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Labor Market Distortions, Employment and Growth: The Recent Chilean Experience

Author

Listed:
  • Raphael Bergoeing
  • Felipe Morandé
  • Facundo Piguillem
Abstract
The per capita growth rate of Chile from 1984 to 1997 was among the highest in the world. During recent years, however, per capita growth dropped significantly. This paper discusses the role of factor accumulation and the efficiency with which factors are used, measured as total factor productivity (TFP), to explain the evolution of output in Chile during the past 20 years. In contrast with the experience of the 1980s and early 1990s, in recent years the primary determinant of the drop in output growth has not been a decline in TFP, but a severe fall in employment. Using a calibrated dynamic general equilibrium model based on the neoclassical growth model, with fluctuations in factor inputs induced by changes in TFP and relative input prices, we conclude that a 6.17% increase in the cost of labor hiring replicates the observed fall in employment. This fall, in turn, could be attributed to a perceived higher cost of labor services associated to both the significant increase in the minimum wage observed between 1998 and 2000, and a labor code reform, intensively debated during the 1999-2002 period.

Suggested Citation

  • Raphael Bergoeing & Felipe Morandé & Facundo Piguillem, 2003. "Labor Market Distortions, Employment and Growth: The Recent Chilean Experience," Documentos de Trabajo 169, Centro de Economía Aplicada, Universidad de Chile.
    • Handle: RePEc:edj:ceauch:169
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    Cited by:

    1. Alberto Naudon D. & Andrés Pérez M., 2018. "Unemployment dynamics in Chile: 1960-2015," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 21(1), pages 004-033, April.
    2. José Miguel Benavente & Cintia Külzer, 2008. "Creación y destrucción de empresas en Chile," Estudios de Economia, University of Chile, Department of Economics, vol. 35(2 Year 20), pages 195-214, December.
    3. Elías Albagli & Pablo García & Jorge E. Restrepo, 2005. "Assessing the Flexibility of the Labor Market in Chile: An International Perspective," Central Banking, Analysis, and Economic Policies Book Series, in: Jorge Restrepo & Andrea Tokman R. & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Edi (ed.),Labor Markets and Institutions, edition 1, volume 8, chapter 9, pages 301-328, Central Bank of Chile.
    4. Rómulo A. Chumacero & Klaus Schmidt-Hebbel, 2005. "General Equilibrium Models: An Overview," Central Banking, Analysis, and Economic Policies Book Series, in: Rómulo A. Chumacero & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (S (ed.),General Equilibrium Models for the Chilean Economy, edition 1, volume 9, chapter 1, pages 001-027, Central Bank of Chile.
    5. Javier Contreras-Reyes & Byron Idrovo, 2011. "En busca de un modelo Benchmark univariado para predecir la tasa de desempleo," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID, December.

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    More about this item

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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