Contents Acknowledgments ix About the Authors xi Abbreviations xiii Executive Summary I Linking Trade Reforms and Labor Outcomes 1 Two Cost Metrics: Labor Mobility and Labor Adjustment 2 ~~~~s 3 Main Findings 4 Policy lmplications 6 Note 8 References 8 Chapter l Chapter 2 Chapter 3 lntroduction Overview 9 Labor Mobility and Labor Adjustment Costs Defineci 1 O Measurement Challenges 12 Scope of the Report 15 References 16 Workers' Sticky Feet, Not Rusty Firms: Evidence from the Literature Abstract Notes References Mapping Labor Mobility and Labor Adjustment Costs around theWorld Abstract Labor Mobility Costs around theWorld Correlates of Labor Mobility Costs Mobility Costs in Action: Simulations of Adjustrnerıt Dynamics Sticky Feet • http://dx.doi.org/1 O. l 596/978-1-4648-0263-8 9 17 17 21 21 25 25 25 28 30 V vi Contents Labor Adjustment Costs: How Much AreWorkers Losing Out? 34 Notes 36 References 37 Chapter 4 Mobility Costs, Adjushnent Costs, and Employnıent Structure in Developing Economies: Four Case Studies 39 Abstract 39 Firrn Costs versus Worker Costs: The Case ofArgentina 40 Labor Mobility Costs across Industries: The Case of Mexico 43 Role of lnformal Employment: The Cases of Brazil, Mexico, and Morocco 48 Role of Firm Size: The Cases of Costa Rica and Morocco Notes 53 References 57 58 Chapter 5 Labor Market Effects of Shocks: Validating Simulations with Regression Analysis Abstract 61 61 Macroeconomic Analysis: Impact of Structural Reforms on Labor Outcomes 62 Microeconomic Analysis: Job Displacement and Reallocation in Mexico Notes 67 References 71 72 Chapter 6 Conclusions and Policy lmplications 75 Abstract 75 Main Findings 75 Policy Implications 77 A Typology of Policies and Programs 79 Country Experiences 80 General Lessons fer Policy Design 83 Notes 85 References 85 AppendixA The Analytical Framework 87 Appendix B Data Description and Sources 97 Appendix C Mapping Labor Mobility and Labor Adjustnıent Costs and Gains from Trade 103 Sticky Feet • http://dx.doi.org/10.1596/978-1-4648-0263-8 Contents vii Box 1.1 Estimating Labor Mobility and Adjustment Costs Using a Structural Choice Model 12 Figures 2.1 Marginal Responses of Average Employment to Aggregate Shocks Are Significant 19 2.2 Firrn Labor Adjustment Costs Are Lower in Developing Countries 19 3.1 A Graphic Representation of Labor Mobility Costs 27 3.2 Labor Mobility Costs Are Correlated with Country Characteristics 30 3.3 Average Real Wages Tend to Recover after Trade Liberalization but Take Time to Return to Steady State 32 3.4 Forgone Gains from Trade Rise with Mobility Costs 36 4.1 Argentina's Sluggish Economic Responses under Costly Capital and Labor Adjustment 42 4.2 Inforrnal Employment Increases after a Positive Trade Shock because Previously lnactiveWorkers Enter the Labor Force 52 4.3 Does Firrn Size Affect Labor Mobility Costs in Costa Rica and Morocco? 54 4.4 Wage and Employment Dynamics by Firm Size: The Post-Shock Employment Response in Large Firms Outweighs That in Small Firms 55 5.1 Average Labor Market Trends Pre- and Post-Reform: Employment and Wage Effects Are Especially Positive 64 5.2 Plant Closings in Mexico Have a Persistent Negative lmpact on Real Wages but Not on Formality Status 69 5.3 Unemployment after a Plant Closure Is Longer than for Other Types of .Job Separation, Especially forWomen 70 Map 3.1 Average Labor Mobility Costs 29 Tables l. l Analytical Tools for Estimating Labor Mobility and Adjustment Costs 14 3.1 Average Labor Mobility Costs in Developing and Developed Countries 28 4.1 Firm Behavior with and without Capital Adjustment Costs: Firms Adjust Capital by More, and More Quickly without Adjustment Costs, but Not Labor 43 Sticky Feet • http://dx.doi.org/1 0.1596/978-1-4648-0263-8 viii 4.2 4.3 4.4 4.5 4.6 5.1 6.1 Contents Gross Flows of Forma! SectorWorkers across lndustries Are Sirnilar in the United States and Mexico 45 Labor Mobility Costs Are Higher in Mexico than the United States 46 Labor Mobility Costs i Mexico: Do Skills Play a Role? 4 7 Informality as an Entry Point into Employment: Worker Transitions in Morocco, Mexico, and Brazil 49 Stepping-Stone Sectors to Formality: Labor Mobilıty Cost Estimates for Morocco, Mexico, and Brazil 51 Labor Market Outcomes Vary by Job Separation Type 68 A Typology of Policies to Address Labor Adjustment Costs 79