Question

In Latin America, high unemployment and underemployment maybe attributed to structural rigidity in wage adjustments and job security. (please expand on this/ (social policy))

Answer 1

Latin American Countries have used labour legislation as a tool for social policy for a long time. Minimum wages, measures to secure and protect jobs, heavy severance packages, laws against hiring replacements. These were used as vehicles for income transfer and to protect the poor. However all these laws and rules resulted in rigidity in the labour market. Labour distortions included setting wages, high cost of dismissal, high payroll taxes, labour management relationships. All these factors make restructuring very difficult for the management. An increase in job security results in decrease in the economy wide employment. This also effects the employment prospects for the young, female or skilled and unskilled workers thereby leading to inequality. Globalisation may transform the role of unions and the labour movement in Latin America. Many of the companies have now moved to a decentralised collective bargaining level this helps them to better negotiate the terms of the contract and productivity. However the rigidity of the workers still posses difficulties to the companies, apart from this health, social security, unemployment compensation benefits are also tied to the wages. Nations are therefore trying to create jobs rather than secure jobs through the help of Central Governments, Public or Private NGO's. The key here towards development would be through Globalisation, the right talent, innovation and better use of technology.Innovation leads in new learning activities which eventually leads to the growth of an economy which in this case is the need of the hour for Latin America.Global Financing must be used to strengthen local institutions thereby improving the environment overall in the region.