Because of protective labor laws, many firms will find it too costly to fire workers in spite of the difficult times. In this sense, the labor laws will be partially successful in protecting existing jobs.

On the other hand, firms will not be hiring either. Labor markets in the region will essentially freeze. Workers who have jobs will hold on to them, often to the detriment of productivity. Those who are looking for jobs will not find them, unless they are willing to work in the lower-paid informal sector.

The absence of labor mobility will prevent labor markets from making necessary adjustments and will prolong the negative effects of the crisis. Instead of trying to protect jobs through measures such as high severance payments, countries in the region might try to protect workers through unemployment insurance. Unemployment insurance provides social protection without restricting worker mobility and without hampering labor productivity. The implementation of unemployment insurance would be challenging, but the potential benefits are enormous.

The World Bank's Doing Business project presents a ranking of labor market flexibility. Bolivia and Venezuela have inflexible labor markets and will likely feel the effects of the crisis for years to come. Colombia and Chile have comparatively flexible labor markets and should recover more quickly. Chile, which offers modest unemployment insurance, may offer the best social protection as well.