New Economics Papers
on Central and South America
Issue of 2005‒02‒20
two papers chosen by

  1. Quantifying Latin American firms'exposure to external factors By Sergio Pernice; Mariano Fernández; María Alegre
  2. Labor Market Transitions in Peru By Javier Herrera; Gerardo David Rosas Shady

  1. By: Sergio Pernice; Mariano Fernández; María Alegre
    Abstract: This is the last of a series of three working papers analyzing the basic characteristics of the economic environment in which Latin American firms operate and the optimal design of incentive programs compatible with such environment. Executive pay-for-performance compensation schemes are usually based on stock returns. However, stock returns change in response to forces beyond management control (e.g., market crushes). The economic environment in which Latin American firms operate is highly unstable, which means that this is a very important limitation for Latin American firms. In the present paper, we present a procedure to decompose variability in stock returns in order to identify and measure components that respond to external factors beyond management control. For this, we have created indices that capture statistically the external influences that affect stock returns. We show how such indices can be used to construct a risk profile that allows management to know to what extent observed outcomes depend on external factors, versus their own actions. In addition, these indices can be used as a basis to develop "indexed options": financial instruments designed to factor out the effects of external risks, making it possible for executives to be evaluated only on the basis of the value they generate. We show that these indices can be developed out of purely local information, but that the solutions tend to be moderately unstable, which implies that compensation instruments developed with this methodology should be of relatively short maturity.
    Date: 2004–12
  2. By: Javier Herrera (DIAL, IRD, Paris); Gerardo David Rosas Shady (Inter American Development Bank, University of Paris 1 Panthéon-Sorbonne, DIAL)
    Abstract: (english) Traditional labor market analysis based solely on the net unemployment rate fails to explain the apparent paradox between a relatively moderate unemployment rate in Peru (around 10%, with a weak sensibility to wide macroeconomic fluctuations), and the fact that unemployment is one of the major issues in Peru. One possible explanation is that this static indicator of cross section net unemployment balance is compatible with high flows in and out of employment states. To address these issues we needed to conduct a dynamic analysis using panel data. Using the Peruvian national household survey (ENAHO), we constructed a panel of working age individuals at the national level for the period 1997-1999. Like previous work in developing countries, we found that there is an important degree of job mobility in Peru. We also found that most of the transitions occur between employment and inactivity instead of between employment and unemployment. We also showed that the rate of permanent unemployment is very low so that unemployment would be essentially a frictional phenomenon. Further, considering the different transition states, we elaborated an unconditional transition profile, including individual and household characteristics, like gender, age and education levels for example, associated with each transition status. Finally, after examining these labor market transitions and the possible sample selection bias, we estimated a multinomial logit model. This model allowed us to appreciate the (conditional) incidence of individual and household characteristics as well as the effects of different shocks on the labor transition states. _________________________________ (français) Les analyses traditionnelles du marché du travail s’avèrent incapables d’expliquer le paradoxe apparent entre un taux de chômage relativement modéré dans un pays tel que le Pérou (environ 10%, taux peu sensible aux fortes fluctuations macro-économiques) et la perception d’une grave crise de l’emploi. Une explication possible pourrait résider dans le fait que cet indicateur statique en coupe instantanée ne mesure pas les flux élevés entre les situations d’emploi et d’inemploi. Pour analyser ces questions, il est nécessaire de conduire une analyse dynamique sur données de panel. Nous avons ainsi construit un panel national d’individus en âge de travailler pour la période 1997-1999 à partir de l’enquête péruvienne auprès des ménages (ENAHO). Comme d’autres études réalisées dans des pays en développement, nous constatons qu’il existe une importante mobilité de l’emploi au Pérou. Nous trouvons également que la plupart des transitions interviennent entre emploi et inactivité plutôt qu’entre emploi et chômage. Le taux de chômage permanent apparaît très faible et le chômage serait donc essentiellement un phénomène frictionnel. Pour aller plus loin, nous avons élaborés des profils de transition inconditionnels, incluant les caractéristiques individuelles et du ménage, telles que le genre, l’âge, et le niveau d’éducation, associé avec chaque état de transition. Finalement, après avoir examiné ces transitions sur le marché du travail et les biais de sélection possibles, nous avons estimé un modèle logit multinomial. Ce modèle nous a permis d’apprécier l’incidence (conditionnelle) des caractéristiques individuelles et des ménages ainsi que des différents chocs sur les états de transition en matière d’emploi.
    Date: 2003–11

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