A better policy framework for preventing, managing, and helping people recover from crises is crucial to lifting long-term growth and improving livelihoods in Latin America and the Caribbean (LAC). The need for this policy framework has never been more urgent as the region faces the monumental task of recovery from the worldwide COVID-19 (coronavirus) pandemic. Whether specific policy responses will deliver the expected growth dividends is an open question. The answer will depend on the underlying understanding of how labor markets adjust to crises and on the quality of the policies enacted.

This report studies how crises change labor market flows in the LAC region, assesses how these changes affect workers and the economy, and identifies key policy responses to the needs of working people in the wake of crises. It does so using two distinct but complementary lenses: the macroeconomic perspective, focused on the effects of cyclical fluctuations and crises on aggregate labor market flows, and the microeconomic perspective, focused on crises’ uneven effects across different workers, firms, and regions. The report brings together the main findings of a large research project involving ten background papers focused on the dynamics of labor adjustments in the LAC region in the wake of shocks, the long-term implications of short-term shocks and their driving mechanisms, and the effects of policies on labor market adjustments. It uses household and labor force surveys (cross-sectional and panel), longitudinal employeremployee matched data, and analysis of national accounts to assess labor market dynamics. It also exploits firm shocks stemming from crises in order to quantify their impacts on labor markets, disentangling their effects from those of concomitant secular forces that also affect employment and productivity over long horizons. Finally, it develops structural models and explores rare quasinatural experiments to assess the welfare implications of crises and to derive better policy responses to them.