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Law and EmploymentLessons from Latin America and the Caribbean$
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James J. Heckman and Carmen Pages

Print publication date: 2004

Print ISBN-13: 9780226322827

Published to Chicago Scholarship Online: March 2013

DOI: 10.7208/chicago/9780226322858.001.0001

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Determinants of Labor Demand in Colombia 1976–1996

Determinants of Labor Demand in Colombia 1976–1996

(p.229) 4 Determinants of Labor Demand in Colombia 1976–1996
Law and Employment

Mauricio Cárdenas

Raquel Bernal

University of Chicago Press

Under the old system, employers managed the funds, and employees were allowed to make partial withdrawals at any time. At the time of separation, those withdrawals were debited in nominal terms, adding to the costs faced by employers. In practice, the new system implied a reduction in the level and uncertainty of severance payments for firms. In fact, the initial effect of the reform was to lower nonwage labor costs to 42.9 percent of the basic wage, down from 47.1 percent during the late 1980s. However, the reform did not deal with other important areas of labor legislation, especially payroll taxation. The reform package also included a social security law, enacted in 1993, which raised employers' mandatory contributions for health and pension programs. From the viewpoint of the labor market, this reform had important implications resulting from the significant increase in nonwage labor costs. This chapter analyzes the combined effect of these two reforms on labor demand.

Keywords:   labor demand, Colombia, severance payments, nonwage labor costs, labor legislation, payroll taxation

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