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Labor Market Adjustment in Chile

Author

Listed:
  • Kevin Cowan
  • Alejandro Micco
  • Carmen Pagés

Abstract

This paper examines the reasons behind the sudden increase and the slow recovery of unemployment in Chile after the economic slowdown that took place in 1998 as a result of the Asian Crisis. To do so, we analyze the response of employment and wages to this economic shock and show that Chile exhibits substantial wage rigidity. We argue that a large increase in minimum wages, pre-determined before the slowdown, and a widespread practice of negotiating inflation-indexed long-term wage contracts prevented wages from adjusting to the changing economic conditions and slowed down employment growth.

Suggested Citation

  • Kevin Cowan & Alejandro Micco & Carmen Pagés, 2004. "Labor Market Adjustment in Chile," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2004), pages 183-218, August.
    • Handle: RePEc:col:000425:008667
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    Citations

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    Cited by:

    1. Meghan J. Millea & Jon P. Rezek & Brian Shoup & Joshua Pitts, 2017. "Minimum Wages in a Segmented Labor Market: Evidence from South Africa," Journal of Labor Research, Springer, vol. 38(3), pages 335-359, September.
    2. Andalón, Mabel & Pagés, Carmen, 2008. "Minimum Wages in Kenya," IZA Discussion Papers 3390, Institute of Labor Economics (IZA).
    3. World Bank, 2007. "Chile : Investment Climate Assessment, Volume 1. Executive Summary and Policy Recommendations," World Bank Publications - Reports 7695, The World Bank Group.
    4. World Bank, 2007. "Chile : Investment Climate Assessment, Volume 2. Background Chapters," World Bank Publications - Reports 7716, The World Bank Group.
    5. Macarena García & Alberto Naudon, 2012. "Dinámica Laboral en Chile," Working Papers Central Bank of Chile 659, Central Bank of Chile.
    6. Gonzalo Castex & Miguel Ricaurte, 2011. "Self – Employment, Labor Market Rigidities and Unemployment Over the Business Cycle," Working Papers Central Bank of Chile 650, Central Bank of Chile.
    7. Jaime Gatica & Pilar Romaguera, 2005. "El Mercado Laboral en Chile Nuevos Temas y Desafíos," Documentos de Trabajo 210, Centro de Economía Aplicada, Universidad de Chile.

    More about this item

    Keywords

    Response to Asian crisis; wage rigidity; employment; Chile;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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