The Time-varying Long-run Rate of Unemployment in Colombia

In this work we estimate the long-run component of the Colombian urban unemployment rate for the last twenty years using quarterly data (1984:01-2001:01). To carry out the estimation we hage constructed a stylized model to account for some particular traits of the Colombian urban labor market, which has been characterized by its lack of flexibility. Given the statistical properties of the variables and the empirical evidence provided by some previous works on the supply of and demand for labor in Colombiam, we end up with a cointegration relationship between the unemployment rate, real hourly wage, non-wage labor costs (i.e. payroll taxes and other compulsory fringe benefits) and capital accumulation rate, the latter as a proxy for technological change. In an economy where the real wage movements are somehow sluggish, the non-wage labor costs and the capital accumulation pace help to explain the long-run behavior of unemployment. 17 The higher the real wage and the non-wage labor costs or the lower the capital accumulation, the higher the long-run unemployment rate 18.

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