Business Cycles and Distribution of Wages in Colombia: A Semi-Parametric Wage Density Decomposition Approach

Abstract

This paper examines the changes in real hourly wages in Colombia along the recovery phase from March 2009 to March 2014. The research starts from the fact that the distribution of wages at trough looks like translations to the left of recovery distribution. This paper sheds light on those procyclical translations through a sequential decomposition on the change of wages in 1) cyclical demand and supply factors; 2) changes in the workers’ attributes; 3) changes and spillover effects of the minimum wage, and 4) residual. As the literature suggests, this paper confirms that real hourly wages procyclicality is associated, mainly, with shifts on labor demand and supply factors, and to skills updating —usually linked to the wage distribution secular trend. As a novelty, evidence suggests that there is a positive spillover from monthly minimum wage on hourly wages, explaining 25 % of the divergence between distributions.