Determinants of Labor Demand in Colombia: 1976-1996

Mauricio Cardenas, Raquel Bernal

NBER Working Paper No. 10077
Issued in November 2003
NBER Program(s):   LS

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.

(473 K)

Published:

• Heckman, James J. and Carmen Pages (eds.) Law and employment: Lessons from Latin America and the Caribbean, NBER Conference Report series. Chicago and London: University of Chicago Press, 2004. ,
• Determinants of Labor Demand in Colombia. 1976–1996, Mauricio Cardenas, Raquel Bernal, in Law and Employment: Lessons from Latin America and the Caribbean (2004), University of Chicago Press
  

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