarterly gross flows of workers over a 15-year period that includes two recoveries and recessions, including the celebrated 1995 Tequila crisis. It finds, first, that the formal or modern salaried sector shows the same procyclical job finding rate and mildly countercyclical separation behavior identified in the recent U.S. literature, and relative wage rigidity, both consistent with Shimer (2005a) and Hall (2005). The unregulated informal sector, however, shows reasonable acyclicality in the job finding rate coupled with sharp countercyclical movements in the job separation rate, consistent with standard small firm dynamics and Davis and Haltiwanger (1992 and 1999). This interaction of regulatory coverage and firm sizes, and patterns of gross worker flows thus sheds suggestive light on the roots of countercyclical job finding behavior in the U.S. literature. Second, the patterns of worker transitions between formality and informality correspond to the job-to-job dynamics observed in the United States and not to the traditional idea of informality constituting the inferior sector of a segmented market. That said, the countercyclical job finding in the formal sector combined with the acyclical job finding in informality doeslead to the latter absorbing relatively more labor during downturns. Third, aggregate employment dynamics vary across the Tequila crisis and the later 2001 slowdown, suggesting that not only the composition of employment, but the nature of the shocks is important to understanding how the labor market adjusts.Labor Markets,Labor Standards,Work&Working Conditions,Tertiary Education,Labor Management and Relations

Migration, Trade and FDI in Mexico

Part of the rationale for NAFTA was that it would increase trade and FDI flows, creating jobs and reducing migration to the US. Since poor data on illegal flows to the US makes direct measurement difficult, this paper instead evaluates the mechanism behind these predictions using data on migration within Mexico where the census data permit careful analysis. We offer the first specifications for migration within Mexico incorporating measures of cost of living, amenities and networks. Contrary to much of the literature, labor market variables enter very significantly and as predicted once we attempt to control for substitutions vs. credit constraint effects. FDI and trade variables deter migration and appear to work through the labor market. Finally, we generate some tentative inferences about the impact on Mexico-US migration and find it to be of important magnitude.Migration, Labor Market adjustment