Macroeconomic Shocks, Inflation, and Latin America’s Labor Market

This paper looks at how macroeconomic volatility is transmitted to the labor market. It estimates employment, unemployment, and wage Okun coefficients and uses them to show that, compared with industrial countries, Latin American countries adjust to shocks more through wages than through employment. It shows that inflation plays some role in explaining the difference between em-ployment elasticity in Latin America and industrial countries but that there is a difference between the two regions that cannot be explained away by differences in inflation. When focusing on Latin America, the paper finds that

within

Latin America, inflation increases labor market flexibility in countries that have highly regulated labor markets and that enforce regulations.