I would love to hear any thoughts people have on the labor flexibility issue as promoted by the IMF, etc.
I am reading an IMF report on the Latin American experience in the post-1980 period. http://www.imf.org/external/pubs/ft/op/238/ In Chapter II, Taking Stock, the report quite explicitly documents the fact that despite implementing a number of reforms, the countries in the region have not done well, with the exception of inflation reduction. In particular the report notes that although per capita GDP growth somewhat picked up in the 1991-97 period, it recorded a negative annual rate of growth of 0.1 percent over the 1998-2003 period. Moreover, poverty and inequality has remained at very high levels, and in many countries continues to increase. For example the report cites that in 2003, 44 percent of households remained below the poverty line and 20 percent were living in extreme poverty. This was almost the same as in 1990, and after falling somewhat until 1997, the rates have climbed steadily since 2000. Similarly the gini coefficient during the 1990s rose to 0.52, with inequality rising over the decade. None of this is surprising, but the explanations are what interests me. The two main explanations for the poor performance are external shocks and domestic vulnerabilities. And, of course, according to the IMF, if the Latin American countries had fully reformed their economies than they could have dealt with the external shocks. Despite financial and trade reform, the reform program failed, according to the IMF, primarily because of the regions failure to implement labor market reforms (and secondarily because of poor governance). I love how they keep finding new ways to explain the failure of their policies. Focusing on the labor market issue, the report notes that Labor market reforms have been almost universally neglected across Latin America. The labor problems are highlighted by an index of legal job protection based on grounds for dismissal, notice and severance payments, and whether the right of job security is anchored in the constitution. The higher the score the greater the rigidities. Latin America stands out compared to all other regions for having the highest score on this index. And, Mexico has the highest score in the region. This rigidity is used to explain the fact that more than half the population works in the informal sector (which should be pretty flexible!) I guess jobs in the informal market are not included in the index and thus measure of rigidity. Anyway this notion of labor market rigidity and its destructiveness relative to the kind of flexibility economies need to compete is used to push for laws weakening unions and labor protections everywhere, in Korea, as well as in Europe, and in Latin America. I wonder if people on the list have some experience with these kinds of indices and literature that challenges this thinking? Thanks, Marty Hart-Landsberg
