Wage setting in the Colombian manufacturing industry

Agudelo, S. and Sala, H. (2016): Wage setting in the Colombian manufacturing industry, Economics of Transition, 24 (1), 99-134.


We show that wage setting in the Colombian manufacturing industry is not fundamentally driven by labour productivity in contrast to the standard theoretical prediction. On the contrary, internal institutional arrangements – payroll taxation, the minimum wage or the price wedge between manufacturing and consumption prices – together with a higher exposure to international trade – connected to the increasing globalization of the Colombian economy – appear as the crucial drivers. These findings lead us to question the political strategy followed to attain cost competitiveness in a context of growing exposure to international trade. Implementation of a true wage bargaining system is suggested as a critical policy target to prevent the disruptive economic consequences of the current wage-setting mechanism and help rebalance the trade deficit.

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