Labor Markets in Latin America and the Caribbean: The Missing Reform

This article is organized as follows. Section 2 shows the evolution of output and labor markets during the last decades in Latin America. Section 3 presents labor market reforms during this period. It provides some evidence that informality and inflation drove labor markets in the 1980s, reducing the urgency to reform them. In particular it shows how inflation, unions, and privatization worked to slow down the process of executing labor market reforms in LAC. The section then presents evidence of how labor markets reacted to Washington Consensus reforms: mainly an increase of informality in the economy. An important point in this section is to establish that the above conclusion was made based on the "insider and outsider" theory. Section 4 describes the vicious circle generated by highly regulated labor markets and informality.