Understanding the Impact of Economic Shocks on Labor Market Outcomes in Developing Countries : An application to Indonesia and Mexico
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 agricult...
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| Format: | Policy Research Working Paper |
| Language: | English |
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2012
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| Online Access: | 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 http://hdl.handle.net/10986/3770 |
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okr-10986-3770 |
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oai_dc |
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Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ACTIVE INTERVENTION ADVERSE EFFECTS AGRICULTURE AVERAGE WAGE AVERAGE WAGES BANK BARGAINING BARGAINING POWER BENCHMARK BUSINESS CYCLES CAPITAL MARKETS CENTRAL BANK CIT COLLECTIVE AGREEMENTS CREDIT CRISES DISPLACED WORKERS DISTRIBUTION EARNING ECONOMIC CRISES ECONOMIC DOWNTURNS ECONOMIC RESEARCH ECONOMIC SHOCKS ECONOMICS EFFECTS ELASTICITY EMPLOYEES EMPLOYMENT GROWTH EMPLOYMENT OPPORTUNITIES EMPLOYMENT PROGRAMS EMPLOYMENT SHARE EMPLOYMENT STATUS EMPLOYMENT SUBSIDIES EMPLOYMENT SUBSIDY ENTERPRISES EQUILIBRIUM UNEMPLOYMENT EQUITY ESTIMATED PARAMETERS EXOGENOUS SHOCK EXOGENOUS VARIABLES FEMALE LABOR FEMALE LABOR FORCE FINANCE FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL SECTOR FINDING JOBS FLEXIBLE LABOR MARKETS GDP GENERAL EQUILIBRIUM GOODS GOVERNMENTS HIGH UNEMPLOYMENT HOUSEHOLD SURVEY HOUSEHOLD SURVEYS HUMAN CAPITAL INCENTIVES INCOME INFLATION INFORMAL ECONOMY INFORMAL EMPLOYMENT INFORMAL SECTOR INFORMATION INTEREST INTEREST RATE INTERNATIONAL MARKETS INVESTMENT JOB JOB CREATION JOB DESTRUCTION JOB DESTRUCTION RATE JOB SECURITY JOB VACANCY JOBLESS WORKERS JOBS LABOR LABOR ADJUSTMENT LABOR ALLOCATION LABOR DEMAND LABOR FORCE PARTICIPATION LABOR MARKET LABOR MARKET ADJUSTMENT LABOR MARKET FLEXIBILITY LABOR MARKET INSTITUTIONS LABOR MARKET OUTCOMES LABOR MARKET POLICIES LABOR MARKET POLICY LABOR MARKETS LABOR REGULATION LABOR UNION LABOR UNIONS LABOUR LABOUR MARKETS LAW LAWS LEGISLATION LOW UNEMPLOYMENT LOW UNEMPLOYMENT RATE MANAGEMENT MANPOWER MANUFACTURING WAGES MARKET TRENDS MIGRATION MINIMUM WAGE MINIMUM WAGES NOMINAL WAGES ORGANIZATIONS PASSIVE LABOR PAYROLL TAXES PRICE PRICES PRODUCT PRODUCTION PRODUCTION FUNCTION PRODUCTION FUNCTIONS PROFIT PROFITABILITY PUBLIC EMPLOYMENT PUBLIC WORK PUBLIC WORKS REAL WAGES SAFETY SALARIED WORKERS SEVERANCE PAY SKILLED WORKERS STANDARDS THEORY TOTAL EMPLOYMENT TOTAL FACTOR PRODUCTIVITY TRADE TRAINING TROUGH UNEMPLOYED UNEMPLOYED WORKERS UNEMPLOYMENT UNEMPLOYMENT BENEFIT UNEMPLOYMENT BENEFITS UNEMPLOYMENT DURATION UNEMPLOYMENT RATES UNSKILLED LABOR URBAN ECONOMY URBAN EMPLOYMENT VALUE VOLATILITY WAGE SECTOR WELFARE WORK FORCE WORKER WORKER PRODUCTIVITY WORKERS WORKING CONDITIONS |
| spellingShingle |
