Employment and labor regulation: evidence from manufacturing firms in Bolivia, 1988-2007

Abstract

This paper analyzes the effects of labor regulation on employment for Bolivian registered manufacturing firms during 1988 to 2007. By estimating job flows we find that firms with high temporary worker rates (as a proxy of lower labor regulation costs) are those with both higher job reallocation rates and higher net employment growth, and only they contributed to employment growth during the country economic downturn, 1998-1999. In addition, by estimating demand functions we find that labor regulation changes (measured through the compulsory basic salary and the major labor costs derived from the new pension law) entailed costs in terms of permanent employment losses.