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Determinants of Labor Demand in Colombia. 1976-1996

In: Law and Employment: Lessons from Latin America and the Caribbean

  • Mauricio Cardenas
  • Raquel Bernal

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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This chapter was published in:
  • James J. Heckman & Carmen Pagés, 2004. "Law and Employment: Lessons from Latin America and the Caribbean," NBER Books, National Bureau of Economic Research, Inc, number heck04-1, 07.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 10071.
    Handle: RePEc:nbr:nberch:10071
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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    1. David G. Blanchflower & Andrew J. Oswald, 1995. "The Wage Curve," MIT Press Books, The MIT Press, edition 1, volume 1, number 026202375x, June.
    2. 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.
    3. Newell, A. & Symons, J. S. V., 1987. "Corporatism, laissez-faire and the rise in unemployment," European Economic Review, Elsevier, vol. 31(3), pages 567-601, April.
    4. Daniel S. Hamermesh, 1984. "The Demand for Labor in the Long Run," NBER Working Papers 1297, National Bureau of Economic Research, Inc.
    5. Stefano Farné & Oskar Andrés Nupia, 1996. "Reforma laboral, empleo e ingresos de los trabajadores temporales en Colombia," COYUNTURA SOCIAL 013209, FEDESARROLLO.
    6. Jonathan Gruber, 1995. "The Incidence of Payroll Taxation: Evidence from Chile," NBER Working Papers 5053, National Bureau of Economic Research, Inc.
    7. Eduardo Lora & Carmen Pagés-Serra, 1997. "La legislación laboral en el proceso de reformas estructurales de América Latina y el Caribe," Research Department Publications 4065, Inter-American Development Bank, Research Department.
    8. Eduardo Lora Torres & Marta Luz Henao, 1995. "Efectos económicos y sociales de la legislación laboral," COYUNTURA SOCIAL 013217, FEDESARROLLO.
    9. Burda, Michael C., 1991. "Monopolistic competition, costs of adjustment, and the behavior of European manufacturing employment," European Economic Review, Elsevier, vol. 35(1), pages 61-79, January.
    10. Diewert, W E, 1971. "An Application of the Shephard Duality Theorem: A Generalized Leontief Production Function," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 481-507, May-June.
    11. 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, vol. 99(396), pages 347-65, June.
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