How do Labor Unions Affect Inequality and Efficiency in Latin America and the Caribbean?

Mar 30, 2021

This paper posits that we have a limited understanding, both theoretically and empirically, of how labor unions affect welfare in the LAC region. Alternative approaches developed in other contexts, such as the neoclassical insider-outsider theory or a Marxist perspective, do not easily translate to the region. The private sector is more concentrated than on other continents, and most countries have a strong executive power at the expense of a politicized civil service and weak political parties. Furthermore, non-compliance with laws is pervasive. In such a context, both public and private sector labor unions have more room to improve welfare, but are also more likely to be co-opted by powerful political and economic elites. In addition, the available empirical evidence is relatively small and difficult to interpret due to endogeneity concerns. Given this situation, I attempt to contribute to the literature in three dimensions: First, I emphasize the importance of enforcement and compliance. Second, I devote substantial space to the political arena, mainly because this is where labor unions in the region tend to exert more influence over efficiency and equity. Finally, I provide a few novel metrics to a subject that is difficult to quantify.

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