The Chilean labor market 1970-1983 : an overview
Edwards, Alejandra Cox
This study analyzes the performance of the Chilean labor market during a period when important structural economic changes were taking place in the country. The basic facts discussed in the paper derive directly from the main economic trends that have characterized Chile throughout several subperiods during the years 1970-1983. When a policy of public employment creation was on course, the carrying out of an important stabilization program followed with strong economic growth and a period dominated by exchange rate overvaluation. The author argues that the degree of wage flexibility needed to go through the liberalization process without serious unemployment problems was very high. Thus, the hypothesis that is specifically analyzed in the paper is that the high unemployment post-l973 was, to a large extent, due to the huge transformations in the structure of labor demand followed by very slow adjustments of wage expectations to the new market conditions. The model used to explore this idea assumes that the labor market is divided into two segments. It is assumed that the differences among them originate in that within the protected segment wages are set above market clearing levels while in the free segment wages are determined by supply and demand conditions.
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