Wage rigidity in Chile

Abstract

One issue in the debate about the workings of the labour market is its degree of flexibility. In the case of Chile, the Asian crisis of late 1997 led to a large increase in the unemployment rate, while the hourly wage index produced by the National Institute of Statistics rose steadily in real terms. This gave rise to the idea that wage rigidity might exist. The present article seeks to qualify this conclusion by detailing the limitations of the index when it comes to recording more volatile items of remuneration, and shows that the average monthly wage rose only by small amounts, while the minimum wage appears to have followed a different path from market wages. Lastly, this article discusses the advisability of setting a special minimum wage for the young and introducing a variable component into pay, two proposals that are often made in the interests of greater wage flexibility.