ACTIVE INTERVENTION ADVERSE EFFECTS AGRICULTURE AVERAGE WAGE AVERAGE WAGES BANK BARGAINING BARGAINING POWER BENCHMARK BUSINESS CYCLES CAPITAL MARKETS CENTRAL BANK CIT COLLECTIVE AGREEMENTS CREDIT CRISES DISPLACED WORKERS DISTRIBUTION EARNING ECONOMIC CRISES ECONOMIC DOWNTURNS ECONOMIC RESEARCH ECONOMIC SHOCKS ECONOMICS EFFECTS ELASTICITY EMPLOYEES EMPLOYMENT GROWTH EMPLOYMENT OPPORTUNITIES EMPLOYMENT PROGRAMS EMPLOYMENT SHARE EMPLOYMENT STATUS EMPLOYMENT SUBSIDIES EMPLOYMENT SUBSIDY ENTERPRISES EQUILIBRIUM UNEMPLOYMENT EQUITY ESTIMATED PARAMETERS EXOGENOUS SHOCK EXOGENOUS VARIABLES FEMALE LABOR FEMALE LABOR FORCE FINANCE FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL SECTOR FINDING JOBS FLEXIBLE LABOR MARKETS GDP GENERAL EQUILIBRIUM GOODS GOVERNMENTS HIGH UNEMPLOYMENT HOUSEHOLD SURVEY HOUSEHOLD SURVEYS HUMAN CAPITAL INCENTIVES INCOME INFLATION INFORMAL ECONOMY INFORMAL EMPLOYMENT INFORMAL SECTOR INFORMATION INTEREST INTEREST RATE INTERNATIONAL MARKETS INVESTMENT JOB JOB CREATION JOB DESTRUCTION JOB DESTRUCTION RATE JOB SECURITY JOB VACANCY JOBLESS WORKERS JOBS LABOR LABOR ADJUSTMENT LABOR ALLOCATION LABOR DEMAND LABOR FORCE PARTICIPATION LABOR MARKET LABOR MARKET ADJUSTMENT LABOR MARKET FLEXIBILITY LABOR MARKET INSTITUTIONS LABOR MARKET OUTCOMES LABOR MARKET POLICIES LABOR MARKET POLICY LABOR MARKETS LABOR REGULATION LABOR UNION LABOR UNIONS LABOUR LABOUR MARKETS LAW LAWS LEGISLATION LOW UNEMPLOYMENT LOW UNEMPLOYMENT RATE MANAGEMENT MANPOWER MANUFACTURING WAGES MARKET TRENDS MIGRATION MINIMUM WAGE MINIMUM WAGES NOMINAL WAGES ORGANIZATIONS PASSIVE LABOR PAYROLL TAXES PRICE PRICES PRODUCT PRODUCTION PRODUCTION FUNCTION PRODUCTION FUNCTIONS PROFIT PROFITABILITY PUBLIC EMPLOYMENT PUBLIC WORK PUBLIC WORKS REAL WAGES SAFETY SALARIED WORKERS SEVERANCE PAY SKILLED WORKERS STANDARDS THEORY TOTAL EMPLOYMENT TOTAL FACTOR PRODUCTIVITY TRADE TRAINING TROUGH UNEMPLOYED UNEMPLOYED WORKERS UNEMPLOYMENT UNEMPLOYMENT BENEFIT UNEMPLOYMENT BENEFITS UNEMPLOYMENT DURATION UNEMPLOYMENT RATES UNSKILLED LABOR URBAN ECONOMY URBAN EMPLOYMENT VALUE VOLATILITY WAGE SECTOR WELFARE WORK FORCE WORKER WORKER PRODUCTIVITY WORKERS WORKING CONDITIONS Gutierrez, Catalina Paci, Pierella Park, Beom S. Understanding the Impact of Economic Shocks on Labor Market Outcomes in Developing Countries : An application to Indonesia and Mexico |
| geographic_facet |
Indonesia |
| relation |
Policy Research working paper ; no. WPS 5283 |
| 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. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Gutierrez, Catalina Paci, Pierella Park, Beom S. |
| author_facet |
Gutierrez, Catalina Paci, Pierella Park, Beom S. |
| author_sort |
Gutierrez, Catalina |
| title |
Understanding the Impact of Economic Shocks on Labor Market Outcomes in Developing Countries : An application to Indonesia and Mexico |
| title_short |
Understanding the Impact of Economic Shocks on Labor Market Outcomes in Developing Countries : An application to Indonesia and Mexico |
| title_full |
Understanding the Impact of Economic Shocks on Labor Market Outcomes in Developing Countries : An application to Indonesia and Mexico |
| title_fullStr |
Understanding the Impact of Economic Shocks on Labor Market Outcomes in Developing Countries : An application to Indonesia and Mexico |
