Louise CordManager, Poverty and Gender
Latin America and the Caribbean
World Bank
Challenges for competitiveness
in Latin America:
A labor market perspective
Outline
I. Stylized Facts on Labor
Productivity in Latin America
II. Key Influences on Productivity
III. Experiences in Labor Market
Reforms
IV. Policy Implications
I. Stylized Facts on Labor Productivity in Latin
America
Productivity growth is a long run race.
Source: Author’s calculations based on ILO (2009), KILM 6th edition
China
India
Korea, Rep. of
United States
Colombia
Brazil
Chile
Mexico
Argentina
Singapore
60
100
140
180
220
260
300
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
Lab
or
pro
du
ctiv
ity
ind
ex
Even controlling for initial levels, Latin American
countries under perform
Source: Author’s calculations based on ILO (2009), KILM 6th edition
ARGAUS
AUT
BGD
BOLBRA
BGR
CMRCAN
CHL
CHN
COLCRI
DNK
DOM
ECU
FIN
FRA
GRC HKG
HUN
IND
IDN IRL
ITA
JAM
JPN
KOR
MYS
MEX NZLPER
PHL
POL
ROU
RUS
SGPZAF
ESP
LKA
CHE
SYR
THA USA
URY
VEN
-3
-1
2
4
6
8
10
0 10,000 20,000 30,000 40,000 50,000 60,000
Lab
or
pro
du
ctiv
ity
gro
wth
A
vera
ge 1
99
8-2
008
Labor productivity 1998
Unpacking labor productivity growth – the
challenge of the tertiary sector
Source: Timmer and De Vries (2007)
Mexico Brazil
0 1 2 3
Primary sector
Secondary sector
Tertiary sector
Labor Productivity Average growth (%) 1998-2008
-2 0 2 4 6
Primary sector
Secondary sector
Tertiary sector
Labor Productivity Average growth (%) 1998-2008
Colombia Chile
-1 -0.5 0 0.5 1
Secondary sector
Primary sector
Tertiary sector
Labor Productivity Average growth (%) 1998-2008
0 2 4 6
Primary sector
Secondary sector
Tertiary sector
Labor Productivity Average growth (%) 1998-2008
… in high labor productivity countries, services
drive productivity gains
Source: Timmer and De Vries (2007)
India Taiwan
0 2 4 6 8 10
Tertiary sector
Secondary sector
Primary sector
Labor Productivity Average growth (%) 1998-2008
0 1 2 3 4 5
Secondary sector
Tertiary sector
Primary sector
Labor Productivity Average growth (%) 1998-2008
• Explaining the sources of productivity growth is the objective of a vast academic literature…
(Jorgenson et al. 1995, Acemoglu & Zilibotti 1999 …)
• Although economists fail to agree on a precise recipe, they concur on several main ingredients:▫ Capital accumulation (infrastructure, machinery…)
▫ Natural resources (fertile land, mines, coasts…)
▫ Institutions (governance, regulations…)
▫ Innovation, entrepreneurship…
▫ Labor markets: human capital, informality, mktrigidities/institutions, gender inequities
II. Key Drivers of Productivity in
Latin America
Most countries in Latin America have a majority of the
labor force with less than a secondary education…
Source: WDI (2010)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Un
ite
d S
tate
s (2
00
7)
Can
ada
(20
07
)
Euro
pe
& C
en
tral
Asi
a
(20
07
)
Ko
rea,
Re
p.
