Participation in the Labor Supply in Latin America, 2000-2008
Caceres, Luis Rene, The Journal of Developing Areas
This paper analyzes the determinants of participation in the labor supply in a sample of ten Latin American countries. To this end, a VAR model is estimated with the variables economic growth, wages, unemployment and participation rate. A first section discusses the evolution and determining variables of participation rates in the Latin American countries, under the light of recent theories. This is followed by a review of recent literature on participation in Latin American countries. Next, impulse response functions are analyzed which permits to appreciate the role of economic growth, the real wage and the unemployment rate on participation. Further analysis is carried to appreciate the role of governance in the labor market. The paper ends with a discussion of the social policies related to labor markets.
JEL classifications: J21, J24, J64.
Keywords: Participation rate, unemployment, child labor, governance.
The analysis of labor markets in Latin America has received considerable attention in recent years. Special attention has been directed to analysis of regional scope (IADB, 2003, 2008; Weller, 2005, 2007; Trejos, 2006; Ball, De Roux and Hofstetter, 2011), and to studies on the regional labor market implications of the global crisis (Tokman, 2010). Other strands of research have analyzed the repercussions of economic reforms on employment and wages (Goldberg and Pavenik, 2003, 2007; Ravenga, 1997; Ramirez Cruz, 2004; Chiquiar, 2004), the repercussions of economic downturns on employment (Navarro, 2009; Gutierrez, 2007), and the role of education on labor market outcomes and social mobility (IADB, 2008; Emerson and Portela Souza, 2003; Bourguignon, Ferreira and Mendez, 2007). The effects of regional economic integration, and of governance and human development on employment, are emerging as important research topics (Caceres, 2011a, 2011b, 2010).
However, the topic of labor market participation has received relatively less attention, despite its particular importance on the dynamics of employment and unemployment. The labor market participation rate is defined as the ratio of the labor supply to the population 15-64 years old in a given country, and its analysis provides a more precise picture of the behavior of unemployment with respect to changes in economic activity and in wages. As well, the identification and analysis of the variables that determine the participation of men and women in the labor market provide valuable elements in the design of social policies, and in the assessment of their effectiveness.
In both developed and developing countries, men have larger participation rates than women. In the US, male participation rates have declined during the past decades, which has been associated with the availability of retirement benefits (Mitchell and Fields, 1984; Krueger and Pischke, 1992). There is also evidence that the fall in participation is more marked in the case of low wage and low education workers1. Conversely, in developed and developing countries women have been entering the labor force rapidly2. Data from 19 Latin American countries indicates that, on average, between 1960 and 1990, the number of women in the labor supply increased by 211 per cent, while the number of men increased by 84 per cent as reported by ECLAC (1995). In the early nineties the female participation rate was between 40 and 50 per cent, while male's was between 80 and 90 per cent (ECLAC, 1995). The comparison of data from ECLAC (1995 and 2010) shows that between the early 90's and 2008, male participation rates declined or stayed constant in all countries except Mexico and Nicaragua where it increased, while female rates increased in all countries. For illustrative purposes, data corresponding to the years 2007 or 2008 are shown on Table 1.
In Economics literature, the participation rate has been modeled to depend on the real wage, the unemployment rate, an indicator of economic activity, and a time trend (Pencavel, 1986; Killingsworth, 1983; Clark and Summers, 1981). …