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Wage Setting in the Colombian Manufacturing Industry

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  • Agudelo, Sonia A.

    () (Universitat Autònoma de Barcelona)

  • Sala, Hector

    () (Universitat Autònoma de Barcelona)

Abstract

We show that wage setting in the Colombian manufacturing industry is not fundamentally driven by labor productivity in contrast to the standard theoretical prediction. On the contrary, internal institutional arrangements – payroll taxation, the minimum wage or the price wedge between manufacturing and consumption prices – together with a higher exposure to international trade – connected to the increasing globalization of the Colombian economy – appear as the crucial drivers. These findings lead us to question the political strategy followed to attain cost competitiveness in a context of growing exposure to international trade. Implementation of a true wage bargaining system is suggested as a critical policy target to prevent the disruptive economic consequences of the current wage setting mechanism and help rebalance the trade deficit.

Suggested Citation

  • Agudelo, Sonia A. & Sala, Hector, 2015. "Wage Setting in the Colombian Manufacturing Industry," IZA Discussion Papers 8945, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp8945
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    Cited by:

    1. Andreas Wörgötter & Sihle Nomdebevana, 2018. "Aggregate public-private remuneration patterns in South Africa," Working Papers 8421, South African Reserve Bank.
    2. Agudelo, Sonia A. & Sala, Hector, 2017. "Wage Rigidities in Colombia: Measurement, Causes, and Policy Implications," IZA Discussion Papers 10669, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    minimum wages; payroll taxes; trade openness; labor productivity; wage setting; price wedge;

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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