BOX 4.1 Active Labor Market Policies and Programs in Developing Countries and Their Impacts In Latin America, most labor market programs are not trade-specific. They instead offer general assistance that can help eligible firms boost their productivity and competitiveness or maintain their employment levels. Overall, the programs tend to be effective at supporting displaced workers. In Mexico, the PROCAMPO program was established in 1993 to compensate for expected price declines in crops after the initiation of the North American Free Trade Agreement (NAFTA). It provided farmers with cash transfers and covered 90 percent of Mexico’s cultivated area (Lederman, Lopez-Acevedo, and Savchenko 2014). In Vietnam, the unemployment insurance program was established after the financial crisis of 2008 and later expanded to cover most workers in the formal economy (Cutler and Bell 2018). To receive benefits, workers had to have been laid off from a firm experiencing a business downturn or a natural disaster. Although benefits include a basic salary, childcare bonuses, job search allowances, and job training, coverage is limited, given Vietnam’s large informal economy. Over the years, a growing number of workers have claimed the unemployment insurance. At least one study finds that the reemployment rate is not high. A major opportunity area for the government is to improve the quality of and access to training because less than 5 percent of all people receiving the unemployment allowance receive vocational training (Ngo 2016). In China, a universal unemployment insurance scheme was established in 1986 to protect displaced workers from the large-scale privatization of many state-owned enterprises. The program was later expanded to include private firms and other public firms, farmers, and, recently, migrant workers (Cutler and Bell 2018). The goal was to encourage further migration from rural areas to cities, and this worked. The benefits include unemployment insurance payments, medical subsidies, coverage of daily expenses, and possible job training to improve employment qualifications and help workers find reemployment (Lee 2000). Coverage, however, is narrow, and the program has a weak role in promoting reemployment and preventing or stabilizing unemployment (ILO 2013). In addition, a trade adjustment program for firms was launched in 2017 in the Shanghai Pilot Free Trade Zone. Its objective is to provide trade adjustment assistance (TAA) for firms experiencing losses as a result of trade frictions, following the rationale of TAA in other countries. TAA includes consulting, employee training, export credit insurance, and supply chain and risk management for two years. Given the TAA program’s recent implementation, its efficacy on helping firms is still uncertain. In India, the information technology (IT) boom of the 1990s and 2000s resulted in a shortage of skilled workers, causing the Indian government to establish public IT colleges in less-developed areas that also struggled to attract private IT colleges. Ghose (2019) reviews the impact of this intervention and finds that it increased the supply of workers with IT skills, provided educational opportunities to less-favored communities, and helped reduce income inequalities. In Africa, the literature on adjustment programs is more limited, but a recent World Trade Organization volume, Making Globalization More Inclusive (Bacchetta, Milet, and Monteiro 2019) offers evidence from Morocco. BeIghazi and Berbich (2019) review labor market adjustment policies adopted in response to the 2008 financial crisis to support jobs in the textile, clothing, leather, and footwear industries. They find that only a small number of firms and workers benefited from the scheme and that it failed to address key competitive risks by firms, including competition from smuggling and informal sector firms, as well as the declining attractiveness of the sector to younger workers.
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