Julián Messina

Employment Protection Legislation, Capital Investment and Access to Credit: Evidence from Italy

Employment protection may affect both productivity and capital investment because higher adjustments costs hamper allocative efficiency and may therefore affect both the optimal capital labor input mix and total factor productivity. To estimate the impact of dismissal costs on capital deepening and productivity we exploit a reform that introduced unjust-dismissal costs in Italy for firms below 15 employees, leaving firing costs unchanged for bigger firms. We provide evidence that the increase in firing costs induced capital deepening and a decline in total factor productivity in small firms relative to larger firms after the reform. We also find that capital deepening is more pronounced at the low-end of the capital distribution - where the reform arguably hit harder - and among firms endowed with a larger amount of liquid resources, that have more room to react thanks to an easier access to the credit market. Our results also indicate that the EPL reform reduced the probability to access the credit market, possibly because stricter EPL reduces both the value of the firm and the amount of internal resources that the firm can pledge as collateral against lenders.

Wage Inequality in Latin America

What caused the decline in wage inequality of the 2000s in Latin America? Looking to the future, will the current economic slowdown be regressive? Wage Inequality in Latin America: Understanding the Past to Prepare for the Future addresses these two questions by reviewing relevant literature and providing new evidence on what author know from the conceptual, empirical, and policy perspectives. The answer to the first question can be broken down into several parts, although the bottom line is that the changes in wage inequality resulted from a combination of three forces: (a) education expansion and its effect on falling returns to skill (the supply-side story); (b) shifts in aggregate domestic demand; and (c) exchange rate appreciation from the commodity boom and the associated shift to the non tradable sector that changed inter firm wage differences. Other forces had a non-negligible but secondary role in some countries, while they were not present in others. These include the rapid increase of the minimum wage and a rapid trend toward formalization of employment, which played a supporting role but only during the boom. Understanding the forces behind recent trends also helps to shed light on the second question. The analysis in this volume suggests that the economic slowdown is putting the brakes on the reduction of inequality in Latin America and will likely continue to do so—but it might not actually reverse the region’s movement toward less wage inequality.

Minimum Wage: Does it Improve Welfare in Thailand?

We study the causal impact of the minimum wage on employment and welfare in Thailand using a difference-in-difference approach that relies on exogenous policy variation in minimum wages across provinces. We find that minimum-wage increases have small disemployment effects on female, elderly, and less-educated workers and large positive effects on the wages of prime-age male workers. As such, increases in the minimum wage are associated with increases in household consumption per capita in general, but the consumption increase is greatest among those households around the median of the distribution. In fact, rises in the minimum wage increased inequality in consumption per capita within the bottom half of the distribution.

The Expansion of Higher Education in Colombia: Bad Students or Bad Programs?

A rapid expansion in the demand for post-secondary education triggered an unprecedented boom of higher education programs in Colombia, possibly deteriorating quality. This paper uses rich administrative data matching school admission information, socio-economic characteristics of the young graduates, standardized test scores pre- and post-tertiary education and entry wages, to assess the heterogeneity in the value added generated by new higher education programs. Our findings show that once we account for self-selection the penalty of attending a recently created program, which initially appeared to be quite large, becomes close to zero.

The Inequality Story in Latin America and the Caribbean: Searching for an Explanation

Income inequality is a salient economic malaise in Latin America and the Caribbean, where for decades it has been higher than in any other region in the world (Williamson 2015). A growing body of literature suggests that after a long period of growing or stagnant inequality, the trajectory of household income inequality shows a visible kink around 2003—rising during the 1990s and until about 2002, when it started to descend, a trend that was particularly steep during the boom period of 2003–2011 before flattening out during the post-2011 slowdown. This trajectory contrasts with that of Latin America and the Caribbean in previous periods or other regions in the same period (Alvaredo and Gasparini 2015; De Ferranti et al. 2004; De la Torre et al. 2014; Gasparini and Lustig 2011; Lopez-Calva and Lustig 2010).

Ageing Poorly? Accounting for the Decline in Earnings Inequality in Brazil, 1995-2012

The Gini coefficient of labor earnings in Brazil fell by nearly a fifth between 1995 and 2012, from 0.50 to 0.41. The decline in earnings inequality was even larger by other measures, with the 90-10 percentile ratio falling by almost 40 percent. Although the conventional explanation of a falling education premium did play a role, an RIF regression-based decomposition analysis suggests that the decline in returns to potential experience was the main factor behind lower wage disparities during the period. Substantial reductions in the gender, race, informality and urban-rural wage gaps, conditional on human capital and institutional variables, also contributed to the decline. Although rising minimum wages were equalizing during 2003-2012, they had the opposite effects during 1995-2003, because of declining compliance. Over the entire period, the direct effect of minimum wages on inequality was muted.