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Understanding the Impact of Economic Shocks on Labor Market Outcomes in Developing Countries : An application to Indonesia and Mexico

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dc.contributor.authorGutierrez, Catalina
dc.contributor.authorPaci, Pierella
dc.contributor.authorPark, Beom S.
dc.date.accessioned2012-03-19T18:39:30Z
dc.date.available2012-03-19T18:39:30Z
dc.date.issued2010-04-01
dc.description.abstractIn this paper the authors use a search and matching model of multi-sector labor markets, to understand the channels through which economic shocks affect labor market outcomes in developing countries. In the model workers can be employed in agriculture, formal or informal urban jobs, or unemployed. Economic shocks are manifested as either increased turbulence in the formal/informal sectors or a decrease in overall sectoral productivity. By calibrating the model to Indonesia and Mexico, the authors are able to understand how the 1998 Indonesian crisis and the 2001 Mexican recession translated into labor market outcomes. They then venture to simulate how the current financial crisis might affect the allocation of labor and earnings across sectors, in these countries. The results suggest that in both countries past crises have increased the degree of turbulence of the formal sector, increasing job destruction. However, while in Indonesia the crisis affected the overall formal sector productivity, this was not the case in Mexico. This explains the larger blow to formal wages -- relative to the size of the shock- witnessed by Indonesian workers. The response of the informal sector was also different: In both countries the informal sector was able to act as a buffer, as relative earnings increased. However, while in Mexico it became much harder to find informal sector opportunities and easier to keep the job once found; in Indonesia turbulence in the informal sector increased substantially increasing the job destruction rate of informal jobs and limiting the cushioning role that the informal sector might have played. The agricultural sector was spared from the shock in both countries. In Indonesia, it actually benefited from an unusual exogenous increase in the price of rise. The simulations show that if either the informal or agricultural sectors are spared from the shocks, large reallocations of labor might occur, and the overall effect of the shock is smaller. Instead, if these sectors can t buffer the shock, the reallocation of labor is much smaller, but earnings in the formal sector drop substantially. The authors also explore the impact of alternative policies. They find that in relatively flexible markets where informality can be seen more as a choice rather than as queuing, unemployment benefits and informal employment subsidies may have paradoxical effects, by discouraging formal search. Instead, policies targeted at creating informal employment and boosting formal TFP growth have the desired effects.en
dc.identifierhttp://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100427134640
dc.identifier.doi10.1596/1813-9450-5283
dc.identifier.urihttps://hdl.handle.net/10986/3770
dc.languageEnglish
dc.relation.ispartofseriesPolicy Research working paper ; no. WPS 5283
dc.rightsCC BY 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo/
dc.subjectACTIVE INTERVENTION
dc.subjectADVERSE EFFECTS
dc.subjectAGRICULTURE
dc.subjectAVERAGE WAGE
dc.subjectAVERAGE WAGES
dc.subjectBANK
dc.subjectBARGAINING
dc.subjectBARGAINING POWER
dc.subjectBENCHMARK
dc.subjectBUSINESS CYCLES
dc.subjectCAPITAL MARKETS
dc.subjectCENTRAL BANK
dc.subjectCIT
dc.subjectCOLLECTIVE AGREEMENTS
dc.subjectCREDIT
dc.subjectCRISES
dc.subjectDISPLACED WORKERS
dc.subjectDISTRIBUTION
dc.subjectEARNING
dc.subjectECONOMIC CRISES
dc.subjectECONOMIC DOWNTURNS
dc.subjectECONOMIC RESEARCH
dc.subjectECONOMIC SHOCKS
dc.subjectECONOMICS
dc.subjectEFFECTS
dc.subjectELASTICITY
dc.subjectEMPLOYEES
dc.subjectEMPLOYMENT GROWTH
dc.subjectEMPLOYMENT OPPORTUNITIES
dc.subjectEMPLOYMENT PROGRAMS
dc.subjectEMPLOYMENT SHARE
dc.subjectEMPLOYMENT STATUS
dc.subjectEMPLOYMENT SUBSIDIES
dc.subjectEMPLOYMENT SUBSIDY
dc.subjectENTERPRISES
dc.subjectEQUILIBRIUM UNEMPLOYMENT
