T h e D y n a m i c s o f La b o r Ma r k e t A d j u s t m e n t
TABLE 2.2 Cyclicality of net flows across sectors and out of employment, 2005–17 OLS coefficients of the cyclical components of net flows and lagged growth Net flows into
Argentina
Brazil
Chile
Ecuador
Mexico
Formality
474.0
1153.3
160.5
30.4
888.7
Informality
−382.3
−177.8
−697.4
−121.9
−2879.4
Informality (wages)
−571.8
−435.9
−506.7
15.6
Independent work
163.7
−413.9
−943.4
−702.0 **
Peru −2639.7
Note ***
465.1
−5439.9
165.9
−2629.9
705.5
*
OLS coefficients of the cyclical components of net flows between employment sectors and lagged growth Quarter 1
Quarter 2
Formal (private sector)
Informal
Informal (wage)
Unemployment
Brazil
Chile
Ecuador
Mexico
Peru
Note
−443.5
−102.0
−851.4
−46.9
−2660.1
1812.1
***
5.7
−305.7
415.4
44.7
277.6
55.3
Out of labor force
−101.9
−555.4
−12.5
−123.1
393.3
299.0
Formal (private sector)
506.8
−95.4
−243.7
110.2
1759.8
−997. 3
**
Unemployment
175.6
298.8
304.5
681.6 **
776.6
971.6
**
−252.22
373.3
448.2
−117.0
4413.8
−293.9
−63.3
197.4
1095.1
−63.2
900.3
−814.8
33.7
−595.9
−39.4
2158.3
267.8
−100.9
−101.6
−94.3
6580.4
860.0
Out of labor force Independent work
Argentina
Formal (private sector) Unemployment Out of labor force
421.5 * −756.6 **
**
Source: Sousa 2021. Note: These calculations are based on the cyclical components of net flows (formal to informal work minus informal to formal work, and so forth) of full-time jobs. The sample analyzed is limited to workers who were in the formal private sector, in the informal wage sector, or independent (self-employed and employers) in the first quarter of observation. Flows are estimated as the number of workers who changed their employment status between two consecutive quarters of observation. The cyclical component of each flow is estimated with seasonal adjustments and a Hodrik-Prescott filter. OLS = ordinary least squares. Significance level: * = 90 percent, ** = 95 percent, *** = 99 percent.
work are also procyclical, while the country’s flows from informality (both dependent and independent work) to formality are countercyclical. The question of why this might be the case for Peru (and not the other countries studied) may be worth exploring further in future research. A key distinctive feature of Peru compared with the other countries studied is Peru’s high share of self-employed workers and low number of formal salaried employees (Jaramillo and Nopo 2020).
Adjusting hours worked A temporary reduction in hours could be an effective alternative to layoffs when a firm faces a temporary decrease in demand. By reducing the hours of employees rather than letting them go, the firm can maintain the employment links it has previously established, reducing firm adjustment costs
(current firing costs and future hiring costs), while preserving valuable firm-specific human capital. However, employees whose hours are reduced will see their incomes fall but not be able to tap into unemployment insurance (in the countries where this mechanism exists). Labor regulations restrict the extent to which this option is feasible in the LAC region’s formal sector.7 (These labor regulations are discussed in more detail in chapter 3.) Even so, the option may be an additional margin of adjustment available to the informal sector and independent workers. For example, rather than becoming fully unemployed, self-employed workers may instead reduce their work hours in response to lower demand for their services. Analysis of net flows into part-time work in the LAC region suggests that this option is not a significant margin of adjustment in the labor market, either in general or in the
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