Publication: Labor Market and Macroeconomic Dynamics in Latin America amid COVID: The Role of Digital-Adoption Policies
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Embargoed until 2025-02-24
Embargoed until 2025-02-24
Date
2023-12-01
ISSN
0258-6770 (print)
1564-698X (online)
1564-698X (online)
Published
2023-12-01
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Abstract
This paper analyzes how a policy that lowers firm digital-adoption costs shapes the labor-market and economic recovery from COVID-19 in Latin America (LA) using a framework with firm entry and unemployment, where salaried firms can adopt digital technologies and the employment and firm structure embodies key features of LA economies. Using Mexico as a case study, the model replicates the response of the labor market and output at the onset of the COVID recession and in its aftermath, including the dynamics of labor-force participation and informal employment. A policy-induced permanent reduction in the cost of adopting digital technologies at the trough of the recession bolsters the recovery of GDP, total employment, and labor income, and leads to a larger expansion in the share of formal employment compared to a no-policy scenario. In the long run, the economy exhibits a reduction in total employment but higher levels of GDP and labor income, greater average firm productivity, a larger formal employment share, and a marginally lower unemployment rate. Finally, as a side effect, the policy exacerbates the differential between formal and informal labor income, both as the economy recovers from the COVID recession and in the long run.
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Citation
“Finkelstein Shapiro, Alan; Nuguer, Victoria; Novoa Gomez, Santiago. 2023. Labor Market and Macroeconomic Dynamics in Latin America amid COVID: The Role of Digital-Adoption Policies. World Bank Economic Review. © Published by Oxford University Press on behalf of the World Bank. http://hdl.handle.net/10986/41394 License: CC BY-NC-ND 3.0 IGO.”
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World Bank Economic Review
1564-698X