The per capita growth rate of Chile from 1984 to 1997 was among the highest in the world. During the last three years, however, per capita growth dropped significantly. This paper discusses the role of factor accumulation and factor productivity growth within a simple neoclassical growth model framework to explain the evolution of output in Chile for the past 20 years, including the decline in the rate of growth. In contrast to the experience of the 1980s and early 1990s, in the last three years the driving force has not been total factor productivity growth (or the lack thereof), but a severe fall in employment. This paper suggests that this fall in employment is associated to a higher cost of labor perceived by economic agents, plausibly related to a labor code reform debated during the 1999-2001 period, to increases in the minimum wage or, more generally, to higher uncertainty associated to political factors. In our model, the increase in the hiring cost is represented by a higher tax on labor of 6.75 percentage points, incorporated in 1999.
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Article provided by Instituto de Economía. Pontificia Universidad Católica de Chile. in its journal Cuadernos de Economía.
Find related papers by JEL classification: E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
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