Continental Europe and Eastern European countries. However it is higher than in the U.S, where it affects only 7.4 percent of the unemployed. The continued low rate may reflect the possibility to enter the informal sector and/or discouraged workers moving into inactivity (IADB) although Bosch and Maloney (2004) find that such movements tend to be procyclical, for example, reaching their nadir during the crisis in Mexico.

**_Part of the fall in employment and rise in unemployment the early 2000s may be due to decreased downward real flexibility of wages and the unfinished business of macro stabilization_** _._ As Gonzalez (1999) has noted, lower inflation rates throughout the region  imply that the adjustment to a recession occurs through quantities instead of prices as might traditionally have occurred.  This loss of flexibility also implies that other rigidities may have become more binding.  More generally, many countries have been struggling with managing the expectations generated by the unfinished business of macro stabilization, including rigidities introduced by employing exchange rate anchors, the disruption caused by their traumatic abandonment, or recessions associated with the collapse of under regulated financial sectors.

**_Despite growth in employment during the nineties, the share of workers covered by formal sector benefits has diminished._** As summarized in Saavedra (2003), several characteristics that may be related to job quality showed negative trends.  The percentage of workers with access to health and pension benefits has diminished in most countries, the share of temporary contracts within the formal sector has increased, and turnover has generally increased.

# **b. Trade Liberalization**<sup>**4**</sup>

In many countries, globalization has received special attention as a cause of increased unemployment. Isolating the impact of trade reform is complex since cuts in tariffs and quotas have occurred concomitant with, and in fact, as parts of stabilization plans seeking to eliminate the adverse expectational consequences of long standing macroeconomic balances. That said:

**_Increased openness does not appear correlated with unemployment:_** Beyond the initial adjustments there appears to be little evidence to indict trade reforms for causing higher rates of unemployment.  Anecdotally the region’s more aggressive trade integrators - Chile and Mexico - have, if anything, among the most modest rates of unemployment. Marquez and Pages (1998) argue that while liberalization appeared to reduce employment per unit, the expansion of production makes the overall impact of liberalization on employment statistically insignificant. In fact, IADB (2003), using household surveys for 10 countries, argued that it increased employment and did not have any significant impact on unemployment.  Their overall conclusion is consistent with the finding that, internationally, there is no significant relationship between openness of countries (exports plus imports over output) and their levels of unemployment.

**_Or with  informality._** The tendency towards somewhat higher informality does not seem particularly due to trade.  Though the sector has absorbed some of the workers displaced by foreign competition, this is probably not the entire story as discussed below.  Argentina has seen a rise in informal salaried work (Gasparini 2000) but the trend predates liberalization by half a decade suggesting other forces.  More exposed sectors tend to be more formal throughout the region and there is relatively

> 4 This section draws heavily on Maloney (2002).

3