Shocks, Labor Institutions, and Unemployment in Colombia [Choques, instituciones laborales y desempleo en Colombia]

This paper uses the structural VAR-X methodology to explain why unemployment in Colombia increased from 7% in 1995:I to 19% in 2000:I, and why it remained at two digit levels during the next decade. It was the result of an unfortunate combination of strong shocks and labor institutions badly designed to cope with them. Labor participation increased markedly since the beginning of the 1990s for demographic reasons and as a response to the crisis of 1998-2000; demand felt abruptly during those same years, due to sudden stops of capital inflows and to pro-cyclical fiscal and monetary policies; finally, productivity growth has been very low, mainly during the 2000s. Very high and increasing real minimum wage and non-wage costs have been also responsible for the level and persistence of unemployment.

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