Wage Setting in the Colombian Manufacturing Industry

Sonia Agudelo Ayala () and Hector Sala

No 8945, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We show that wage setting in the Colombian manufacturing industry is not fundamentally driven by labor productivity in contrast to the standard theoretical prediction. On the contrary, internal institutional arrangements – payroll taxation, the minimum wage or the price wedge between manufacturing and consumption prices – together with a higher exposure to international trade – connected to the increasing globalization of the Colombian economy – appear as the crucial drivers. These findings lead us to question the political strategy followed to attain cost competitiveness in a context of growing exposure to international trade. Implementation of a true wage bargaining system is suggested as a critical policy target to prevent the disruptive economic consequences of the current wage setting mechanism and help rebalance the trade deficit.

Keywords: minimum wages; payroll taxes; trade openness; labor productivity; wage setting; price wedge (search for similar items in EconPapers)
JEL-codes: F16 J30 J31 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2015-03
New Economics Papers: this item is included in nep-lma
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Citations: View citations in EconPapers (1)

Published - published in: Economics of Transition, 2016, 24 (1), 99-134

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Journal Article: Wage setting in the Colombian manufacturing industry (2016)
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