Determinants of Hourly Earnings in Ecuador: The Role of Labor Market Regulations

Ecuadorian labor costs are said to be high because of the existence of many mandated benefits. Using the 1994 Living Standards Measurement Survey, we show that the effect of these benefits is actually mitigated by a reduction of base earnings, that is, of the foundation on which they are paid. The reduction is larger in the private than in the public sector and is negligible for unionized workers. We also show that, in spite of mandated benefits, interindustry wage differentials are comparable to those of Bolivia, a country characterized by “flexible” labor markets but otherwise similar to Ecuador.