Labor Flexibilization and Employment Sorting
Published:
I study Peru’s 2021 agrarian reform to examine who bears the cost of mandated benefits when firms have wage-setting power. The reform increased non-wage labor costs for covered agrarian and agroindustrial firms, while formal employment rose, cash wages stayed roughly flat, and pre-tax profit margins fell. I argue that this pattern is difficult to reconcile with competitive incidence, but consistent with benefit mandates redistributing part of firm rents when cash wages are constrained by a statutory wage floor.