Brazil: Labour Market Flexibility and Productivity, with Many Poor Jobs

Abstract

Labour market behaviour is of great importance to the performance of the economy. It affects the volume of employment created, the rate of unemployment and of productivity growth, the degree of conflict between agents, the amount of investment in training and qualification, and many other important variables which, together, determine the economic performance of a country or region. Much of the behaviour of these variables is largely related to what labour market economists call ‘labour market flexibility.’ Flexibility itself is directly linked to the costliness of the adjustment to different economic conditions. If there were no adjustment cost, adaptation to external economic changes would take place instantaneously, and labour market flexibility would not be an issue. But adjustment costs are high and pervasive. So, adjustment takes time and flexibility will not be complete.

This chapter was originally written for the project Labour Flexibility, Productivity and Adjustment, financed by IDRC. The author acknowledge the financial support of this institution. The author is also grateful to the very helpful comments to an original version of the paper made by the participants of the project workshop held at the University of Toronto. In particular, E. Amadeo, A. Berry, A. Handa, M. Gunderson, S. Horton, G. Indart, G. McMahon and F. Zapata provided very important suggestions during the discussion and in written form. Their suggestions greatly improved the quality of the chapter. Any errors that persist in the analysis are not in any way their fault.