Arepas are not tacos : on the labor markets of Latin America

This paper examines labor markets across Latin American countries and documents large differences in labor market outcomes across these countries. Using comparable data for eight countries, we show that unemployment and informality act as substitute states and cluster countries into high-unemployment or high-informality groups. Labor market transitions vary systematically across these groups and help explain differences in employment dynamics. Embedding country-specific transitions in a simple model, we show that these differences have meaningful macroeconomic implications: countries with more volatile labor markets exhibit higher asset accumulation and greater consumption inequality. Moreover, heterogeneity in labor market transitions produces different effects on how taxation influences savings and inequality.