Manufacturing Employment and Wage Differentials After Structural Adjustment Reforms in Colombia: An Efficiency Wages Approach

In the framework of the structural reforms in Colombia one of the most important policy proposals was reducing rigidities in the labor market. A perspective to assess the results of such reforms is the analysis of the relationship between firm employment and wage differentials in manufacturing before and after the reforms. If the labor reforms reached the intended objective of making more flexible the labor market, the employment levels must change faster, along with the behavior of wages and other labor costs, given some characteristics of firms and the economy. This paper addresses this topic proposing a model of wage differential and employment growth and testing its propositions before and after the structural reforms and controlling for industry and firm characteristics. A first finding is the confirmation of the positive relationship proposed between intra-industry wage differential and employment. In the inter-industry wage differential estimation, we find heterogeneous responses depending on the industry and a reduction in the autonomous labor turnover.