challenges for competitiveness in latin...

Louise CordManager, Poverty and Gender

Latin America and the Caribbean

World Bank

Challenges for competitiveness

in Latin America:

A labor market perspective

http://www.bancomundial.org/reuniones/anuales/2008/centroprensa/

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


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


Colombia Chile

-1 -0.5 0 0.5 1

Secondary sector

Primary sector

Tertiary sector


0 2 4 6

Primary sector

Secondary sector

Tertiary sector


… 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


0 1 2 3 4 5

Secondary sector

Tertiary sector

Primary sector


• 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





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


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

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