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

Jose Pulido, Hernando Vargas-Herrera and Juan Ospina-Tejeiro

Borradores de Economia from Banco de la Republica de Colombia

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. **** RESUMEN: Examinamos las principales características estructurales del mercado laboral en Colombia y sus márgenes de ajuste durante la pandemia. Dada la caída de los salarios reales en medio del brote inflacionario que ocasionó la pandemia, debido a la poca capacidad de los salarios nominales para ajustarse en el corto plazo, evaluamos si la dinámica observada y prevista de los salarios nominales para compensar los ajustes en los precios puede retroalimentar la escalada inflacionaria. Para ello, estimamos la relación de largo plazo entre precios, salarios y productividad laboral utilizando un marco de economía pequeña y abierta. Encontramos que, hasta el tercer trimestre de 2022, los salarios no estuvieron entre los principales impulsores de la escalada inflacionaria. Sin embargo, los salarios típicamente han contribuido a restaurar el equilibrio a largo plazo. Por lo tanto, su ajuste hacia el equilibrio, que puede ocurrir a través de la indexación, podría implicar riesgos para la convergencia de la inflación a la meta. Estos riesgos son significativos si persisten las fuentes observadas del brote inflacionario.

Keywords: Labor market; employment; wages; prices; pandemic; Mercado laboral; empleo; salarios; precios; pandemia (search for similar items in EconPapers)
JEL-codes: E24 E31 J30 O54 (search for similar items in EconPapers)
Pages: 35
Date: 2023-05
New Economics Papers: this item is included in nep-des and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.32468/be.1232

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:1232

Access Statistics for this paper

More papers in Borradores de Economia from Banco de la Republica de Colombia Cra 7 # 14-78. Contact information at EDIRC.
Bibliographic data for series maintained by Clorith Angélica Bahos Olivera ().