Employment dynamics and crises in Latin America

Abstract

This study presents dynamic labour demand estimates based oninformation for 15 Latin American countries in the last three decades. Itis found that recessions have a direct negative effect on total and wageemployment creation. There is also a positive effect of recessions onemployment-output elasticity and a negative one on employment-wageelasticity. These results can be interpreted as meaning that policies aimedat reducing labour costs would be of limited effectiveness in combatingunemployment during recessions. On the other hand, policies to stimulateaggregate demand would have a stronger positive effect on labour marketperformance at times of crisis. In all cases, the effects are greater for wageemployment than for total employment. This suggests that the increasingflows of workers towards the informal sector during recessions can mitigatethe impact of lower economic growth on total employment.