Reforms and Social Outcomes

1. Reforms and Social Outcomes Suzanne Duryea Carmen Pagés Research Department Inter-American Development Bank

2. Social outcomes did not improve much in the nineties... • Poverty declined from 43% to 39% • Extreme poverty from 16.8 to 15.6% • Inequality increased by 2 Gini points • Average unemployment increased from 7% in 1990 to more than 10% in 2000 • The share of unregistered jobs did not decline

3. Reforms or lack of Reforms to blame? 80% 80% 80% 80% 70% 70% 70% 70% 60% 60% 60% 60% 50% 50% 50% 50% 40% 40% 40% 40% 30% 30% 30% 30% 20% 20% 20% 20% 10% 10% 10% 10% 0% 0% 0% 0% Total Trade Finance Tax Privatization Labor - - 10% 10% - - 10% 10% Until 1989 Until 1994 Until 1994 Until 1999 Until 1999 Until 1989 Until 1989 Until 1994 Until 1994 Until 1999 Until 1999

4. Are reforms to blame? • By the mid nineties: • Rising contention but lack of hard evidence. • RES worked with micro data that was increasingly available but hardly used • Major contributions in measuring reforms & in assessing their effects

5. Findings—Trade Reforms Link between trade reforms and inequality & poverty is still the focus of intense research • Behrman, Birdsall and Székely find trade reforms did not increase inequality or poverty during the 90´s • Using pooled household survey data for LAC

6. Findings—Trade Reforms Link between trade reforms and inequality & poverty is still the focus of intense research • Evidence for skill-biased technological change (Colombia, Brazil, Colombia) • Reduction of tariffs related to initial pattern of protection with lower-skilled more protected (increasing inequality) (Mexico, Argentina, and Ecuador) • Growing consensus that overall the effect of the trade reforms on the wage distribution are small

7. Findings—Trade Reforms • Trade reforms cannot seemingly be blamed for rising unemployment. • Effects on total employment or on unemployment are very small • Effects on employment reallocation also surprisingly small • But some adverse effects in manufacturing employment in Brazil and Uruguay (not in Mexico)

8. Findings—Trade Reforms • And measured effects on quality of jobs are so far small • Some in Colombia • No effects in Brazil or Ecuador • But evidence that wages declined

9. Labor Markets are highly regulated Job Security Index (0-1) Latin America and Caribbean Eastern Europe and Central Asia Middle East and North Africa Industrial Continental Europe Sub-Saharan Africa East Asia and Pacific Islands South Asian Region Industrial Anglosaxon México Perú Brasil Panamá Ecuador Venezuela Colombia Bolivia Argentina Rep. Dominicana Chile Jamaica Uruguay 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8

10. Findings-Labor Reforms • Labor Institutions & regulations Matter • Rudimentary social protection • Soc. sec. reduces employment & increases unemployment • Job. Sec. reduces turnover & biases employment againts the youth and unskill • But, not clearly linked to rising U

11. Ongoing research • How to explain rising U? • Is it cyclical or structural? • Is lower inflation to blame for low wage adjustment? • What is the role of institutions and policies? Role for training, intermediation • What explains cross-country differences?

12. Ongoing research • Why is wage inequality on the rise? • What is the role of IT? • What is the role of capital imports? • What implications for skill formation policies? • What to do about it?