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Determinants of Labor Demand in Colombia: 1976-1996

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  • Mauricio Cardenas
  • Raquel Bernal

Abstract

Colombia's unemployment rate rose to 20% during the late 1990s from less than 8% in 1994. This paper argues that this has been the result of high non-wage labor costs embodied in the legislation. The estimated own-wage labor demand elasticity is around 0.5, which implies that a reduction in those costs, while politically costly, can have a significant payoff in terms of equity and efficiency. We also find that adjustment costs of changing employment as well as wage elasticities were not affected by changes in the regulations regarding severance payments and dismissal costs. In this sense, structural reforms did have an impact on labor demand through its effect on relative prices alone. Finally, we conclude that the wage elasticity of labor demand increases (in absolute terms) during contractions. Hence, the increase in prices and the beginning of a recession had a significant effect on employment.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10077.

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Date of creation: Nov 2003
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Publication status: published as Heckman, James J. and Carmen Pages (eds.) Law and employment: Lessons from Latin America and the Caribbean, NBER Conference Report series. Chicago and London: University of Chicago Press, 2004.
Handle: RePEc:nbr:nberwo:10077

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  1. David G. Blanchflower & Andrew J. Oswald, 1995. "The Wage Curve," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 026202375x, December.
  2. Hamermesh, Daniel S., 1987. "The demand for labor in the long run," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 8, pages 429-471 Elsevier.
  3. Newell, A. & Symons, J. S. V., 1987. "Corporatism, laissez-faire and the rise in unemployment," European Economic Review, Elsevier, Elsevier, vol. 31(3), pages 567-601, April.
  4. Eduardo Lora & Carmen Pagés-Serra, 1997. "La legislación laboral en el proceso de reformas estructurales de América Latina y el Caribe," Research Department Publications, Inter-American Development Bank, Research Department 4065, Inter-American Development Bank, Research Department.
  5. Gruber, Jonathan, 1997. "The Incidence of Payroll Taxation: Evidence from Chile," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 15(3), pages S72-101, July.
  6. Burgess, Simon M & Dolado, Juan J, 1989. "Intertemporal Rules with Variable Speed of Adjustment: An Application to U.K. Manufacturing Employment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 99(396), pages 347-65, June.
  7. Burda, Michael C., 1991. "Monopolistic competition, costs of adjustment, and the behavior of European manufacturing employment," European Economic Review, Elsevier, Elsevier, vol. 35(1), pages 61-79, January.
  8. Mauricio Cárdenas & Mauricio Olivera, 1995. "La Crítica de Lucas y la inversión en Colombia: Nueva Evidencia," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, BANCO DE LA REPÚBLICA - ESPE.
  9. Diewert, W E, 1971. "An Application of the Shephard Duality Theorem: A Generalized Leontief Production Function," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 79(3), pages 481-507, May-June.
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