Labor Market and Macroeconomic Dynamics in Latin America amid COVID
This paper analyzes how a policy that lowers firm digital-adoption costs shapes the labor-market and economic recovery from COVID-19 in Latin America (LA) using a framework with firm entry and unemployment, where salaried firms can adopt digital technologies and the employment and firm structure embodies key features of LA economies. Using Mexico as a case study, the model replicates the response of the labor market and output at the onset of the COVID recession and in its aftermath, including the dynamics of labor-force participation and informal employment. A policy-induced permanent reduction in the cost of adopting digital technologies at the trough of the recession bolsters the recovery of GDP, total employment, and labor income, and leads to a larger expansion in the share of formal employment compared to a no-policy scenario. In the long run, the economy exhibits a reduction in total employment but higher levels of GDP and labor income, greater average firm productivity, a larger formal employment share, and a marginally lower unemployment rate. Finally, as a side effect, the policy exacerbates the differential between formal and informal labor income, both as the economy recovers from the COVID recession and in the long run.
| Main Authors: | , , |
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| Format: | Journal Article biblioteca |
| Language: | English en_US |
| Published: |
Published by Oxford University Press on behalf of the World Bank
2023-12-01
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| Subjects: | COVID, BUSINESS CYCLES, SELF-EMPLOYMENT AND INFORMALITY, UNEMPLOYMENT AND LABOR FORCE PARTICIPATION, INFORMATION AND COMMUNICATION TECHNOLOGIES (ICT), |
| Online Access: | http://documents.worldbank.org/curated/en/099218502022412749/IDU10abd1e4619afc14b5d194171dab35c8f61fe https://hdl.handle.net/10986/41394 |
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