Evaluating two active labor market policies (ALMPs) and the role of referrals in developing countries

There is a close relationship between poverty and social and labor exclusion. Active labor market policies (ALMPs) usually target people who have difficulties in finding employment. In developing countries, ALMPs offer a diverse set of programs, including classroom training and payroll tax cuts to h...

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Autores:: Aristizabal Giraldo, Danilo Esteban

Tipo de recurso:: Doctoral thesis

Fecha de publicación:: 2024

Institución:: Universidad de los Andes

Repositorio:: Séneca: repositorio Uniandes

Idioma:: eng

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Summary:	There is a close relationship between poverty and social and labor exclusion. Active labor market policies (ALMPs) usually target people who have difficulties in finding employment. In developing countries, ALMPs offer a diverse set of programs, including classroom training and payroll tax cuts to help to increase labor productivity, and increase formal employment. My thesis presents three studies evaluating two ALMPs and the role of referrals on labor market outcomes in developing countries. My first chapter analyzes the effect of a training component of a labor intermediation policy (LIP) called Boost to Employment (BE) on the probability of finding a formal job for vulnerable unemployed workers in a developing country. To mitigate the selection problem I instrument for whether an unemployed worker who participated in BE received the training component of the program with a measure of leniency from their labor counselor. The labor counselor determined whether the job seeker received only labor orientation or labor orientation plus the training component of the program. I find that participants who received the formal job benefits course have better results in terms of finding a formal job, than participants who received any other course or that did not receive the training component of BE. This result gives evidence that explaining to job-seekers the value of formality seemed to have increased the job search intensity in the formal sector, which is then reflected in the increased probability of finding a formal job. Nevertheless, since FBC is being compared against being assigned to any other courses or against not being assigned to any course at all, I cannot determine in which of these two margins FBC is better (by margins, I mean (i) FBC vs. other courses, and (ii) FBC vs. no course). It could be that FBC course is better than receiving nothing, but it may not have much effect compared to other courses (or vice versa). However, this cannot be disaggregated with the available methodology and data. In conclusion, I know that FBC has a positive effect, but I do not know who it effectively benefits. The second chapter (with Eduard Martinez) studies the effect on labor market outcomes of a payroll tax cut for new hires of young workers under the age of 28 in an economy with a high binding minimum wage. We use exposure to wage rigidities to identify the effect. We measure an individual's exposure to wage rigidities as the gap between the median salary, in the city in which the individual lives, and the minimum wage set at the national level. We use a difference-in-difference model. The effect of a payroll tax cut is asymmetric for youth who face labor markets with a binding minimum wage and those who do not. Reducing payroll taxes increased the probability of being formally employed given that the person is employed by 16% and increased the probability of participating in the labor market by 5% for young people under 28 compared to people above 28. Pass through effect are null which is consistent with a labor market with high wage rigidities. The third chapter studies how salaried workers use job referrals to find their jobs and their correlation with wages in developing countries. This chapter contributes to the literature of job referrals and labor market outcomes showing that job referrals pay a premium or penalty to workers depending on whether the minimum wage is binding or not. I show that in Mexico where the median wage is 40% the minimum wage, salaried workers who used job referrals as the principal way to get their current job report earning higher wages than salaried workers who used other methods of search. In contrast, in Colombia where the median wage is 90% the minimum wage, workers who used job referrals as the principal search method have a wage penalty. This chapter explores a mechanism to try to reconcile these two different stories. I argue that a possible reason for these different results is that workers use job referrals for different reasons, depending whether it is easy or hard to find employment.

Evaluating two active labor market policies (ALMPs) and the role of referrals in developing countries

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