Freeing up labor markets in Latin America

Fellow blogger Dave Kaplan makes a cogent point in a note on labor regulations in Latin America. He points out that on a net basis, making labor regulations more flexible in most countries will result in a net gain in employment. More workers will be fired, but even more workers will be hired as a result of increased flexibility (Table 1 below the jump). Only one country in the study (Nicaragua) would see no net gain, and a number of countries would see large net gains (e.g. Colombia and Paraguay).

The tricky part is that workers who already have jobs will be naturally opposed to more flexible labor regulations. But there is a better solution than rigid regulations that keep marginal workers out of formal labor markets. As Dave argues, unemployment insurance could go a long way to softening the blow for those who lose their jobs. You can read the full note here.