Rationale for this report

Overview 1

Economic crises result in significant hardships for millions of people around the globe, especially the poorest, who, with few assets and little savings, are more vulnerable to income shocks. A better policy framework to prevent, manage, and help people recover from crises is crucial for countries in Latin America and the Caribbean (LAC) to accelerate long-term growth and improve the livelihoods of their people. The need for this policy framework has never been more urgent as the region faces the monumental task of recovering from the worldwide COVID-19 (coronavirus) pandemic. However, whether such a framework will deliver the expected growth dividends is an open question. The answer will depend on the underlying understanding of how labor markets adjust to crises and on the quality of the policies enacted.

Rationale for this report

The LAC countries experience macroeconomic fluctuations more frequently and often more severely than most other regions of the world. And crises, not a single crisis, characterize the recent history of most countries in the region. One-third of the fiscal quarters between 1980 and 2018 were periods of crisis in one or more countries in the region.1 The LAC countries have rebounded from some of these crises, but others have altered their economic trajectories. This phenomenon is illustrated in figure 1.1, which shows the severity and persistence of employment losses following Brazil’s debt crisis in the early 1980s, the Asian financial crisis of the 1990s in Chile, and the 2008–09 global financial crisis in Mexico. In addition to weak rebounds from crises, countries in the region have also experienced generalized economic stagnation since 2013.

Although much has been written about the frequency and severity of economic crises in the LAC region, less is known about how these episodes affect workers, in both the short run and the long run, and about how to respond to these effects with policies. Focusing on workers is important, because the long-run impacts of crises on labor markets may drive deeper losses in income than has been previously understood. Moreover, if crises destroy human capital, they can have long-run effects on aggregate economic growth.

Several open questions are impeding progress in this field. First, how large is the impact of crises on workers? The effects of