The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

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This paper selectively synthesizes much of the research on Latin American and Caribbean labor markets in recent years. Several themes emerge that are particularly relevant to on going policy dialogues. First, labor legislation matters, but markets may be less segmented than previously thought. The impetus to voluntary informality, which appears to be a substantial fraction of the sector, implies that the design of social safety nets and labor legislation needs to take a more integrated view of the labor market taking into account the cost-benefit analysis workers and firms make about whether to interact with formal institutions. Second, the impact of labor market institutions on productivity growth has probably been underemphasized. Draconian firing restrictions increase litigation and uncertainty surrounding worker separations, reduce turnover and job creation, and poorly protect workers. But theory and anecdotal evidence also suggest that they, and other related state or union induced rigidities, may have an even greater disincentive effect on technological adoption, which accounts for half of economic growth. Finally institutions can affect poverty and equity, although the effects seem generally small and channels are not always clear. Overall, the present constellation of labor regulations serves workers and firms poorly and both could benefit from substantial reform.

Quality of education is a determining factor in competitiveness. In order to globally compete, Mexico would have to raise its standards beyond its current low achievement. Several innovations at federal and state levels have been developed to raise the quality of basic education. One example is Carrera Magisterial (CM), which is a professional development program that was created as part of the National Agreement for the Modernization of Basic Education in 1992. This program is aimed at raising the quality of basic education through teachers' professional training, new learning presence in schools and improving working and salary conditions. This paper evaluates the impact of CM. It shows several important results. First, teacher's enrollment in the CM program has a positive impact on learning achievement. Second, family characteristics are important in explaining students' achievement. Third, investment in primary school teachers is most effective when targeted toward increasing teachers' practical experience and developing content-specific knowledge. Fourth, students in schools with a high degree of supervision on the part of the school principal achieve better scores. World Bank Policy Research Working Paper 3236, March 2004The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author. They do not necessarily represent the view of the government of Mexico, World Bank, its Executive Directors, or the countries they represent. Policy Research Working Papers are available online at http://econ.worldbank.org.

While there have been numerous impact evaluations of unemployed individuals participating in retraining programs or in programs to foster self-employment, impact evaluations of enterprises benefiting from training programs for small and medium enterprises (SMes) are rare. The authors reevaluate the impact of the largest SME program in Mexico, the Comprehensive Quality and Modernization Program (CIMO). They show that compared to the control group, CIMO firms increased investments in worker training, had higher rates of capacity utilization, and were more likely to adopt quality practices. The evidence also suggests that these improved intermediate outcomes were associated with increased productivity growth among CIMO participants, impacts that were especially strong throughout the 1991-93 period. However, the productivity impacts of CIMO are not apparent in the 1993-95 period.This paper -a collaborative product of the World Bank Institute and the Poverty Sector Unit, Latin America and Caribbean Region -was prepared as part of the World Bank Report (2004) on "How Well Do SME Programs Work? Evaluating Mexico's SME Programs Using Panel Firm Data" and is also part of larger effort in the region to study small and medium enterprise (SME) development and evaluate policy interventions to promote SME productivity and competitiveness. Copies of the paper are available free from the World Bank,