Labor Markets in Latin America: A Suppy-Side Story

This work shows that the factors affecting labor supply have been key determinants of the changes in employment, unemployment and income differentials taking place in Latin America in the 1990s. The two main forces driving labor supply in the region have been demographics and education. The following demographic trends have had significant effects on the labor market: C The rate of population growth is slowing. During the 1960s the growth rate was 2.7% each year, but during the 1990s the pace has fallen to slightly less than 1.6%. C The new generations entering the workforce are successively smaller. Between the 1980s and 1990s, the population share of 15-24 year olds declined by 10%. C Latin America is ageing. The population share of older age groups is increasing. Thirty years ago 31% of the population was between 20 and 44 years of age, but by 1997, this proportion had reached almost 40%. There have also been important changes in schooling: C Although the young are more educated than the old, progress in education has been strikingly slow. The level of education among adults has only increased from an average of four years to around eight years during the past 40 years. Today, the typical 18 year old still only completes fewer than seven years of schooling. C The historical gap between male and female schooling has been eliminated in most countries, and in many cases women are now completing more years of school than men. C The overall educational differences within most countries have increased, in spite of improvements in the distribution of education within the youngest generations. The trends in demographics and education have caused a reduction in the growth rate of the labor force: C One of the main causes of the reduction in employment growth has been that the annual growth of the working age population declined from around 3% in the 1980s to 2.5% in the 1990s. This deceleration was caused by declines in fertility in previous decades. C Employment growth in the 1990s was also lower because of changes in female labor participation rates. Whereas in the 1980s the proportion of females participating in the labor market increased by 34% (from 29% to 39%); between 1990 and 1996 their participation rates increased by only 12% (from 39% to 44%). This deceleration was the net result of changes in female education, declines in fertility, and a shift …