Determinants of Labor Demand in Colombia: 1976-1996

52 Pages Posted: 16 Nov 2003 Last revised: 16 Jul 2010

See all articles by Mauricio Cardenas

Mauricio Cardenas

Fedesarrollo

Raquel Bernal

Universidad de los Andes, Colombia - Department of Economics

Date Written: November 2003

Abstract

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.

Suggested Citation

Cardenas, Mauricio and Bernal, Raquel, Determinants of Labor Demand in Colombia: 1976-1996 (November 2003). NBER Working Paper No. w10077, Available at SSRN: https://ssrn.com/abstract=467545

Mauricio Cardenas

Fedesarrollo ( email )

Calle 78 No 9-91
Santafe de Bogota, 75074
Colombia

Raquel Bernal (Contact Author)

Universidad de los Andes, Colombia - Department of Economics ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia

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