Peru Labor Market Study. Background Paper on Labor Productivity. Final Report.

The evidence at the micro level shows, that in the booming period, the rate of growth of labor productivity of the manufacturing sector is mainly explained by the labor productivity rate of growth of formal medium and large size firms rather than for nonfarm informal microenterprises of the urban sector. On the other hand, the reallocation of employment within the manufacturing formal sector also has played an important role in the labor productivity rate of growth of this sector, in particular from firms which decreased their level of employment. With regard to the informal micro-enterprises (IME) in urban areas accounting for a significant proportion of the workforce, in the booming period 2002-2007 employment of the whole IMEs sector have grown at annual rates higher than the overall economy but the value added grown at a lower rate. As a consequence, the average product of labor (i.e. value added per worker) declined during this period. Consequently, productivity growth in the economy in this period, in contrast with the behavior of the IMEs, is a result of productivity growth in the formal sector (modern establishments with relatively larger size). As it is shown in the paper, this has been the case for the manufacturing sector. JEL Classification-JEL: J21, J23, J24, J42, J46