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 taking place from March 2009 to March 2014. The starting finding is that the distribution of wages at trough looks like translations to the left of recovery distribution. To shed light on those procyclical translations this paper performs a sequential decomposition on change of wages in 1) cyclical demand and supply factors, 2) changes in the attributes of workers, 3) changes and spillovers effects of minimum wage and 4) a residual. As literature suggests, this paper shows that procyclicality of real wages is associated mainly to shifts in labor demand-supply factors and to updates of skills --usually linked to the secular trend of wage distribution. 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.