Talent allocation, gender disparities and post‐reform economic growth in Central America

Abstract From 1995 to 2015, Costa Rica, El Salvador and Panama underwent significant labour market transformations, particularly in the occupational distribution and participation of women. This paper examines these shifts through an occupational choice model, focusing on three key frictions affecting efficient talent allocation: labour market discrimination, barriers to human capital accumulation, and restrictive social norms. The findings reveal that improved talent allocation drove economic growth in Costa Rica and Panama, primarily due to reductions in barriers to human capital accumulation. In contrast, labour market discrimination intensified, supporting the retaliatory hypothesis and creating headwinds for growth. The aggregate effects in El Salvador are relatively mild and noisy, making it difficult to pin down the impact qualitatively. Nonetheless, prevailing social norms around market work have precipitated sharply in El Salvador for both genders, creating a significant impediment to growth.