Unemployment dynamics in Chile: 1960-2015

Abstract

As a proxy for Chile’s labor market, we analyze labor market flows of Greater Santiago throughout the last fifty years. Following earlier literature, we calculate job finding and job separation rates (hazard rates) to and from employment and unemployment considering unemployment stocks. Interestingly enough, even though the current trend unemployment rate is not materially different to what it was fifty years ago, our results suggest the labor market is considerably more dynamic. The increase in trend hazard rates occurs in the context of significant changes in economic growth, an ongoing reallocation of output towards services relative to manufacturing, important regulatory changes in the labor market, and a gradual shift in the composition of the labor force. From an international perspective our estimates suggest that in spite of having relatively rigid labor legislation, the Chilean labor market appears to be as dynamic as an average Anglo-Saxon country, yet less dynamic than the labor market of the United States. In addition, our estimates suggest that changes in the finding rate explain roughly 60% of the variance in the unemployment rate while variance in the separation rate explains the remaining 40%.