From the lost decade to the lost reform: the "Washington Consensus" and labor market reform in Latin America

Available from: 
October 2013
Paper author(s): 
Pablo Egaña del Sol (Columbia University)
Alejandro Micco (Universidad de Chile)

After the "Lost Decade" Latin America and the Caribbean initiated a complex reform process. Democracies returned to the continent and countries moved away from the import substitution model. The so-called “Washington Consensus” spread through Latin America. Most countries were able to pass pro-market reforms in most areas with the exception of labor markets. This paper rationalizes this phenomenon. Only once sound macroeconomic policies were in place and most countries opened their economies, labor market issues become obstacles for future growth. But the momentum for pro-market reforms had waned. Lack of transparency in reforms, in particular as regards privatization and poor performance in labor markets, reduced support for pro-market reforms. The "Washington Consensus" became a bad word. High levels of informality, reducing regulation burden, and a lack of public support, in particular the opposition of unions, persuade against any attempt to extend reforms to labor markets. By 2010, labor markets are characterized by low participation rates and a high level of informality.


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Research section: 
Lacea 2013 annual meeting
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