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The Labor Wedge and Business Cycle in Chile

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  • David Coble
  • Sebastián Faúndez

Abstract

Recent studies have documented the importance of the labor wedge in accounting for the level of business cycle fluctuations in Chile. None of these papers, however, extensively studies the labor wedge fluctuations and its possible sources. This paper takes a closer look at the labor wedge in Chile, with special emphasis on its cyclicality. We use a flexible model to implicitly derive the Frisch elasticity of labor, and construct a set of labor wedges. We find that the labor wedge in Chile is counter-cyclical. Finally, we show that the labor wedge can be written as the sum of two components: the firm's and the household's. We find that household component is the main driver of Chilean labor market fluctuations.

Suggested Citation

  • David Coble & Sebastián Faúndez, 2015. "The Labor Wedge and Business Cycle in Chile," Working Papers Central Bank of Chile 758, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:758
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    Cited by:

    1. Bergoeing, Raphael & Piguillem, Facundo, 2022. "Cooperatives versus traditional banks: the impact of interbank market exclusion," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    2. Stefano Banfi & Sekyu Choi, 2018. "Sorting On-line and On-time," Documentos de Trabajo 337, Centro de Economía Aplicada, Universidad de Chile.

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