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IDB seminar: Latin America must devise comprehensive programs to protect workers during hard times

MILAN, Italy Researchers from the Inter-American Development Bank and other organizations today proposed reforms in income support to better protect the labor force in Latin America and the Caribbean during times of economic crises.

The researchers, submitting their papers during a seminar on employment policies held at the IDB Annual Meeting, noted that incomes, purchasing power, and employment were negatively affected by a series of crises during the 1990s, among them the peso crisis in Mexico in 1994-1995 and the financial shocks in 1997-1998 following the East Asia and Russian crises.

Inter-American Development Bank President Enrique V. Iglesias and IDB Chief Economist Guillermo Calvo, in opening remarks, stressed the urgency of finding new solutions to unemployment issues in view of the drop in incomes and employment during 2002.

Brazil’s Labor Minister Jacques Wagner participated in a panel on “”Financing Employment Policies: Can We Save for a Rainy Day?”

Senior IDB economist Gustavo Márquez, the principal labor advisor in the Bank’s Research Department, noted that shocks and volatility have become a fact of life in Latin America’s economic landscape, requiring “a more comprehensive income support system” to benefit workers as opposed to stop-gap emergency relief measures that governments were forced to adopt to meet the crises.

He observed that  “the traditional legally mandated severance payment mechanisms established in the labor laws have become irrelevant in this new environment, given the narrow scope of their coverage.”

According to Márquez, “a well-designed unemployment insurance system” would be at the heart of a comprehensive reform, financed by both workers and employer contributions. This insurance system should be supplemented by other support measures, such as short-term training and school scholarships, to benefit those outside the insurance system.

Márquez observed that most of the individual components of a comprehensive system “already exist in one for or another in most countries in the region.” Bringing the components together in an organized approach will be more effective in mitigating the harmful impact of economic cycles on labor markets, he argued.

IDB researchers Suzanne Duryea, Olga Jaramillo and Carmen Pagés, in a paper titled  “Latin American Labor Markets in the 1990s: Deciphering the Decade,” described the 1990s as “beak” in terms of unemployment, which “increased for all demographic groups.”

They said that greater research was necessary in individual countries to pursue in greater detail data that indicate the unemployment grew more in some regions and sectors than in others. Their paper also reported that employees with higher education experienced higher wage returns during the 1990s while those with only a secondary education declined.

“Despite the fact that Latin America is more than twice as volatile as the industrial countries, there are much fewer instruments in place to alleviate the welfare costs of fluctuations,” Pagés said in a presentation.

As unemployment becomes a more important issue, countries should design policies that specifically target unemployment,” she added.

Argentina-based Miguel Braun of the Center for the Implementation of Public Policies Promoting Equity and Growth and the University of San Andrés, and Luciano di Gresia of the Universidad Nacional de La Plata argued that unemployment insurance could be made part of a policy “tool kit” designed to apply a counter-cyclical macroeconomic program.

A counter-cyclical policy increases government spending in times of economic recession and induces savings during booms.

Now, they noted, policies are the reverse, or “procyclical.” The two authors, in a paper titled “Toward Effective Social Insurance in Latin America: The Importance of Countercyclical Fiscal Policy,” suggested that multilateral financial institutions take a leading role in promoting and applying counter-cyclical policies.


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