Chilean labor market efficiency: an earnings frontier approach

Abstract

In this paper, we use the econometric frontier approach to estimate efficiency measures of the transformation of human capital into earned income in the Chilean labor market for the period 1957-1998. We find that the mean efficiency is 75%, and that it has been improving over time. We also find evidence of detrimental effects of non market oriented governments on these efficiency measures. Some evidence is also found about the effects of health on efficiency, the existence of labor market segmentation and the importance of “social networks†. Finally we calculate correlation measures and casuality tests between the estimated efficiencies and the rate of growth of GDP, finding a statistical precedence of the former to the later. We give then an appealing explanation for this result.