Structural Changes in the Demand of Labor in Chile

The ability of the Chilean economy to generate employment has been surprisingly low during 2000 and 2001. Despite output growth since August 2000, the unemployment rate has not decreased as expected. One hypothesis that has been put forward to explain this fact, supported by simple data analysis, is that the output-employment elasticity has declined during the nineties. Another hypothesis is that a once-and-for-all change in the output-employment relation has taken place. This paper studies the output-employment relation using co-integration analysis and estimates two alternative labor demand models. The results, based on formal statistical analysis, provide support to the second.