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Job Stability in Developing and Developed Countries: Evidence from Columbia and the United States

Jan 1998
Stanford King Center on Global Development Working Paper
18
This paper presents the first systematic comparison of job stability for developing and developed countries, and begins to analyze why long-lasting jobs are less prevalent in developing countries. It compares both cross-section distributions of current job tenure and estimates of job retention probabilities (derived by following synthetic cohorts over time) between Colombia and the United States, and within Colombia before and after a major liberalization of job security legislation. Jobs for males in private sector wage employment are significantly shorter in Colombia than in the United States. The most striking differences in job retention probabilities are for workers in their first year of tenure. Small increases in these low-tenure job retention rates after the liberalization of Colombian job security legislation are consistent with arguments that the original legislation encouraged "rotation" of low-tenure workers, but the effects are not large enough to suggest that legislative differences explain the entire cross-country retention rate difference. Cross-country job length differences diminish, but remain significant, after controlling simply for cross-country differences in the mix of production activities. Thus even when attempting to meet similar production objectives, Colombian employers seem to employ fewer long-term workers. This suggests that they face greater costs of implementing long-term employment contracts or the work organization practices that such contracts facilitate. The paper discusses possible reasons for such cost differences. Regardless of their source, higher costs of long-term employment contracting in developing countries may help explain why those countries exhibit higher rates of self-employment and employment in very small establishments, as well as lower levels and growth rates of labor productivity and GDP per capita.