2014-11, Mitra, Devashish, Hollweg, Claire H., Lederman, Daniel

This paper explores the impact of structural reforms on a comprehensive set of macro-level labor-market outcomes, including the unemployment rate, the average wage index, and overall and female employment levels and labor force participation rates. Together these outcome variables capture the overall health of the labor market and the aggregate welfare of workers. Yet, there seems to be no other comprehensive empirical investigation in the existing literature of the impact of structural reforms at the cross-country macro level on labor-market outcomes other than the unemployment rate. Data were collected from a variety of sources, including the World Bank World Development Indicators, the International Monetary Fund International Financial Statistics, and the International Labor Organization Key Indicators of the Labor Market. The resulting dataset covers up to 88 countries, the majority being developing, for 10 years on either side of structural reforms that took place between 1960 and 2001. After documenting the average trends across countries in the labor-market outcomes up to 10 years on either side of each country s structural reform year, the authors run fixed-effects ordinary least squares as well as instrumental variables regressions to account for the likely endogeneity of structural reforms to labor-market outcomes. Overall the results suggest that structural reforms lead to positive outcomes for labor. Unlike related literature, the paper does not find conclusive evidence on unemployment. Redistributive effects in favor of workers, along the lines of the Stolper-Samuelson effect, may be at work.

2014-06-17, Rojas, Diego, Hollweg, Claire H., Ruppert Bulmer, Elizabeth, Lederman, Daniel

This report analyzes the paths by which developing country labor markets adjust to permanent trade-related shocks. Trade shocks can bring about reallocation of labor between industries, but the presence of labor mobility costs implies economy-wide losses because they extend the period of economic adjustment. This report focuses primarily on the adjustment costs faced by workers after a trade shock, because of magnitude and welfare implications and policy relevance. From a policy viewpoint, understanding the relative magnitudes of labor mobility and adjustment costs can help policymakers design trade policies that are consistent with employment objectives, can be complemented by labor policies, or support programs to facilitate labor transitions, or both. To complement and validate the analysis based on structural choice models, the study designed a distinct empirical approach using reduced-form econometric estimation strategies. This approach examines the impact of structural reforms and worker displacement on labor market outcomes. This makes it possible to estimate the time required to adjust to a trade-related shock, but does not assume the rigid underlying relationship inherent in structural models. This report is organized as follows: chapter one gives introduction. Chapter two presents evidence from the literature on the relative magnitude of labor adjustment costs borne by workers and by firms. Chapter three presents a new database of country-level labor mobility cost estimates for both developing and developed economies. Chapter four showcases country case studies in which labor mobility costs vary by industry, firm size, and worker type (for example, informal versus. formal). Chapter five analyzes the impact of structural reforms on aggregate labor market outcomes across countries and the effect of worker displacement due to plant closings on the employment outcomes of individual workers in Mexico. Chapter six concludes with a summary of the main findings about the labor adjustment costs associated with trade-related shocks and a discussion of policy responses internationally.