Do labor market regulations affect labor earnings in Ecuador?
Author InfoMacIsaac, Donna Rama, Martin Abstract The authors use the 1994 Living Standards Measurement Survey to show that the impact of labor market regulations, namely mandated benefits, is mitigated by reducing the base earnings on which they are calculated. Therefore, market regulation neither accounts for labor market segmentation nor for slow growth and increased inequality alone. Ecuador’s regulations do raise take-home pay, but less than the vast number of benefits would suggest. The increase in labor costs induced by compliance is even smaller than the corresponding increase in take-home pay, because mandated benefits are not subject to social security contributions or payroll taxes. Despite mandated benefits, wage differentials between industries are comparable to those in Bolivia, a country otherwise similar to Ecuador, yet known to have”flexible”labor markets. Compliance with these regulations is associated with significantly higher take-home pay only in the public sector a
