Productivity growth and labor reallocation: Latin America versus East Asia

Abstract

Over the period 1963 to 2010, Latin American countries exhibit much slower de-agriculturalization than East Asian countries. The manufacturing employment share has been almost stagnant in Latin America, but exhibits a hump-shaped pattern in Korea and Taiwan. Both groups have moved increasingly toward service-based economies. A nine-sector general equilibrium model, treating sectoral productivity growth rates as exogenous, accounts for some of the differing sectoral allocations of employment in Latin America and East Asia over the sample period. I perform a series of experiments, replacing the sectoral labor productivity growth rates in each sector for each Latin American country with the corresponding growth rates in Korea and Taiwan. Low aggregate productivity growth in Latin America is an economy-wide phenomenon concerning all sectors; however, the findings highlight the possible importance of raising productivity in manufacturing and wholesale to have significant increases in aggregate productivity growth rates. I focus attention on the importance of the level of disaggregation in examining the relationship between labor productivity growth and sectoral movement of labor. Some evidence is presented in linking sectoral policies to productivity growth in Latin America and East Asia.