The global crisis and the Peruvian labor market: impact and policy options

Moron, Eduardo and Castro, Juan F. and Villacorta, Lucciano (2009): The global crisis and the Peruvian labor market: impact and policy options.

Abstract

After almost 20 years of prudent macro policies, Peru seems in better shape than before to withstand the effects of a financial crisis. Progress, however, has left some policy areas unscathed and the labor market is one of them. In this paper we analyze the potential effects of the crisis on labor market outcomes, and discuss policy options to address short run and structural considerations. We review stylized facts from this and previous crisis to account for potential transmission mechanisms, review policy options and results from past and existing labor market interventions, and build a DSGE model to provide further insight regarding labor market outcomes and the effects of transitory and permanent policy measures. On the countercyclical front, our analysis reveals that the main risk that the policymaker should aim to mitigate is a surge in informality and underemployment. For this, job protection alternatives (as temporary payroll tax holidays already implemented) have to be accompanied by a strengthened and better focalized reemployment service, especially if the shock transpires into the nontradable sector. On the more structural side, policy should aim at the prime drivers of informality in our country: low productivity and high formal labor costs. For the latter, progressive access to labor benefits for small firms (already introduced via a special labor regime) could be complemented by introducing different minimum wage levels according to firm size and a generalized reduction in firing costs. Low productivity issues, on the other hand, can be addressed by strengthening and integrating existing training programs and information networks which have already proven successful in terms of formal job creation. Simulations reveal that permanent non-wage cost reductions (like those introduced via the special labor regime) can increase formal employment and formal GDP participation by 2 percentage points. Structural policy interventions also exhibit a large countercyclical potential due to their permanent nature. This implies that we should not wait for the crisis to be over to start their implementation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Global crisis; labor markets; Peru
• Subjects: J - Labor and Demographic Economics > J0 - General > J08 - Labor Economics Policies; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D58 - Computable and Other Applied General Equilibrium Models

References

Bosch, M. and W. Maloney (2008). “Cyclical Movements in Unemployment and Informality of Developing Countries”, Universidad de Alicante and World Bank.

Burga, L. and M. Morales (2006). “Efectos de la complementariedad de las políticas y la apertura económica. Análisis del caso peruano en un contexto internacional 1975- 2005”. Universidad del Pacífico.

Chacaltana, J. and D. Sulmont (2004). “Políticas activas en el mercado laboral peruano: el potencial de la capacitación y los servicios de empleo” in Políticas de empleo en Perú, Consorcio de Investigación Económica y Social.

Chacaltana, J. (2003). “Impacto del programa A Trabajar Urbano: ganancias de ingreso y utilidad de las obras”, Centro de Estudios para el Desarrollo y la Participación.

Chacaltana, J. (2008). “Una evaluación del régimen laboral especial para microempresa en Perú, al cuarto año de vigencia”, Oficina Internacional del Trabajo (OIT).

Díaz, J. and M. Jaramillo (2006). “An Evaluation of the Peruvian Youth Labor Training Program PROJOVEN”, Office of Evaluation and Oversight, Inter-American Development Bank.

Ikenson, J. (2008). “Don't Bail Out the Big Three”. Retrieved July 16, 2009, from The Cato Institute Web site: http://www.cato.org/pub_display.php?pub_id=9804. Pastor, C. and P. Pérez (2009). “El Reto de la

Infraestructura al 2018: La Brecha de Inversión en Infraestructura en el Perú 2008”, Instituto Peruano de Economía.

Jaramillo, M. (2005). “Cómo se ajusta el mercado de trabajo ante cambios en el salario mínimo en el Perú”, GRADE-CIES.

Jaramillo, M. (2004). “Reforma del mercado laboral”, for Agenda Nacional de Reformas Económicas en Peru, CIPE, El Comercio, Instituto Apoyo.

Morón, E., J.F. Castro and C. Sanborn (2009). “Helping Reforms Deliver Inclusive Growth in Peru”, in L. Rojas-Suárez (ed.), Growing Pains in Latin America, Center for Global Development.

Reflexión Democrática (2009), Informativo Número 138. Stiglitz, J. (2008). “We Aren’t Done Yet: Comments on the Financial Crises and Bailout”. The Berkeley Electronic Press.

Villacorta, L. (2008), “Un modelo con economía abierta para analizar los efectos de cambios en los precios de los minerales”, Universidad del Pacífico.

World Bank (2007), “Peru: Casting Light on the Shadow Economy”, World Bank.

World Bank (2009a). “Labor Markets and the Crisis in Latin America and the Caribbean (a preliminary review for selected countries)”, World Bank.

World Bank (2009b). “How Should Labor Market Policy Respond to the Financial Crisis?”, World Bank.

World Bank (2008). “Miles to Go: A Quest for an Operational Labor Market Paradigm for Developing Countries”, Social Protection and Labor Sector, World Bank.

Yamada, G. (2009). “Comentarios sobre Mejores Prácticas en Servicios Públicos de Empleo”, prepared for the conference Propuestas sobre Empleo y Formación Profesional frente a la Crisis Financiera Internacional”, Ministerio de Trabajo y Promoción Social.

Yamada, G. (2008a). Capacitación de alto impacto: las becas PROPOLI y lineamientos de política, Programa de Lucha Contra la Pobreza en Lima Metropolitana.

Yamada, G. (2008b). “Reinserción Laboral Adecuada: Dificultades e Implicancias de Política”, Documento de Discusión DD/08/01, Centro de Investigación de la Universidad del Pacífico.

Yamada, G. (2008c). “Hacia una mayor flexibilidad y seguridad en el mercado laboral peruano”, Economía y Sociedad 70, Consorcio de Investigación Económica y Social.