Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/290056 
Year of Publication: 
2022
Series/Report no.: 
IDB Working Paper Series No. IDB-WP-1333
Publisher: 
Inter-American Development Bank (IDB), Washington, DC
Abstract: 
We study how policies that facilitate firm digital adoption shape the labor market and economic recovery from COVID-19 in a search and matching framework with firm entry and exit where salaried firms can adopt digital technologies and the labor market and firm structure embodies key features of Latin American economies. Using Mexico as a case study, we first show that the model quantitatively replicates the dynamics of the labor market and output at the onset of the COVID recession and in its aftermath, including the sharp decline in labor force participation and informal employment that is unique to the COVID recession. We then show that a policy-induced permanent reduction in the barriers to adopting digital technologies introduced at the trough of the recession bolsters the recovery of GDP, total employment, and labor income, and leads to a larger expansion in the share of formal employment compared to the no-policy scenario. In the long run, the economy exhibits a long-run reduction in total employment and labor force participation, but higher levels of GDP and labor income, greater average firm productivity, a larger formal employment share, and a marginally lower unemployment rate.
Subjects: 
COVID
Business cycles and labor search frictions
Self-employmentand informality
Unemployment
Labor force participation
Endogenous firm entry,Information and communications technologies (ICT)
Latin America
JEL: 
E24
J23
J24
J64
O14
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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