This study explores how labor marketshave adjusted to temporary business cycle fluctuations since(at least) the 1990s. It focuses on how changes inmacroeconomic conditions affect the evolving nature oflabor-market adjustments on the other hand. The study paysparticular attention to the role of low inflation andinternational trade in shaping labor-market adjustment. Themain focus of the report is on employment, wages andinformality. The report analyzes how they are affected bybusiness cycles, and on how low inflation and the nature ofexternal shocks affects labor market dynamics. It isorganized as follows. Chapter 1 provides an overview of thecyclical macroeconomic behavior of wages in four LACcountries. Importantly, rather than examining the averagecyclical pattern of wages, it focuses on the time varyingpatterns in the relationship between wages, employment andoutput. The second part of Chapter 2 studies downward wagerigidities with sectoral data. Chapter 3 moves from wages toquantitative labor-market adjustments and attempts to theanswer what limits the expansion of formal employment inLAC? The chapter studies differences, similarities andlinkages between formal and informal employment over thebusiness cycle to understand the frustrating persistence ofinformal employment in the region. Chapter 4 takes a closelook at the adjustment of formal labor markets in NorthernMexico during the United States recession of 2008-09.Chapter 5 turns our attention to the distributional costs ofrecessions by examining how returns to schooling fluctuatewith the business cycle, and how they respond to differenttypes of economic shocks. Chapter 6 concludes with a briefsummary of the findings and some thoughts about policy implications.
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