The Labor Wedge and Business Cycle in Chile

David Coble and Sebastian Faundez M

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: Recent studies have documented the importance of the labor wedge in accounting for the level of business cycle fluctuations in Chile. None of these papers, however, extensively studies the labor wedge fluctuations and its possible sources. This paper takes a closer look at the labor wedge in Chile, with special emphasis on its cyclicality. We use a flexible model to implicitly derive the Frisch elasticity of labor, and construct a set of labor wedges. We find that the labor wedge in Chile is counter-cyclical. Finally, we show that the labor wedge can be written as the sum of two components: the firm's and the household's. We find that household component is the main driver of Chilean labor market fluctuations.

Date: 2015-04
New Economics Papers: this item is included in nep-dge, nep-lam and nep-mac
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Related works:
Journal Article: The labor wedge and business cycles in Chile (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:758

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