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  • Cited by 1
  • Print publication year: 2010
  • Online publication date: June 2012

3 - Labor market reforms in the LAC region: consequences and costs



During the last few years the LAC region has reluctantly begun a process of market integration into the global economy. This process is likely to deepen in years to come, and workers in the region must have access to the opportunities that this global marketplace offers. While it is certainly a fact that global labor markets threaten individuals with the possibility of being replaced by other, perhaps cheaper or more productive workers in other countries, the same phenomenon brings about the opportunity to obtain a better job in a broader set of labor market offers. Globalization can potentially benefit all workers by changing the division of labor across countries. Yet, this new division of labor requires a fair degree of adaptability. The challenge is to seize the benefits from globalization, cognizant of the difficulties imposed by the need to adjust. To this end, policies should seek to improve the functional role of the labor market, encourage an effective response of the education and training markets, and ensure that minimum wage policies (geared towards improving the conditions of the working poor) do not discourage employment creation. As Kugler (2007) clearly puts it, a well-functioning labor market can better respond to the challenge of keeping income security for workers but reducing employers' disincentives to hire.

There has been a substantial body of work measuring the detrimental impact of current labor market regulation on employment creation, the extent of informality, and productivity (see, for example, Heckman and Pages 2004).