Economic Reforms and Labour Markets: Policy Issues and Lessons from Chile

Over the last twenty years sweeping reforms have deeply transformed the labour market in Chile. A visible outcome has been the reduction of Chile's rate of unemployment from 'European' to 'US' levels. Even though the political context makes this experiment special, are there...

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Bibliographic Details
Published in:Economic policy 2000-04, Vol.15 (30), p.183-229
Main Authors: Edwards, Sebastian, Edwards, Alejandra Cox, Bentolila, Samuel, Galí, Jordi
Format: Article
Language:English
Subjects:
Collective bargaining
Dismissal pay
Economic reform
Employment
Job security
Labor markets
Social security tax
Tax reform
Unemployment
Wages
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Summary:Over the last twenty years sweeping reforms have deeply transformed the labour market in Chile. A visible outcome has been the reduction of Chile's rate of unemployment from 'European' to 'US' levels. Even though the political context makes this experiment special, are there economic lessons to be learnt? This paper concentrates on reforms to job security, on the decentralization of the wage bargaining process, and on the reduction in payroll taxes. It concludes that the reduction of payroll taxes (within the context of the social security reform), and the decentralization of bargaining increased labour market flexibility and contributed to the reduction of unemployment. On the other side, the analysis suggests that the reform on job security had no significant effect on the aggregate rate of unemployment.
ISSN:0266-4658
1468-0327