Reforms and

Social OutcomesSuzanne Duryea

Carmen Pagés

Research Department

Inter-American Development Bank

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 pointsAverage unemployment increased from 7% in 1990 to more than 10% in 2000 The share of unregistered jobs did not decline

Reforms or lack of Reforms to blame?

-- 10%10%

0%0%

10%10%

20%20%

30%30%

40%40%

50%50%

60%60%

70%70%

80%80%

Total Trade Finance Tax Privatization Labor

Until 1989Until 1989 Until 1994Until 1994 Until 1999Until 1999

--10%10%

0%0%

10%10%

20%20%

30%30%

40%40%

50%50%

60%60%

70%70%

80%80%

Until 1989 Until 1994Until 1994 Until 1999Until 1999

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

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

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

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)

Findings—Trade Reforms

And measured effects on quality of jobs are so far small

Some in ColombiaNo effects in Brazil or Ecuador

But evidence that wages declined

Labor Markets are highly regulated

Job Security Index (0-1)

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8

UruguayJamaica

ChileRep. Dominicana

ArgentinaBolivia

ColombiaVenezuela

EcuadorPanamá

BrasilPerú

MéxicoIndustrial Anglosaxon

South Asian RegionEast Asia and Pacific Islands

Sub-Saharan AfricaIndustrial Continental EuropeMiddle East and North Africa

Eastern Europe and Central Asia Latin America and Caribbean

Findings-Labor Reforms

Labor Institutions & regulations MatterRudimentary social protection Soc. sec. reduces employment & increases unemploymentJob. Sec. reduces turnover & biases employment againts the youth and unskill

But, not clearly linked to rising U

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?

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?