The Dynamics of the Labor Markets in Chile

  • Víctor Lima


Through flows from 3 states, employment, unemployment and out of the labor
force, we analyze the dynamics of labor markets in Chile from 1962-2007. We
identify some periods of different labor market regimes and relate them with
changes in flexibility. We found that reforms such as that of 1967, which introduced
the “just cause” requirement to fire workers, did not help workers to keep their
jobs, but there is no evidence of significant changes in inflexibility. Other labor
regimes significantly affected transitions, but surprisingly, it was the new regime
identified in 1990, that increased mobility. We interpret this as the result of the
consolidation of a flexibility prone model that, until then, had been associated
with an unpopular imposition by the military regime. Finally, we do not find
any evidence showing that after 1998 the changes in labor participation and
consequently, that the explanations of the changes in the unemployment rate
could be associated with “added and discouraged worker effects.”
Keywords Labor markets, transition probabilities, unemployment