Evolving Wage Cyclicality in Latin America

36 Pages Posted: 25 Apr 2017

See all articles by Luca Gambetti

Luca Gambetti

Universitat Autonoma de Barcelona

Julián Messina

Inter-American Development Bank (IDB)

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Date Written: August 2016


This paper examines the evolution of the cyclicality of real wages and employment in four Latin American economies (Brazil, Chile, Colombia and Mexico) during the period 1980-2010. Wages are highly pro-cyclical during the 1980s and early 1990s, a period characterized by high inflation. As inflation declined wages became less pro-cyclical, a feature that is consistent with emerging downward wage rigidities in a low-inflation environment. Compositional effects associated with changes in labor participation along the business cycle appear to matter less for estimates of wage cyclicality than in developed economies.

Keywords: Downward wage rigidity, Indexation, Real wage cyclicality, Vector autoregression, Time-varying coefficients, Bayesian estimation

JEL Classification: E24

Suggested Citation

Gambetti, Luca and Messina, Julián, Evolving Wage Cyclicality in Latin America (August 2016). IDB Working Paper No. IDB-WP-715, Available at SSRN: https://ssrn.com/abstract=2956697 or http://dx.doi.org/10.2139/ssrn.2956697

Luca Gambetti (Contact Author)

Universitat Autonoma de Barcelona ( email )

Plaça Cívica
Cerdañola del Valles
Barcelona, Barcelona 08193

Julián Messina

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

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