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What is the Role of Labor Markets in Making Trade Reforms Pro-Poor in Latin America

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  • Bussolo, Maurizio
  • Medvedev, Denis

Abstract

Trade liberalization may be a powerful policy in the fight against poverty in Latin America. According to our numerical simulations, a complete multilateral liberalization would free 2.7 million individuals of poverty, and a Free Trade Areas of the Americas would lift about the same number out of poverty. With few exceptions tariff abatement helps the rural workers, one of the poorest groups, and increases demand and wages for factors of production owned by the poor. By reducing inequality, increased trade integration makes the growth process more pro-poor. Our ex-ante numerical simulations assume flexible labor markets, and actually demonstrate that lowering flexibility reduces the pro-poor potential of trade reforms. Additionally, ex-post evidence for Latin America shows low labor mobility, partly due to the extensive regulations of the region’s labor markets. In light of this, we analyze the data in the household surveys to confirm that labor market segmentation is indeed an important feature of LAC labor markets, and that the persistence of inter-sectoral wage premia has significant implications for both poverty and inequality. We also link sectoral wage premia to trade policy variables, reaffirming the importance of labor market flexibility for poverty reduction.

Suggested Citation

  • Bussolo, Maurizio & Medvedev, Denis, 2006. "What is the Role of Labor Markets in Making Trade Reforms Pro-Poor in Latin America," Conference papers 331493, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331493
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    References listed on IDEAS

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    3. Hertel, Thomas, 1997. "Global Trade Analysis: Modeling and applications," GTAP Books, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, number 7685, December.
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