MERCADO LABORAL CHILENO DURANTE LA DECADA DE 1974-1983: PROBLEMAS DE AJUSTE

This paper analyzes several issues related to employment, wages and unemployment during the period of economic reforms in Chile, 1974-1983. We show that the high level of unemployment observed throughout the period responded to a number of interrelated factors. First, the slow average rate of growth of economic activity during the period resulted in a slow rate of employment creation. Second, the labor force grew at rates substantially higher than the historical average. Third, the reduction in the government size generated a major reduction in the number of jobs, contributing to the overall unemployment problem. Fourth, the change in relative prices induced by the markets liberalization, generated changes in profitability by sectors, altered investment plans and employment opportunities, and therefore resulted in short term unemployment. The persistence of unemployment will be explained by institutionally imposed barriers to wage adjustments. In particular, by the across-the-board wage indexation mechanism that was kept in place throughout a period characterized by declining inflation and enormous variations in relative prices.