Finkelstein Shapiro, AlanNuguer, VictoriaNovoa Gomez, Santiago2024-04-082024-04-082023-12-01The World Bank Economic Review0258-6770 (print)1564-698X (online)https://hdl.handle.net/10986/41394This 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.en-USCC BY-NC-ND 3.0 IGOCOVIDBUSINESS CYCLESSELF-EMPLOYMENT AND INFORMALITYUNEMPLOYMENT AND LABOR FORCE PARTICIPATIONINFORMATION AND COMMUNICATION TECHNOLOGIES (ICT)Journal ArticleWorld Bank10.1596/41394