| title_full_unstemmed |
Understanding the Impact of Economic Shocks on Labor Market Outcomes in Developing Countries : An application to Indonesia and Mexico |
| title_sort |
understanding the impact of economic shocks on labor market outcomes in developing countries : an application to indonesia and mexico |
| publishDate |
2012 |
| url |
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 http://hdl.handle.net/10986/3770 |
| _version_ |
1764388244802240512 |
| spelling |
okr-10986-37702021-04-23T14:02:12Z 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. ACTIVE INTERVENTION ADVERSE EFFECTS AGRICULTURE AVERAGE WAGE AVERAGE WAGES BANK BARGAINING BARGAINING POWER BENCHMARK BUSINESS CYCLES CAPITAL MARKETS CENTRAL BANK CIT COLLECTIVE AGREEMENTS CREDIT CRISES DISPLACED WORKERS DISTRIBUTION EARNING ECONOMIC CRISES ECONOMIC DOWNTURNS ECONOMIC RESEARCH ECONOMIC SHOCKS ECONOMICS EFFECTS ELASTICITY EMPLOYEES EMPLOYMENT GROWTH EMPLOYMENT OPPORTUNITIES EMPLOYMENT PROGRAMS EMPLOYMENT SHARE EMPLOYMENT STATUS EMPLOYMENT SUBSIDIES EMPLOYMENT SUBSIDY ENTERPRISES EQUILIBRIUM UNEMPLOYMENT EQUITY ESTIMATED PARAMETERS EXOGENOUS SHOCK EXOGENOUS VARIABLES FEMALE LABOR FEMALE LABOR FORCE FINANCE FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL SECTOR FINDING JOBS FLEXIBLE LABOR MARKETS GDP GENERAL EQUILIBRIUM GOODS GOVERNMENTS HIGH UNEMPLOYMENT HOUSEHOLD SURVEY HOUSEHOLD SURVEYS HUMAN CAPITAL INCENTIVES INCOME INFLATION INFORMAL ECONOMY INFORMAL EMPLOYMENT INFORMAL SECTOR INFORMATION INTEREST INTEREST RATE INTERNATIONAL MARKETS INVESTMENT JOB JOB CREATION JOB DESTRUCTION JOB DESTRUCTION RATE JOB SECURITY JOB VACANCY JOBLESS WORKERS JOBS LABOR LABOR ADJUSTMENT LABOR ALLOCATION LABOR DEMAND LABOR FORCE PARTICIPATION LABOR MARKET LABOR MARKET ADJUSTMENT LABOR MARKET FLEXIBILITY LABOR MARKET INSTITUTIONS LABOR MARKET OUTCOMES LABOR MARKET POLICIES LABOR MARKET POLICY LABOR MARKETS LABOR REGULATION LABOR UNION LABOR UNIONS LABOUR LABOUR MARKETS LAW LAWS LEGISLATION LOW UNEMPLOYMENT LOW UNEMPLOYMENT RATE MANAGEMENT MANPOWER MANUFACTURING WAGES MARKET TRENDS MIGRATION MINIMUM WAGE MINIMUM WAGES NOMINAL WAGES ORGANIZATIONS PASSIVE LABOR PAYROLL TAXES PRICE PRICES PRODUCT PRODUCTION PRODUCTION FUNCTION PRODUCTION FUNCTIONS PROFIT PROFITABILITY PUBLIC EMPLOYMENT PUBLIC WORK PUBLIC WORKS REAL WAGES SAFETY SALARIED WORKERS SEVERANCE PAY SKILLED WORKERS STANDARDS THEORY TOTAL EMPLOYMENT TOTAL FACTOR PRODUCTIVITY TRADE TRAINING TROUGH UNEMPLOYED UNEMPLOYED WORKERS UNEMPLOYMENT UNEMPLOYMENT BENEFIT UNEMPLOYMENT BENEFITS UNEMPLOYMENT DURATION UNEMPLOYMENT RATES UNSKILLED LABOR URBAN ECONOMY URBAN EMPLOYMENT VALUE VOLATILITY WAGE SECTOR WELFARE WORK FORCE WORKER WORKER PRODUCTIVITY WORKERS WORKING CONDITIONS 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. 2012-03-19T18:39:30Z 2012-03-19T18:39:30Z 2010-04-01 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 http://hdl.handle.net/10986/3770 English Policy Research working paper ; no. WPS 5283 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper Indonesia |