Labor Productivity And Social Policy In Latin America

Recent research has shown that labor productivity has fallen since 1975 in Latin American countries, a phenomenon that has taken place after countries undertook ambitious economic reforms and when the macro-economy has been stable. Decreasing productivity has adverse repercussions on competitiveness, export growth, salaries and income distribution. There is no consensus on the reasons behind the deterioration in productivity. For this reason, this paper investigates the determinants of labor productivity in a sample of six Latin American countries: Costa Rica, Ecuador, Bolivia, Colombia, Dominican Republic and Jamaica. The analysis rests on the estimation of a Var model with the variables: investment rate, human capital, public consumption, labor productivity, and social variables- self and quality employment, part time employment, and income distribution. The specific contributions of the paper are the inclusion of social variables in the Var estimations and the breakdown of labor market variables by gender. The Var was estimated with 1990-2012 data from the World Bank’s World Development Indicators. The impulse response functions indicate that labor productivity increases with increasing physical and human capital, with government consumption, quality jobs, and equitable income distribution. The responses are more pronounced for women than for men. An interesting result is that the response of the percentage of national income that is invested by the richest decile of the population has a positive association with the respective country’s average education attainment, indicating that human capital induces private investment. Labor productivity is not dependent on purely economic variables, such as physical capital and technology, but depends on equitable access to social services. When all population groups have access to social services, more individuals will have better skills and better jobs in the official economy, which contributes to increasing labor productivity. Achieving this requires a solid fiscal situation. In other words, increasing labor productivity demands adequate tax revenues to attend to social variables to promote a regimen of equality of opportunity.