Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Productivity, Resources Allocations, and Labor Market Reforms Presentation Prepared for: XXXVII MEETING OF THE NETWORK OF CENTRAL BANKS AND FINANCE MINISTRIES April 17, 2013 Session 3. International Currency Wars and Domestic Reforms Luca Flabbi (IDB) ISSUE: LAC’s productivity has declined against the US and Emerging Asian Countries TFP Region/ TFP US 120 110 Index 1980=100 100 90 80 70 60 50 Latin America Emerging Asia POSSIBLE EXPLANATION: Missallocation of resources LAC relative to the US, 1960 - 2007 Per capita income gap Total factor productivity Factor accumulation 0% -5% Percentage -10% -15% -11% -20% -25% -26% -30% -35% -40% -37% For the typical LAC country, two thirds of the LAC-US per capita income gap is due to lagging productivity. POLICY IMPLICATIONS: Large gains from improving resources allocation Mexico '04 Venezuela Venezuela '01 Mexico Bolivia '01 Uruguay El Salvador '05 Argentina Argentina '02 Bolivia Uruguay '05 El Salvador Ecuador '05 Colombia Chile '06 Colombia '98 Ecuador United States '97 Chile 0 50 100 Difference in TFP from the optimum If the median country allocated resources as efficiently as the US, there would be a 20% increase in TFP. 1st Quintile=0.6 0.0 0.5 1.0 4th Quintile=1.3 1.5 2.0 2.5 Increase in growth (percent) Translated into growth, the median country would grow by an additional 1% per annum over ten years as a result of reforms that improve resource allocation. 4 HOW CAN WE IMPROVE ALLOCATION? Misallocation may (must) have many sources Incentives: tax and social systems and institutions Inputs Efficiency in allocation Labor Infrastructure Capital Land Input Quality: • • • • • Education Skills Training Technology Innovation TFP Complementarities between inputs TENTATIVE RACCOMANDATION: Focus on labor markets reforms WHY LABOR MARKETS? 1) Low level of reform activity Financial Liberalization Trade Privatizations Taxes Labor 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 Change in reforms index relative to 1985 1999 2009 6 WHY LABOR MARKETS? 2) Characterized by high level of informality Share of labor force in the informal sector 90 80 70 Average = 56% Percent 60 50 40 30 20 10 0 Informal workers = do not participate in Contributory Social Insurance 7 and informality is usually associated with lower productivity Table: Cross-country Correlation Productivity and Informality TFP Gap w.r.t. US Informality rate 0.47*** 0.49** (0.14) (0.21) Controls No Yes Obs. 99 68 Countries 13 12 0.11 0.32 R-sq Note: Unbalanced panel up to 2007. Data source: Daude and Fernandez-Arias (2010); Lora (2012); ILO (2012) 1. Smaller firm size associated with: – – – – unexploited economies of scale less labor training lower technological innovation limited access to credit markets 2. Higher workers turnover associated with: – – lower accumulation of human capital both pre-labor market and on-the-job 3. Higher risk to engage in illegal activities: – negative externality on every steps of the production process 8 WHAT REFORMS? A few tentative principles oLabor markets vary greatly across countries: • reforms should be tailored to particular country characteristics. o In countries with high informality rates: • reducing informality should be a key reform objective. o Labor market reforms to tackle informality are: • necessarily complex; • may require the reform of social protection programs. o As a result, a good reform design should include: 1.a diagnosis identifying which institutional features are creating distortions; 2.a design balancing both economic and social objectives; 3.a set of incentives targeted to both workers and firms. 9