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Evaluating Labor Market Flexibility in Chile from an International Perspective

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  • Elías Albagli I.
  • Pablo García S.
  • Jorge Restrepo L.

Abstract

We rank Chile in terms of labor market flexibility among a group that includes both OECD and emerging economies. We use a performance-based indicator of labor-market flexibility based on the half life of unemployment responses to macroeconomic shocks. This indicator captures the cyclical behavior of the labor market and is obtained by estimating a structural VAR (SVAR). The SVAR is identified using long-run restrictions, which are based on a simple open-economy model with labor-market rigidity. We found that Korea, Hong Kong, Chile, US, and Mexico are the most flexible economies. At the other end, our index indicates that Germany, Sweden, Spain and Colombia are the most rigid labor markets.

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Bibliographic Info

Article provided by Central Bank of Chile in its journal Economía Chilena.

Volume (Year): 7 (2004)
Issue (Month): 2 (August)
Pages: 27-46

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Handle: RePEc:chb:bcchec:v:7:y:2004:i:2:p:27-46

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  1. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, September.
  2. Clarida, Richard & Galí, Jordi, 1994. "Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?," CEPR Discussion Papers 951, C.E.P.R. Discussion Papers.
  3. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbance," Working papers 497, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Benkwitz, Alexander & Lütkepohl, Helmut & Wolters, Jürgen, 1999. "Comparison of bootstrap confidence intervals for impulse responses of German monetary systems," SFB 373 Discussion Papers 1999,29, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  5. Elías Albagli & Pablo García & Jorge Restrepo, 2004. "Labor Market Rigidity and Structural Shocks: An Open-Economy Approach for International Comparisons," Working Papers Central Bank of Chile 263, Central Bank of Chile.
  6. Dolado, Juan J. & Jimeno, Juan F., 1997. "The causes of Spanish unemployment: A structural VAR approach," European Economic Review, Elsevier, vol. 41(7), pages 1281-1307, July.
  7. Olivier Blanchard & Lawrence F. Katz, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter.
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