Evolving wage cyclicality in Latin America

Authors: Luca Gambetti

World Bank Economic Review, Vol. 32, No 3, 709-726, December, 2018

This paper examines the evolution of the cyclicality of real wages and employment in four Latin American economies, Brazil, Chile, Colombia, and Mexico, during the period 1980-2010.Wages were highly procyclical during the 1980s and early 1990s, a period characterized by high inflation. As inflation declined wages became less procyclical, a feature that is consistent with emerging downward wage rigidities in a low inflation environment. Compositional effects associated with changes in labor participation along the business cycle appear to matter less for estimates of wage cyclicality than in developed economies.