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The labor market in Colombia: Structural features and the role of wages in the post-pandemic inflationary surge

Authors :
José Pulido
Hernando Vargas-Herrera
Juan J. Ospina-Tejeiro
Publication Year :
2023
Publisher :
Banco de la República, 2023.

Abstract

We provide an overview of the primary structural features of the labor market in Colombia and survey the margins of adjustment of the market during the pandemic. Given the decline of real wages amid the post-pandemic inflationary surge, mainly due to the formal wage rigidity in the short run, we investigate whether the dynamics of nominal wages and their expected adjustments to catch up with prices could fuel the post-pandemic inflationary escalation. For this, we estimate the long-term relationship between wages, prices, and labor productivity using a small open economy framework. We find that up until the third quarter of 2022, wages were not among the primary drivers of the observed inflation escalation. However, wages have typically contributed to restoring long-run equilibrium. Thus, their adjustment towards equilibrium, which can occur through indexation, could imply risks for the convergence of inflation to the target. These risks are significant if the observed sources of the inflationary surge persist.

Details

Database :
OpenAIRE
Accession number :
edsair.doi...........791da7e4a9f545c90a7183d17392eef0
Full Text :
https://doi.org/10.32468/be.1232