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Labor Market Dynamic in Chile:The Role of the Terms of Trade

  • Juan Pablo Medina
  • Alberto Naudon

This paper explores some of the channels through which the terms of trade influence the labor market in an emerging economy like Chile. To do so, we analyze the cyclical properties of labor variables using an autoregressive vector to estimate the responses of the labor market to a terms of trade shock in Chile, for which two sources are defined: the mining industry and other sectors. We also develop a multiple sector model with search frictions that generates fluctuations in the rate of unemployment. Using a version of the model calibrated for Chile, we analyze its capacity to replicate the observed responses of the labor market to terms of trade fluctuations. We find that the model can qualitatively predict the effects of innovations in the terms of trade on the labor variables. However, from a quantitative standpoint, the base model is unable to replicate all the estimated responses of the labor market variables to the terms of trade. Alternative versions of the model are used to examine what elements are required to have quantitative predictions that are similar to the estimations.

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File URL: http://www.bcentral.cl/eng/studies/economia-chilena/2012/apr/recv15n1abr2012pp32-75.pdf
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Article provided by Central Bank of Chile in its journal Economía Chilena.

Volume (Year): 15 (2012)
Issue (Month): 1 (April)
Pages: 32-75

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Handle: RePEc:chb:bcchec:v:15:y:2012:i:1:p:32-75
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  1. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  2. Yu Sheng & Xingpeng Xu, 2007. "Terms of Trade Shocks and Endogenous Search Unemployment: A Two-sector Model with Non-Traded goods," DEGIT Conference Papers c012_025, DEGIT, Dynamics, Economic Growth, and International Trade.
  3. Robert E. Hall, 2005. "Employment Fluctuations with Equilibrium Wage Stickiness," American Economic Review, American Economic Association, vol. 95(1), pages 50-65, March.
  4. Silva, José Ignacio & Toledo, Manuel, 2009. "Labor Turnover Costs And The Cyclical Behavior Of Vacancies And Unemployment," Macroeconomic Dynamics, Cambridge University Press, vol. 13(S1), pages 76-96, May.
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  7. Ingrid Jones & Alberto Naudon, 2009. "Dinámica Laboral y Evolución del Desempleo en Chile," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 12(3), pages 79-87, December.
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  12. Nan Li & Ceyhun Bora Durdu & Emine Boz, 2010. "Labor Market Search in Emerging Economies," 2010 Meeting Papers 255, Society for Economic Dynamics.
  13. Andolfatto, David, 1996. "Business Cycles and Labor-Market Search," American Economic Review, American Economic Association, vol. 86(1), pages 112-32, March.
  14. Robert Shimer, 2012. "Reassessing the Ins and Outs of Unemployment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 127-148, April.
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  16. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.
  17. Diamond, Peter A, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 217-27, April.
  18. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, June.
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