Global crisis: potential permanent effects of the crisis

As we have mentioned in previous notes, the global crisis will have an important impact on employment and salaries. The effect on one or the other depends on the labor supply elasticity and rigidities of wages. Economist in LAC have tried to measure the labor supply elasticity in economies with an important informal market and have tried to assess the impact of some rules, minimum wage for example, on the rigidity of wages. There are other important questions regarding the impact of a crisis in the labor markets, for example, what happen to people after displacement?

In an article, Gabriel Martínez, CISS´s General Secretary, and other co-authors found that after the Mexican crisis of 1995: i) some people could find another formal job, in many cases at a lower wage; ii) more people could find a job in economically active regions, that in the case of Mexico in those years were the border region; and iii) some people who lost their formal job were unable to find a new one (formal). This last effect was particular important for persons over 40 years old at the moment of the crisis.

Although the current crisis is different from the Mexican crisis in 1995 -- today involves almost all countries, these findings can be used to design social protection policies to the most vulnerable groups in order to avoid a permanent effect of the crisis.