(20
07)
Ire
lan
d (
20
07)
Euro
are
a (
20
07)
Lati
n A
me
rica
& C
arib
bea
n
(20
06
)
Co
mp
osi
tio
n o
f la
bo
r fo
rce
by
ed
uca
tio
n
Tertiary education
Secondary education
Primary education
Human Capital Accumulation:
Human capital accumulation:
Quality is low along with public expenditures per
student
Source: Staff calculations based on PISA data (2006) and WDI (2010)
PISA results. 2006
ARG
AUS
AZE
BGR
CHE
CHL
COL
CZE
DEUDNK
ESP
FIN
FRA GBR
HKG
HUNIRL ISL
ISR
ITA
JOR
JPN
KOR
LTU LVA
MEX
NLDNZL
POL
PRT
SVKSWE
URY
USA
350
400
450
500
550
600
0 5,000 10,000 15,000 20,000
Ave
rage
sco
re i
n m
ath
Public expenditure in primary and secondary per student
Human capital remains relatively low even for
the richest students
Source: Staff calculations based on PISA (2006)
0
100
200
300
400
500
600
700
Sou
th K
ore
a
Ge
rman
y
USA
Uru
guay
Me
xico
Ch
ile
Arg
en
tin
a
Co
lom
bia
Bra
zil
Average math score 1 quintile
Average math score 2 quintile
Average math score 3 quintile
Average math score 4 quintile
Average math score 5 quintile
PISA scores in math by wealth
2006
Job-training is also scant among Latin
American firms
Source: World Economic Forum’s Global Competitiveness Report 2009
Extent of staff
training
2009
0 1 2 3 4 5 6
United States
Germany
Canada
Ireland
Malaysia
Australia
New Zealand
Costa Rica
Korea
India
Chile
China
Brazil
El Salvador
Panama
Jamaica
Guatemala
Dominican …
Mexico
Peru
Argentina
Uruguay
Nicaragua
Honduras
Venezuela
Colombia
Ecuador
Bolivia
Paraguay
Extent of staff training index
Relatively high informality characterizes Latin
America’s Labor markets
Source: Author’s calculations based on ILO (2009), KILM 6th edition
0
10
20
30
40
50
60
70
Bo
livi
a -2
00
2
Gu
ate
mal
a -2
00
2
Ho
nd
ura
s -2
00
3
Par
agu
ay -
20
07
Co
lom
bia
-2
008
Nic
arag
ua
-20
06
Do
min
ican
Re
pub
lic -
20
07
Pe
ru -
20
07
El S
alva
do
r -2
00
6
Jam
aica
-2
00
6
Ecu
ado
r -2
00
6
Ve
ne
zue
la, R
.B. d
e -2
00
7
Me
xico
-2
00
7
Pan
ama
-20
07
Bra
zil -
20
06
Ko
rea,
Re
p. o
f -2
007
Ch
ile
-2
00
8
Co
sta
Ric
a -2
00
7
Arg
en
tin
a -2
00
8
Ne
w Z
eal
and
-2
00
7
Spai
n -
20
08
Ire
lan
d -
20
08
Can
ada
-20
07
Au
stra
lia
-20
07
Ge
rman
y -2
00
8
%
Vulnerable employment (% of total employment)
Most employees don’t have rights to pensions
and/or healthcare
Source: CEDLAS (2010)
* For Brazil was used Share of salaried workers with right to pensions when retired
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
Chile
-2006
Uru
guay -
2008
Co
sta
Ric
a
-2009
Surinam
e -
1999
Bra
zil -
2008 *
Do
min
ican R
ep
. -
2007
Arg
entina -
2009
Venezu
ela
-2006
Co
lom
bia
-2006
Jam
aic
a -
2001
Mexic
o -
2008
El S
alv
ad
or -
2005
Guate
mala
-2006
Bo
livia
-2007
Nic
ara
gua -
2005
Ecuad
or -
2008
Share of salaried workers with right to health insurance linked to his/her job
Share of salaried workers with right to health insurance linked to his/her job
14
Significant and stagnant levels of informality among
the poor households in the region
Share of workers with right to pensions when retired
(Workers contributing to pension system)
0
10
20
30
40
50
60
70
80
90
100
1981 1997 2007 1987 1996 2006 1998 2008 1991 2001 2007
Brazil Chile Mexico El Salvador
Pe
rce
nta
ge o
f wo
rke
rs
Rich Upper middle class Lower middle class Poor
Source: Own estimations based on SEDLAC Database. Using Brazil (PNAD), Chile (CASEN), Mexico (ENIGH), El Salvador (EHPM)
High informality is associated with low labor
productivity (share of vulnerable employment vs labor market productivity)
Source: CEDLAS (2010) and ILO (2009)
BOL
GTM
COL
DOMPER
JAM
ECU
VEN
MEX
BRA
KOR
CHL
CRI
ARG
NZL
ESP
IRL
CAN
DEU
AZE
BEL
BGR
HRV
CYP
CZE
DNK
EST
FRA
GEO
GRC
HKG
HUN
ISL
IDN
ISR
ITAJPN
LVA
LTUMYS
MLT
MAR
NOR
PAKPHL
POL
PRT
ROU
RUS
SVN
ZAFLKA
SWE
CHE
THA
TUR
GBR
URY
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70
Lab
or
pro
du
ctiv
ity
Cir
ca 2
00
7
Vulnerable employment (% of total employment)Circa 2007
The minimum wage is, in many cases, high for the
development level pushing up informality
Source: Staff calculations based on ILO (2010) and WDI (2010)
Minimum wage as a share of per-capita GDP
0
10
20
30
40
50
60
70
80
90
Ho
nd
ura
s
Ecu
ado
r
Arg
en
tin
a
Ne
w Z
eal
and
Bo
livia
Co
lom
bia
Au
stra
lia
El S
alva
do
r
Ire
lan
d
Ch
ile
Bra
zil
Spai
n
Un
ite
d S
tate
s
Ve
ne
zue
la
Me
xico
Ko
rea,
Re
pu
blic
of
%
Minimum wage as per- capita GDP percentage
Labor taxes and contributions are also very high for
the development level also driving up informality
0 10 20 30 40 50 60
France
China
Italy
Brazil
Sweden
Spain
Austria
Colombia
Greece
Finland
Argentina
Costa Rica
Portugal
Mexico
Panama
Germany
Poland
Australia
Nicaragua
Paraguay
India
Venezuela, R.B.
