Rigid labor regulations and job lock in Latin America
Kaplan, David S.
Rigid regulations pose serious impediments to the efficient functioning of labor markets. The author quantifies, for 14 Latin American countries, the extent to which rigid labor regulations interfere with both hiring and fi ring decisions of firms. Making regulations more flexible would lead to an average net increase of 2.1 percent of total employment. These net employment gains would be the result of increased fires being more than compensated for by increased hires. The increased fires resulting from more flexible labor regulations may explain the opposition to labor reforms designed to make regulations more flexible despite their positive effects on aggregate employment. Unemployment insurance, which is designed to protect workers who lose jobs rather than protect the jobs themselves, may be more effective than rigid labor laws both at providing social protection and at creating jobs.
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