Understanding the Impact of Economic Shocks on Labor Market Outcomes in Developing Countries : An application to Indonesia and Mexico

Gutierrez, Catalina; Paci, Pierella; Park, Beom S.

dc.creator	Gutierrez, Catalina
dc.creator	Paci, Pierella
dc.creator	Park, Beom S.
dc.date	2012-03-19T18:39:30Z
dc.date	2012-03-19T18:39:30Z
dc.date	2010-04-01
dc.date.accessioned	2023-02-17T21:03:13Z
dc.date.available	2023-02-17T21:03:13Z
dc.identifier	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100427134640
dc.identifier	http://hdl.handle.net/10986/3770
dc.identifier.uri	http://localhost:8080/xmlui/handle/CUHPOERS/244734
dc.description	In this paper the authors use a search and matching model of multi-sector labor markets, to understand the channels through which economic shocks affect labor market outcomes in developing countries. In the model workers can be employed in agriculture, formal or informal urban jobs, or unemployed. Economic shocks are manifested as either increased turbulence in the formal/informal sectors or a decrease in overall sectoral productivity. By calibrating the model to Indonesia and Mexico, the authors are able to understand how the 1998 Indonesian crisis and the 2001 Mexican recession translated into labor market outcomes. They then venture to simulate how the current financial crisis might affect the allocation of labor and earnings across sectors, in these countries. The results suggest that in both countries past crises have increased the degree of turbulence of the formal sector, increasing job destruction. However, while in Indonesia the crisis affected the overall formal sector productivity, this was not the case in Mexico. This explains the larger blow to formal wages -- relative to the size of the shock- witnessed by Indonesian workers. The response of the informal sector was also different: In both countries the informal sector was able to act as a buffer, as relative earnings increased. However, while in Mexico it became much harder to find informal sector opportunities and easier to keep the job once found; in Indonesia turbulence in the informal sector increased substantially increasing the job destruction rate of informal jobs and limiting the cushioning role that the informal sector might have played. The agricultural sector was spared from the shock in both countries. In Indonesia, it actually benefited from an unusual exogenous increase in the price of rise. The simulations show that if either the informal or agricultural sectors are spared from the shocks, large reallocations of labor might occur, and the overall effect of the shock is smaller. Instead, if these sectors can t buffer the shock, the reallocation of labor is much smaller, but earnings in the formal sector drop substantially. The authors also explore the impact of alternative policies. They find that in relatively flexible markets where informality can be seen more as a choice rather than as queuing, unemployment benefits and informal employment subsidies may have paradoxical effects, by discouraging formal search. Instead, policies targeted at creating informal employment and boosting formal TFP growth have the desired effects.
dc.language	English
dc.relation	Policy Research working paper ; no. WPS 5283
dc.rights	CC BY 3.0 IGO
dc.rights	http://creativecommons.org/licenses/by/3.0/igo/
dc.rights	World Bank
dc.subject	ACTIVE INTERVENTION
dc.subject	ADVERSE EFFECTS
dc.subject	AGRICULTURE
dc.subject	AVERAGE WAGE
dc.subject	AVERAGE WAGES
dc.subject	BANK
dc.subject	BARGAINING
dc.subject	BARGAINING POWER
dc.subject	BENCHMARK
dc.subject	BUSINESS CYCLES
dc.subject	CAPITAL MARKETS
dc.subject	CENTRAL BANK
dc.subject	CIT
dc.subject	COLLECTIVE AGREEMENTS