dc.subjectEQUITY
dc.subjectESTIMATED PARAMETERS
dc.subjectEXOGENOUS SHOCK
dc.subjectEXOGENOUS VARIABLES
dc.subjectFEMALE LABOR
dc.subjectFEMALE LABOR FORCE
dc.subjectFINANCE
dc.subjectFINANCIAL CRISES
dc.subjectFINANCIAL CRISIS
dc.subjectFINANCIAL SECTOR
dc.subjectFINDING JOBS
dc.subjectFLEXIBLE LABOR MARKETS
dc.subjectGDP
dc.subjectGENERAL EQUILIBRIUM
dc.subjectGOODS
dc.subjectGOVERNMENTS
dc.subjectHIGH UNEMPLOYMENT
dc.subjectHOUSEHOLD SURVEY
dc.subjectHOUSEHOLD SURVEYS
dc.subjectHUMAN CAPITAL
dc.subjectINCENTIVES
dc.subjectINCOME
dc.subjectINFLATION
dc.subjectINFORMAL ECONOMY
dc.subjectINFORMAL EMPLOYMENT
dc.subjectINFORMAL SECTOR
dc.subjectINFORMATION
dc.subjectINTEREST
dc.subjectINTEREST RATE
dc.subjectINTERNATIONAL MARKETS
dc.subjectINVESTMENT
dc.subjectJOB
dc.subjectJOB CREATION
dc.subjectJOB DESTRUCTION
dc.subjectJOB DESTRUCTION RATE
dc.subjectJOB SECURITY
dc.subjectJOB VACANCY
dc.subjectJOBLESS WORKERS
dc.subjectJOBS
dc.subjectLABOR
dc.subjectLABOR ADJUSTMENT
dc.subjectLABOR ALLOCATION
dc.subjectLABOR DEMAND
dc.subjectLABOR FORCE PARTICIPATION
dc.subjectLABOR MARKET
dc.subjectLABOR MARKET ADJUSTMENT
dc.subjectLABOR MARKET FLEXIBILITY
dc.subjectLABOR MARKET INSTITUTIONS
dc.subjectLABOR MARKET OUTCOMES
dc.subjectLABOR MARKET POLICIES
dc.subjectLABOR MARKET POLICY
dc.subjectLABOR MARKETS
dc.subjectLABOR REGULATION
dc.subjectLABOR UNION
dc.subjectLABOR UNIONS
dc.subjectLABOUR
dc.subjectLABOUR MARKETS
dc.subjectLAW
dc.subjectLAWS
dc.subjectLEGISLATION
dc.subjectLOW UNEMPLOYMENT
dc.subjectLOW UNEMPLOYMENT RATE
dc.subjectMANAGEMENT
dc.subjectMANPOWER
dc.subjectMANUFACTURING WAGES
dc.subjectMARKET TRENDS
dc.subjectMIGRATION
dc.subjectMINIMUM WAGE
dc.subjectMINIMUM WAGES
dc.subjectNOMINAL WAGES
dc.subjectORGANIZATIONS
dc.subjectPASSIVE LABOR
dc.subjectPAYROLL TAXES
dc.subjectPRICE
dc.subjectPRICES
dc.subjectPRODUCT
dc.subjectPRODUCTION
dc.subjectPRODUCTION FUNCTION
dc.subjectPRODUCTION FUNCTIONS
dc.subjectPROFIT
dc.subjectPROFITABILITY
dc.subjectPUBLIC EMPLOYMENT
dc.subjectPUBLIC WORK
dc.subjectPUBLIC WORKS
dc.subjectREAL WAGES
dc.subjectSAFETY
dc.subjectSALARIED WORKERS
dc.subjectSEVERANCE PAY
dc.subjectSKILLED WORKERS
dc.subjectSTANDARDS
dc.subjectTHEORY
dc.subjectTOTAL EMPLOYMENT
dc.subjectTOTAL FACTOR PRODUCTIVITY
dc.subjectTRADE
dc.subjectTRAINING
dc.subjectTROUGH
dc.subjectUNEMPLOYED
dc.subjectUNEMPLOYED WORKERS
dc.subjectUNEMPLOYMENT
dc.subjectUNEMPLOYMENT BENEFIT
dc.subjectUNEMPLOYMENT BENEFITS
dc.subjectUNEMPLOYMENT DURATION
dc.subjectUNEMPLOYMENT RATES
dc.subjectUNSKILLED LABOR
dc.subjectURBAN ECONOMY
dc.subjectURBAN EMPLOYMENT
dc.subjectVALUE
dc.subjectVOLATILITY
dc.subjectWAGE SECTOR
dc.subjectWELFARE
dc.subjectWORK FORCE
dc.subjectWORKER
dc.subjectWORKER PRODUCTIVITY
dc.subjectWORKERS
dc.subjectWORKING CONDITIONS
dc.titleUnderstanding the Impact of Economic Shocks on Labor Market Outcomes in Developing Countries : An application to Indonesia and Mexicoen
dspace.entity.typePublication
okr.crosscuttingsolutionareaJobs
okr.crossref.titleUnderstanding The Impact Of Economic Shocks On Labor Market Outcomes In Developing Countries : An Application To Indonesia And Mexico
okr.date.doiregistration2025-04-10T11:51:38.738853Z
okr.doctypePublications & Research::Policy Research Working Paper
okr.docurlhttp://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100427134640
okr.globalpracticeSocial Protection and Labor
okr.guid223781468148170391
okr.identifier.doi10.1596/1813-9450-5283
okr.identifier.externaldocumentum000158349_20100427134640
okr.identifier.internaldocumentum12157833
okr.identifier.reportWPS5283
okr.language.supporteden
okr.pdfurlhttp://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2010/04/27/000158349_20100427134640/Rendered/PDF/WPS5283.pdfen
okr.region.countryIndonesia
okr.topicSocial Protections and Labor::Labor Policies
okr.unitDevelopment Research Group (DECRG)
okr.volume1 of 1
relation.isAuthorOfPublication4d16fb05-6b86-5273-88d5-b11c3ecb1c5f
relation.isAuthorOfPublication.latestForDiscovery4d16fb05-6b86-5273-88d5-b11c3ecb1c5f
relation.isSeriesOfPublication26e071dc-b0bf-409c-b982-df2970295c87
relation.isSeriesOfPublication.latestForDiscovery26e071dc-b0bf-409c-b982-df2970295c87
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