Evolving Wage Cyclicality in Latin America
36 Pages Posted: 25 Apr 2017
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
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