dc.subject	CREDIT
dc.subject	CRISES
dc.subject	DISPLACED WORKERS
dc.subject	DISTRIBUTION
dc.subject	EARNING
dc.subject	ECONOMIC CRISES
dc.subject	ECONOMIC DOWNTURNS
dc.subject	ECONOMIC RESEARCH
dc.subject	ECONOMIC SHOCKS
dc.subject	ECONOMICS
dc.subject	EFFECTS
dc.subject	ELASTICITY
dc.subject	EMPLOYEES
dc.subject	EMPLOYMENT GROWTH
dc.subject	EMPLOYMENT OPPORTUNITIES
dc.subject	EMPLOYMENT PROGRAMS
dc.subject	EMPLOYMENT SHARE
dc.subject	EMPLOYMENT STATUS
dc.subject	EMPLOYMENT SUBSIDIES
dc.subject	EMPLOYMENT SUBSIDY
dc.subject	ENTERPRISES
dc.subject	EQUILIBRIUM UNEMPLOYMENT
dc.subject	EQUITY
dc.subject	ESTIMATED PARAMETERS
dc.subject	EXOGENOUS SHOCK
dc.subject	EXOGENOUS VARIABLES
dc.subject	FEMALE LABOR
dc.subject	FEMALE LABOR FORCE
dc.subject	FINANCE
dc.subject	FINANCIAL CRISES
dc.subject	FINANCIAL CRISIS
dc.subject	FINANCIAL SECTOR
dc.subject	FINDING JOBS
dc.subject	FLEXIBLE LABOR MARKETS
dc.subject	GDP
dc.subject	GENERAL EQUILIBRIUM
dc.subject	GOODS
dc.subject	GOVERNMENTS
dc.subject	HIGH UNEMPLOYMENT
dc.subject	HOUSEHOLD SURVEY
dc.subject	HOUSEHOLD SURVEYS
dc.subject	HUMAN CAPITAL
dc.subject	INCENTIVES
dc.subject	INCOME
dc.subject	INFLATION
dc.subject	INFORMAL ECONOMY
dc.subject	INFORMAL EMPLOYMENT
dc.subject	INFORMAL SECTOR
dc.subject	INFORMATION
dc.subject	INTEREST
dc.subject	INTEREST RATE
dc.subject	INTERNATIONAL MARKETS
dc.subject	INVESTMENT
dc.subject	JOB
dc.subject	JOB CREATION
dc.subject	JOB DESTRUCTION
dc.subject	JOB DESTRUCTION RATE
dc.subject	JOB SECURITY
dc.subject	JOB VACANCY
dc.subject	JOBLESS WORKERS
dc.subject	JOBS
dc.subject	LABOR
dc.subject	LABOR ADJUSTMENT
dc.subject	LABOR ALLOCATION
dc.subject	LABOR DEMAND
dc.subject	LABOR FORCE PARTICIPATION
dc.subject	LABOR MARKET
dc.subject	LABOR MARKET ADJUSTMENT
dc.subject	LABOR MARKET FLEXIBILITY
dc.subject	LABOR MARKET INSTITUTIONS
dc.subject	LABOR MARKET OUTCOMES
dc.subject	LABOR MARKET POLICIES
dc.subject	LABOR MARKET POLICY
dc.subject	LABOR MARKETS
dc.subject	LABOR REGULATION
dc.subject	LABOR UNION
dc.subject	LABOR UNIONS
dc.subject	LABOUR
dc.subject	LABOUR MARKETS
dc.subject	LAW
dc.subject	LAWS
dc.subject	LEGISLATION
dc.subject	LOW UNEMPLOYMENT
dc.subject	LOW UNEMPLOYMENT RATE
dc.subject	MANAGEMENT
dc.subject	MANPOWER
dc.subject	MANUFACTURING WAGES
dc.subject	MARKET TRENDS
dc.subject	MIGRATION
dc.subject	MINIMUM WAGE
dc.subject	MINIMUM WAGES
dc.subject	NOMINAL WAGES
dc.subject	ORGANIZATIONS
dc.subject	PASSIVE LABOR
dc.subject	PAYROLL TAXES
dc.subject	PRICE
dc.subject	PRICES
dc.subject	PRODUCT
dc.subject	PRODUCTION
dc.subject	PRODUCTION FUNCTION
dc.subject	PRODUCTION FUNCTIONS
dc.subject	PROFIT
dc.subject	PROFITABILITY
dc.subject	PUBLIC EMPLOYMENT
dc.subject	PUBLIC WORK
dc.subject	PUBLIC WORKS
dc.subject	REAL WAGES
dc.subject	SAFETY
dc.subject	SALARIED WORKERS
dc.subject	SEVERANCE PAY
dc.subject	SKILLED WORKERS
dc.subject	STANDARDS
dc.subject	THEORY
dc.subject	TOTAL EMPLOYMENT
dc.subject	TOTAL FACTOR PRODUCTIVITY
dc.subject	TRADE
dc.subject	TRAINING
dc.subject	TROUGH
dc.subject	UNEMPLOYED
dc.subject	UNEMPLOYED WORKERS
dc.subject	UNEMPLOYMENT
dc.subject	UNEMPLOYMENT BENEFIT
dc.subject	UNEMPLOYMENT BENEFITS
dc.subject	UNEMPLOYMENT DURATION
dc.subject	UNEMPLOYMENT RATES
dc.subject	UNSKILLED LABOR
dc.subject	URBAN ECONOMY
dc.subject	URBAN EMPLOYMENT
dc.subject	VALUE
dc.subject	VOLATILITY
dc.subject	WAGE SECTOR
dc.subject	WELFARE
dc.subject	WORK FORCE
dc.subject	WORKER
dc.subject	WORKER PRODUCTIVITY
dc.subject	WORKERS
dc.subject	WORKING CONDITIONS
dc.title	Understanding the Impact of Economic Shocks on Labor Market Outcomes in Developing Countries : An application to Indonesia and Mexico
dc.type	Publications & Research :: Policy Research Working Paper
dc.coverage	Indonesia