Labor Market in Latin America and the Caribbean: The Missing Reform

Abstract

After the "Lost Decade" Latin America and the Caribbean (LAC) initiated a complex reform process. Democracies returned to the continent and many countries moved away from the import substitution model (see Table 1). The so called “Washington Consensus” spread through Latin America and established three main ideas in economic policy: macroeconomic discipline, a market economy, and openness to the world, at least in respect of trade and foreign direct investment. These ideas, already a cornerstone in OECD countries at that time, were contrary to the previous Latin American economic thinkingThis earlier paradigm claimed first, that developing countries may benefit from inflation as a tax to boost investment; second that there is a leading role for the state in initiating industrialization; and third that import substitution was fundamental to getting rid of raw materials dependence. The new paradigm refuted all these ideas but surprisingly did not emphasize, or even mention as an important element, labor markets.