THE LABOR-MARKET AND ECONOMIC ADJUSTMENT

This paper examines the role of the labor market in the transmission p rocess of adjustment policies in developing countries. It begins by re viewing the recent evidence regarding the functioning of these markets . it then studies the implications of wage inertia, nominal contracts, labor market segmentation, and impediments to labor mobility for stab ilization policies. The effect of labor market reforms on the flexibil ity of the labor market and the evidence regarding the wage and employ ment effects of trade reform are discussed next. The last part of the paper identifies a variety of issues that may require further investig ation.