Dominican …
El Salvador
Switzerland
Malaysia
Uruguay
Bolivia
Guatemala
Ecuador
Jamaica
Korea, Rep.
Canada
Ireland
Peru
Honduras
United States
Hong Kong, China
Chile
New Zealand
Denmark
Labor tax and contributions (% of profit)Source: Doing business report (2010)
Labor tax and
contributions
(% of profit)
2010
The cost associated with employment protection is
higher than in OECD countries with impacts on
informality and mobility
0.00 3.00 6.00 9.00 12.00 15.00
Jamaica
Paraguay
Uruguay
Trinidad and Tobago
Nicaragua
Dominican Republic
Argentina
El Salvador
Mexico
Chile
Panama
Honduras
Costa Rica
Bolivia
Venezuela
Brazil
Colombia
Peru
Ecuador
expected present value after twenty years of employment (in monthly wages)
The cost of job security: advance notice+indemnities for dismissal+seniority pay
OECD countriesaverage
Latin American and Caribbean countriesaverage
Source: Staff’ calculations based on Heckman and Pagés (2004)
Total and Unexplained Gender Wage Gap by Country
-10% -5% 0% 5% 10% 15% 20% 25% 30%
ECU
PRY
COL
PAN
ARG
SLV
VEN
CHL
MEX
GUA
BOL
CRI
URU
PER
DOM
HON
BRA
NIC
Unexplained Gap Total Gap
Source: Nopo, Atal and Winder (2009)
A persistent gender wage gap suggests inefficiencies
….As do gender segmented labor markets
Distribution of male and female workers by sector
(Honduras 2007)
Honduras: Distribution of Male and Female Workers by Sector
Source: CEDLAS (2009), Statistics - Employment. Data circa 2007
7.3%
21.7%
1.7% 0.3%
34.2%
1.3%3.2% 3.6%
16.0%
10.7%
49.1%
7.9%
4.3%
8.6%
14.8%
4.8% 2.7% 3.0% 4.2%
0.7%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
Female
Male
III. Experiences in Labor Market Reforms
Successful reformers build partnerships
for reform with key stakeholders
• Ireland’s Social Pact (1987)
After the rapid raise in unemployment, a consensus was
reached between unions, employers and NGOs with the
intermediation of the government that urgent measures were
required to reduce labor costs and enhance job creation.
• Spain’s reform by governmental decree (1984)
Reform was introduced without consensus and it did not
achieve its objectives.
Successful reforms are comprehensive
▫ Thorough labor market reforms work better: Ireland (1987) was able to lower taxes, wages and other nonwage
labor adjustment costs simultaneously with the effect of lowering
overall labor costs and stimulating job creation.
Chile (1973-1990) implemented effective reforms reducing payroll
taxes and enhancing labor market flexibility with the result of
substantially reducing unemployment.
Successful reforms include compensation
mechanisms
• Workers are compensated for accepting lower wages:
▫ In Ireland lower income taxes were introduced to offset
decline in wages
• Workers are compensated for accepting lower
benefits:
▫ In Chile, there was a legal mandate for employers to
pass on to workers (in the form of higher wages) all of
the savings associated with the reduction in payroll
taxes.
Recap• Labor productivity growth in Latin America is lower
than in other regions, reflecting in part low productivity growth in the services sector.
• From a labor markets perspective, insufficient human capital accumulation, informality, lack of mobility and gender inequity are significant constraints for labor productivity growth in Latin America.
• International experience shows that successful reforms have three main components: i) broad stakeholder participation, ii) reforms are thorough and comprehensive; and iii) compensation mechanisms for those affected are included.
Policy implications
• Human capital accumulation: On the job training,
apprenticeship programs, youth employment
programs, educational quality, spending and access
• Informality and mobility: minimum wage reforms,
portability of benefits, reducing payroll taxes,
streamlining business registration, labor market
intermediation support
• Gender equity: part time, flexible work, business
development opportunities, gender firm certification,
child care, job training
Policy implications (2)
• Building consensus: costs of inaction and benefits of
virtuous circle (jobs, fiscal), identifying
winners/losers and compensation options
• Evaluating program and policy effectiveness (e.g.,
job training)
• Better and more frequent data
Thank you