Labour Market Regulations, Outcomes and Income Distribution in Colombia and Chile

Latin American societies continue to struggle with high income inequality as a source of social and economic tension. High income inequality in developed countries is attributed to skill-biased technological change and the effect of trade. In developing countries, it is considered to be the result of supply-side factors such as the scarcity of well-educated labour. In Latin America, however, the explanation has shifted to emphasize major changes on the labour demand side brought about by economic restructuring and openness to international markets. These reforms were expected to tap into the comparative advantage of the region vis-à-vis more industrialized economies and generate new jobs for relatively less-skilled workers. Increasing wage differentials were an unwelcome surprise.

This project will examine the evolution of the Colombian and Chilean labour markets since 1980 in terms of employment, unemployment, formality, informality and earnings by age, gender, level of education and other characteristics. Researchers will analyze the effects of labour market regulation, particularly labour costs (payroll taxes and minimum wage) on labour market outcomes (participation, unemployment, informality, low wage growth) and their consequences for wage and income distribution and the labour status of individuals (self-employment, unemployment, formal employment). Colombia and Chile were chosen for the study because Colombia features high payroll taxes and social security, and a high minimum wage relative to GDP (gross domestic product) per capita. Chile, on the other hand, offers lower payroll taxes and social security, and a lower minimum wage.

Project ID


Project status


Start Date

Friday, April 24, 2009

End Date

Thursday, March 31, 2011


14 months

IDRC Officer

Robino, Carolina

Total funding

CA$ 117,000


Chile, South America, Colombia, North and Central America


Employment and Growth

Project Leader

Sanchez, Fabio


Universidad de los Andes

Institution Country


Institution Website