Reforms and Social Outcomes

1
Reforms and Social Outcomes

• Suzanne Duryea
• Carmen Pagés
• Research Department
• Inter-American Development Bank

2
Social outcomes did not improve much in the
nineties...

• Poverty declined from 43 to 39
• Extreme poverty from 16.8 to 15.6
• Inequality increased by 2 Gini points
• Average unemployment increased from 7 in 1990 to
  more than 10 in 2000
• The share of unregistered jobs did not decline

3
Reforms or lack of Reforms to blame?
80
80
80
80
70
70
70
70
60
60
60
60
50
50
50
50
40
40
40
40
30
30
30
30
20
20
20
20
10
10
10
10
0
0
0
0
Total
Trade
Finance
Tax
Privatization
Labor
-
-
10
10
-
-
10
10
Until 1989
Until 1994
Until 1999
Until 1994
Until 1999
Until 1989
Until 1994
Until 1999
Until 1989
Until 1994
Until 1999
4
Are reforms to blame?

• By the mid nineties
• Rising contention but lack of hard evidence.
• RES worked with micro data that was increasingly
  available but hardly used
• Major contributions in measuring reforms in
  assessing their effects

5
FindingsTrade Reforms

• Link between trade reforms and inequality
  poverty is still the focus of intense research
• Behrman, Birdsall and Székely find trade reforms
  did not increase inequality or poverty during the
  90s
• Using pooled household survey data for LAC

6
FindingsTrade Reforms

• Link between trade reforms and inequality
  poverty is still the focus of intense research
• Evidence for skill-biased technological change
  (Colombia, Brazil, Colombia)
• Reduction of tariffs related to initial pattern
  of protection with lower-skilled more protected
  (increasing inequality)
• (Mexico, Argentina, and Ecuador)
• Growing consensus that overall the effect of the
  trade reforms on the wage distribution are small

7
FindingsTrade Reforms

• Trade reforms cannot seemingly be blamed for
  rising unemployment.
• Effects on total employment or on unemployment
  are very small
• Effects on employment reallocation also
  surprisingly small
• But some adverse effects in manufacturing
  employment in Brazil and Uruguay (not in Mexico)

8
FindingsTrade Reforms

• And measured effects on quality of jobs are so
  far small
• Some in Colombia
• No effects in Brazil or Ecuador
• But evidence that wages declined

9
Labor Markets are highly regulated
Job Security Index (0-1)
Latin America and Caribbean
Eastern Europe and Central Asia
Middle East and North Africa
Industrial Continental Europe
Sub-Saharan Africa
East Asia and Pacific Islands
South Asian Region
Industrial Anglosaxon
México
Perú
Brasil
Panamá
Ecuador
Venezuela
Colombia
Bolivia
Argentina
Rep. Dominicana
Chile
Jamaica
Uruguay
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
10
Findings-Labor Reforms

• Labor Institutions regulations Matter
• Rudimentary social protection
• Soc. sec. reduces employment increases
  unemployment
• Job. Sec. reduces turnover biases employment
  againts the youth and unskill
• But, not clearly linked to rising U

11
Ongoing research

• How to explain rising U?
• Is it cyclical or structural?
• Is lower inflation to blame for low wage
  adjustment?
• What is the role of institutions and policies?
• Role for training, intermediation
• What explains cross-country differences?

12
Ongoing research

• Why is wage inequality on the rise?
• What is the role of IT?
• What is the role of capital imports?
• What implications for skill formation policies?
• What to do about it?